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OPTIMA RESEARCH INVESTMENT, INC.
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Tuesday 7/21/98 -- Americas Comment -- The US markets today
will focus on (1) any overnight developments in the Asian and
Russian financial markets (as the IMF board was scheduled to meet
yesterday evening to vote on the next tranche of assistance to
Russia), (2) today's release of the US June housing starts report
and weekly retailer sales surveys, (3) the US Treasury market which
settled moderately stronger yesterday in anticipation of favorable
comments from Mr. Greenspan, (4) the dollar which settled a bit
weaker as the greenback awaited the decision by the IMF on
assistance to Moscow and looks ahead to Friday's LDP vote, (5) the
US stock market which settled moderately weaker as long liquidation
pressures emerged following last week's surge, and (6) the CRB
index which closed sharply lower. The financial markets today will
largely key off Mr. Greenspan's testimony on Capitol Hill.
US housing starts are expected to rebound mildly upward after
3 months of losses -- Today's US June housing starts report is
expected to show a +1.3% increase to an annual rate of 1.55 million
units. That would more than reverse May's -0.7% decline to 1.530
million units. Expectations for a rebound in housing starts are
tied to the likelihood for a bounce in the series which has posted
declines in each of the last 3 months after climbing to a cycle and
9-1/3 year peak of 1.616 million units in February.
Moreover, there were seeds of strength in last month's May
data. The fact that building permits climbed above housing starts
in May pointed to strength in starts over the near-term. In
addition, the June National Association of Home Builders housing
market index climbed to a new 13-year high.
Most important of all, however, is the fact that the economic
fundamentals that underpin the housing market remain firmly intact.
Those fundamentals include the tight labor market, strong personal
income, strong consumer confidence, the historically low level of
interest rates which make housing more affordable, and the wealth
effect from the strong stock market. In addition, the inventory-
to-sales ratio for new single-family homes was unchanged at 3.9
months in May where it stood just 0.1 point above Feb's all-time
low of 3.8 months. That tight supply should encourage builders to
begin new projects.
Markets are hoping for slightly more dovish Greenspan outlook
-- The financial markets today will pay the utmost attention to Fed
Chairman Greenspan's semi-annual Humphrey-Hawkins testimony before
the Senate Banking Committee. Expectations call for Mr. Greenspan
to repeat last month's testimony before the Joint Economic
Committee in which he suggested that Fed policy will remain on hold
until the lasting impact of the Asian crisis and mild inventory
overhang become clear. The impact of both the Asian crisis and
mild inventory overhang was visible in Q2 as the trade deficit
ballooned and as inventory growth slowed sharply. The result will
be very weak Q2 GDP growth (probably about +1%) in contrast to the
+5.4% pace seen in Q1.
The markets today will be hoping that Mr. Greenspan issues a
slightly more dovish outlook than he voiced in June when he
outlined the conditions that would lead to a tightening but did not
mention any possibility of an easing. That was in line with the
Fed's bias toward tightening which remained intact at least through
the last set of publicly-available FOMC minutes from the May 19
meeting.
Still, Mr. Greenspan on balance will probably focus more on
the possibility of a tightening than an easing. Mr. Greenspan will
probably note that the economy is stronger than the weak Q2 GDP
figure will suggest and that consumer demand continues to expand at
a strong rate. He will likely say that the Fed remains concerned
about the tight labor market and the potential for inflation
pressures. Ironically, that could provide a boost to the long-end
of the credit market which remains nervous about the tight labor
market and the threat of wage pressures fueling overall price
pressures. At the same time, it will leave the short-end of the
credit market "capped" near the 5-1/2% funds rate target, unless
Mr. Greenspan turns notably dovish in response to the Asian crisis
and sharp slowdown in Q2 growth.
US July homebuilders survey strengthens -- The National
Association of Home Builders' July housing market index climbed by
+1 point to another new cycle high of 72. The July single-family
home sales index climbed by +2 points to 79, while the outlook
index for home sales over the next 6 months edged +1 point higher
to 81. The only soft spot in yesterday's survey was the traffic of
prospective buyers index which edged -1 point lower to 52. That
softness, however, may be tied to the extreme heat seen in parts of
the US, especially in the South. The strength in yesterday's
survey will help fuel expectations for strong July home sales when
that data is released in late August.
US Interest Rates -- US credit market settles moderately
stronger ahead of Greenspan testimony -- Sep T-bonds yesterday
climbed throughout most of the session and finally settled
moderately stronger. Futures closes: USU98 +0-16 at 122-18; TYU98
+0-06 at 113-23; FVU98 +0-030 at 109-225; TUU98 +0-017 at 104-080;
TBU98 +.005 at 94.975; EDZ98 +.010 at 94.290. Cash closes (3PM
NY): cash 30-yr +0-15 at 105-26; cash 30-yr yield -.032 at 5.714;
cash 10-yr +0-08 at 101-04; cash 10-yr yield -.033 at 5.476; cash
5-yr +0-03 at 99-20; cash 5-yr yield -.022 at 5.463; cash 2-yr
+0-010 at 99-285; cash 2-yr yield -.018 at 5.424; 3-mo T-bill -.025
at 4.984.
Sep T-bonds yesterday slipped to match the June 17th 6-week
low of 121-30 before they rebounded higher and consolidated below
the contract high of 124-14 (6/16/98). The cash 30-year bond yield
yesterday held below last Friday's 4-1/2 week high of 5.752% and
closed at 5.714% as it consolidated above the all-time low of
5.570% (7/6/98). On that 5.570% low, the yield fell by a total of
52.3 bp from the 3-month high of 6.093% (4/29/98). Dec Euros
yesterday held below the 4-1/2 week high of 94.335 (7/2/98) which
was just 3.5 bp below the 2-1/2 month high of 94.370 (6/30/98).
Bearish factors included (1) some continued unwinding of
flight-to-quality positions in Treasuries amid optimism surrounding
the situation in Japan and in Russia, (2) the weakness in the
dollar, (3) some overnight long liquidation pressures with the
6-week low in Sep T-bonds, and (4) last week's upward push in
equity prices which may also be drawing capital out of the Treasury
market. Bullish factors yesterday included (1) anticipation of
generally favorable testimony from Fed Chairman Greenspan's
Humphrey-Hawkins hearings today and tomorrow, (2) the recent flurry
of downward revisions in forecasts for Q2 GDP growth, and (3)
short-covering following last week's downdraft.
Fed may conduct another supplemental system repo -- The Fed
today may conduct another supplemental system repo operation in
order to stay on top of its $2-4 bln add need in the new 2-week
maintenance period that began last Thursday. That add need is
fueled largely by high levels of currency in circulation as the
summer vacation season remains in high gear. Although the Fed has
both last Friday's fixed $2.093 billion 6-day and yesterday's fixed
$1.618 billion 2-day system repos in place, those operation may
fall a bit short of addressing the Fed's entire add requirement.
That fixed 2-day system repo was conducted yesterday with the funds
rate trading at the 5-1/2% target.
US Stock Market -- The US stock market yesterday opened
slightly higher, posted the session high and then moved lower for
most of the day before a late rally trimmed the worst of the
losses. Settlements were: Dow Industrials -42.22 at 9295.75, DJU98
-27 at 9365, Dow Utilities -1.94 at 289.95, OEX -2.89 at 578.45,
S&P 500 -2.65 at 1184.10, SPU98 -.20 at 1193.60, NASDAQ Composite
+8.20 at 2008.76, and the Russell 2000 -1.28 at 462.36. The NASDAQ
closed at an all-time high yesterday.
Stock market breadth was bearish yesterday with declining
issues (1,722) leading advancing issues (1,227) by a 7 to 5 margin.
Yesterday's volume was low at 554 million shares while declining
volume accounted for 55% of the total. The percentage of NYSE
stocks above their 200-day averages fell to 50% where it was down
from its 2-month high of 52% (July 10) but above its 3-1/2 year low
of 42% (June 22). The number of shares posting new 52-week highs
(344) exceeded the number posting new 52-week lows (276).
The Dow led yesterday's decline with a .45% loss while the S&P
500 and the Russell 2000 fell .22% and .10% respectively. The
high-technology sector continued to rally yesterday and the NASDAQ
closed the day with a .27% gain. For the year-to-date, the NASDAQ
is in first place with a 28.27% gain followed by the S&P 500 at
+22.02% and the Dow at +17.55%. The Russell 2000 continues to lag
with a 5.69% year-to-date gain.
Bearish factors for the stock market included (1) profit
taking with the S&P 500 up 10.79% in the last month through
yesterday's all-time high, (2) the broad-based nature of
yesterday's decline as the oil, banking, entertainment and
automobile stocks fell (in addition to the S&P 500's large cap
stocks of General Electric -1-3/16, Exxon -1-3/4 and Coca-Cola
-1-9/16), (3) valuation concerns with the S&P 500 trading at a
record 6.31 times book value, more than twice its level seen at the
start of 1995, and (4) indications that bullish sentiment is
reaching an extreme level with investment advisor sentiment surging
over the past 1-1/2 months to near a 1-2/3 year high, the 10-day
average of the call/put ratio on the OEX at an 8-month high and
excessive speculation in Internet-related stocks.
Bullish factors included (1) an upgrade in influential bullish
strategist Abby Joseph Cohen's 1-year target for the S&P 500 to
1250 from 1200 (a close at 1250 would represent a 5.57% gain from
yesterday's closing level), (2) a rally in the drug and
communication equipment stocks, (3) the continued rally in the
European stock markets which posted all-time highs yesterday, (4)
strength in the technology sector as the NASDAQ continued to surge
above psychological resistance at 2000, and (5) the continued flow
on money into stock mutual funds which is running about 20% ahead
of last year's levels at a rate of about $1 billion per day.
The pace of Q2 earnings reports quickens this week. Among the
companies expected to report earnings today and their consensus
estimates according to First Call are: Banc One ($.84), BellSouth
($.80), Bristol-Meyers Squibb ($.82), Burlington Northern Santa Fe
($1.72), Chase Manhattan ($1.19), Citicorp ($2.29), Computer
Associates ($.33), Exxon ($.63), Merck ($1.08), Northern Telecom
($.40), Phillip Morris ($.82), Southern ($.35), Sprint ($.47), and
Texas Instruments ($.37). Tomorrow, Allstate ($.73), Amgen ($.74),
Anheuser-Busch ($.77), Disney ($.21), Duke Energy ($.68), DuPont
($.87), Lilly ($.43), Lucent Technologies ($.27), Mobil ($.81), and
US Airways ($1.86) are expected to report.
Near the top of yesterday's most active list was Cisco (+3.45%
at 103-3/16) which traded 15.38 million times and rose decisively
above the century mark. Cisco has been on tear (+41% over the past
1-1/2 months) as investors bet that the company will continue to
dominate the computer networking industry. Dell (-1.33%) fell
slightly on volume of 14.79 million shares after posting a new
all-time high of 118-1/4. An article in Sunday's New York Times
questioned whether the company deserves to trade at nearly 72 times
trailing earnings as other computer companies seek to copy Dell's
success.
Of the S&P 500's 89 sub-groups, 63 fell yesterday while 26
rose. Market breadth was bearish as 305 of the S&P 500 stocks
closed lower while 177 rose. The international oil shares were
yesterday's worst performers on a market capitalization basis as
Exxon fell 2.5% on expectations that it will report a decline in
earnings today. Crude oil prices averaged about 25% less in Q2
than in the year ago quarter. Exxon is the first of the majors to
report earnings and is the US's largest oil company.
Of the 30 Dow stocks, 20 fell yesterday while 10 rose.
McDonalds (-2-11/16 or -3.67%) was the biggest loser in the Dow
after it matched Q2 earnings expectations but delivered a dreary
outlook for the second half of 1998. The company said that the 15%
(yr-yr) US profit growth seen in the second quarter was
unsustainable and that expected growth in overseas earnings was not
materializing. Profits from Asia fell in the quarter while Latin
American profits where largely offset by higher costs. IBM added
1-9/16 before the company reported Q2 earnings after the close that
beat expectations by a penny. Sales of computer hardware, IBM's
biggest business, fell and only a gain in its corporate services
unit allowed the company to show a profit. IBM's CFO specifically
cited strength in the dollar as a drag on earnings and said that
the dollar shaved 13 cents off per share earnings figures.
The cash S&P 500 posted an all-time high of 1190.58 yesterday
where the index extended its 1-month rally from 1074.67 (Jun 16) to
a total of 115.91 points (+10.79%). The Russell 2000 posted a new
1-1/2 month high of 464.33 last Friday where it was up 7.07% from
its 5-1/2 month low of 433.66 (June 15) and where it retraced 52%
of its 3-month downmove from the all-time high of 492.28 (April
22). The Dow Industrials index posted a new all-time high of
9367.84 yesterday where it extended its 1-month upmove to a total
of 9.31%. The NASDAQ composite index rose to a new all-time high
of 2022.40 yesterday where it was up 17.91% from the Jun 15th 4-1/2
month low of 1715.19.
Commodities -- CRB closes sharply lower on weaker crude oil
and soybeans -- The CRB index yesterday closed down -1.83 points at
209.57 as it continued to retreat from the Jun 30th 5-week high of
216.75. The major lows on the downside are the recent 5-year low
of 208.54 (6/15/98), the 12-year low of 198.17 (Aug 1992), and the
20-2/3 year low of 196.16 (July 1986). The CRB index is down
-1.97% on a month-on-month basis and down -10.85% on a year-on-year
basis.
Closes: Energy: CLQ98 -.68 at 13.30; HUQ98 -.0188 at .4293;
HOQ98 -.0128 at .3620; NGQ98 -.075 at 2.090. Precious Metals:
GCQ98 +1.6 at 296.7; SIU98 +9.7 at 547.0; PLV98 -5.4 at 393.6.
Grains: S X98 -21-6 at 582-2; SMZ98 -6.10 at 156.90; BOZ98 -.43 at
24.68; C Z98 -6-0 at 236-2; W Z98 +1-6 at 290-4. Livestock: LCQ98
-1.50 at 61.65; FCQ98 -1.35 at 69.22; LHQ98 -2.00 at 49.97; PBQ98
-.67 at 52.60. Softs: SBV98 +.05 at 9.00; KCU98 +1.45 at 108.25;
CCU98 +7. at 1611.; JOU98 -.75 at 105.35. Industrials: CTZ98 -.67
at 73.41; HGU98 +2.00 at 79.05; LBU98 -.90 at 277.50.
Aug crude oil was the CRB's biggest loser yesterday as the
contract fell -66 cents to close at $13.32. On June 15th, crude
oil futures touched a 12-year low of $11.40 on the weekly-nearest
chart (July 98 contract). The Centre for Global Energy studies
said that the daily increase in global stockpiles grew to 2.4 mln
barrels per day in the second quarter. Venezuelan oil minister
Arrieta said recently that OPEC agreements on output cuts will not
have an effect on prices until November. Seasonal maintenance work
on North Sea oil platforms is reducing British and Norwegian
production.
Nov soybeans were the CRB's third biggest decliner yesterday
as the contract fell -21-6 cents to close at 582-4. On last
Wednesday's 1-1/4 month low at 571-4, the contract fell 85-4 cents
(13.01%) from the Jun 24th 4-1/2 month high of 657-0. The weather
system changed over the weekend and made it most likely that a
favorable pattern will now enter the Midwest. Private weather
forecasters contended last week that the weather system which
brought a drought to parts of the South could extend into the
Midwest. However, the latest National Weather Service 6-10 day
forecast called for above average rains. Soybeans are in the
transition from setting pods to filling pods and adequate soil
moisture is necessary. The US is expected to harvest a bumper
soybean crop while global demand is weak and supplies are high.
August gold yesterday closed up +1.6 at $296.7 and remained
below the psychologically important $300 level. The Japanese yen
traded higher against the dollar yesterday. Asian gold demand is
vulnerable to weakening in the Japanese yen with the metal already
expensive in local currency terms. Aug gold posted a 5-3/4 month
low of $285.6 on June 16th where it extended its 2-1/2 month
downmove to a total of $32.6 (10.25%). The next major line of
support is $283.9, the 18-2/3 year weekly-nearest low. On that
low, August gold was down $60 (17.45%) from its 1-year high of
$343.9 (9/30/97).
Canada -- Canadian May wholesale sales fell by -1.2% (mo-mo)
and climbed by +5.1% (yr-yr). May wholesale inventories were
unchanged (mo-mo) and +9.2% (yr-yr). The combination of falling
sales and static inventories pushed the May wholesale inventories-
to-sales ratio up +0.02 points to 1.40 months. The upswing in the
ratio in recent months will bear watching as a slight inventory
overhang may be developing in the production and wholesale sectors
of the Canadian economy. The weakness in sales may put additional
pressure on the Canadian dollar.
The Canadian dollar yesterday closed .03 cents stronger at
C$1.4883/US$, holding slightly above last Friday's all-time low of
C$1.4915.
The Sep Canadian bond yesterday settled +.34 points at 125.05
as it rebounded above last Thursday's 2-month low of 124.54 where
it sold off by a total of 1.64 points from the contract high of
126.18 (7/8/98). The Canadian 10-year cash yield yesterday settled
-3.5 bp at 5.363% as it rebounded farther above the 3-month low of
5.228% (7/15/98). On that low, it was 4.3 bp above the all-time
low of 5.190% which was established on Apr 3. The Sep 3-month
bankers acceptance yesterday closed +4 bp at 94.80, as it held
above last Thursday's 2-1/2 month high of 94.93 (7/3/98).
The Toronto-300 stock index yesterday closed +14.40 points at
7432.70, holding above the 3-month low of 7094.60 (6/15/98). On
that 3-month low, the index was down by 743.10 points (9.5%) from
the all-time high of 7837.70 (3/23/98).
Forex -- Dollar settles a bit softer, awaiting IMF vote &
Greenspan -- The dollar yesterday edged upward in European trading,
tailed off through most of the US session and then rebounded into
the close to finally settle a bit weaker. Dollar closes (3PM NY):
cash dollar index -.11 at 100.48; dlr/yen -.66 at 138.85; dlr/mark
+.0002 at 1.7818; dlr/Swiss +.0028 at 1.5053; stlg/dlr +.0023 at
1.6471; USD/CAD -.0003 at 1.4883. Mark closes: mark/yen -.38 at
77.91; stlg/DM +.0044 at 2.9356; mark/FRF -.0015 at 3.3504;
mark/lira -1.36 at 984.99; mark/Swiss +.0015 at .8447. Futures
closes: DXU98 -.05 at 100.31; JYU98 +.0035 at .7258; DMU98 -.0002
at .5631; SFU98 -.0011 at .6678; BPU98 +.0018 at 1.6426; CDU98
+.0001 at .6724; ADU98 +.0035 at .6318.
The dlr/yen yesterday closed -.66 yen, as it consolidated in
the lower half of the range established by the recent sell-off from
the 7-3/4 year high of 146.73 yen (6/17/98) to the 2-month low of
133.73 yen (6/19/98). The dlr/mark yesterday closed +.02 pfennigs
at 1.7818 DM, as it rebounded after falling to a new 6-week low of
1.7763 DM. On yesterday's low, the dlr/DM sold off by a total of
5.62 pfennigs from the 3-month high of 1.8325 DM (7/9/98).
Bearish factors for the dollar included (1) expectations that
the IMF would approve the $5.6 billion tranche of the assistance
package for Russia (the meeting was not scheduled to begin until
yesterday evening), thereby helping to stabilize the situation and
underpin the mark, (2) some continued long liquidation pressures
with the 6-week low in the dlr/mark and the continued rebound in
the yen, (3) persistent worries about a sharp slowdown in US
economic activity in the second half of the year. Bullish factors
for the dollar included (1) underlying concerns about the pace of
economic and banking reform in Japan, (2) anticipation for more
dovish comments from Fed Chairman Greenspan today, and (3)
expectations for only a token BBK tightening ahead of EMU.
European Comment -- The European markets today will focus on
(1) anticipation of this week's expected release of the German June
M3 money supply report, (2) the European credit markets which
closed mixed yesterday, and (3) the European stock markets which
closed mixed yesterday.
Germany -- The German credit market closed slightly higher
yesterday. Bullish factors included the higher US credit market.
German economic adviser Hax said that GDP will exceed +2.5% growth
in 1998, though German unemployment will average 4.5 mln despite
the current improvement to the 4.1 mln level. The Bundesbank is
not expected to change interest rates after the Council meeting on
Thursday. The German credit market is focussed on June M3 money
supply (expected +4.4% y/y), June PPI (expected unch m/m, unch
y/y), the June Ifo business climate index, and Thursday's
Bundesbank Council meeting.
The 10-year Bund yield yesterday closed -0.9 bp at 4.676%
after posting an all-time low yield of 4.651% on Jul 10th. Liffe
Sep Bunds yesterday closed up +.10 at 108.94 after posting a
contract high of 109.15 last Monday. The Liffe Sep Euromark
yesterday closed unchanged at 96.400 after posting a contract high
of 96.410 on Jul 10th.
The Dax index yesterday closed +24 points at 6171 (+.38%)
after posting a new all-time high of 6,200. The Dax is up +45.22%
for the year to date in mark terms and +46.64% in US dollar terms.
Bayerische Vereinsbank led yesterday's rally as it rose 6.67% ahead
of Thursday's earnings announcement. Business software provider
SAP reported better than expected Q2 earnings but profits were
sharply lower compared to the first quarter.
France -- The Bank of France yesterday drained 1.0 billion
francs from the banking system, leaving its interest rates
unchanged. The key intervention rate stands at 3.30% and the 5 to
10-day repo rate holds at 4.60%.
The French franc yesterday closed .15 centimes stronger at
3.3504 francs/DM. The franc has been trading sideways in a narrow
range for the past 6-months, below the all-time high of 3.3297
FF/DM (2/16). On that all-time high, the franc was 2.42 centimes
above the franc's ERM parity rate of 3.3539 FF/DM.
The French credit market closed little changed yesterday. The
Bank of France is expected to keep rates unchanged when the
Monetary Policy Council meets on Thursday. The French credit
market is focussed on tomorrow's May industrial production
(excluding energy, expected +0.4% m/m, +7.1% y/y) and Thursday's
June household consumption (May +0.4% m/m, +6.3% y/y).
The 10-year Notional yield closed down -1.7 bp at 4.788% after
posting an all-time low yield of 4.758% on Jul 10th. The Sep
Notional bond closed unchanged at 104.84 after posting a contract
high of 105.21 on Jul 10th. The Sep Pibor closed +.005 at 96.390
after posting a contract high at 96.400 on Jul 10th.
The CAC40 stock index yesterday closed 20 points lower at 4369
(-.45%) after posting an all-time high of 4405. The CAC40 is up
45.68% for the year-to-date in franc terms and up 46.16% in US
dollar terms. The CAC40 was unable to participate in the European
stock market rally yesterday and was dragged down by France Telecom
(-6.17%). The French government, which still owns 75% of the
telephone company, said that it would sell off an additional 5-6%.
UK -- Yesterday's UK money supply data was in line with market
expectations and had little market impact. June M4 was up +0.7%
(mo-mo) and +9.0% (yr-yr). The yr-yr rate of +9.0% was down from
May's +9.2% (yr-yr) and was the slowest annual growth rate in
nearly 3 years. In addition, June M4 bank lending of +1.9 bln stlg
was much weaker than market expectations of +4.0 bln and May's +4.4
bln stlg.
June M0 money supply growth was left unrevised at +0.2%
(mo-mo), but was revised to +5.5% (yr-yr) from the advance report
of +5.4%. Yesterday's revision had no market impact.
Sterling yesterday settled +.44 pfennigs at 2.9356 DM, as it
rebounded after falling to a new 5-1/2 week low of 2.9247 DM. On
yesterday's low, the pound sold off by a total of 10.24 pfennigs
from the 2-1/2 month high of 3.0271 DM (7/2/98). On the 3.0271 DM
high, sterling rebounded by a total of 16.54 pfennigs from the May
22nd 7-1/2 month low of 2.8617 DM but remained 8.29 pfennigs below
the 8-3/4 year high of 3.1100 DM (4/3/98).
The UK credit market closed lower yesterday. A report from
Ernst & Young ITEM Club called for an immediate 100 bp rate hike in
response to inflation pressures. June M4 was up +0.7% m/m and
+9.0% y/y. The UK credit market received some underlying support
from the cooling of M3 growth to a near 3-year low. The UK credit
market is focussed on tomorrow's June retail sales (expected -0.9%
m/m, +2.9% y/y) and Thursday's June non-EU visible trade deficit
(expected -1.2 bln stlg) and May global visible trade deficit
(expected -2.2 bln stlg).
The 10-year gilt yield yesterday closed -0.5 bp at 5.840% and
held below the Jun 19th 2-1/4 month high yield of 5.931%. Sep
gilts yesterday closed down -.17 points at 108.45 where they
remained within the 3-week trading range. Sep short sterling
yesterday closed down -.030 at 92.160 where it remained above the
Jun 19th 5-1/2 year low of 92.020.
The FTSE index closed 5.0 points higher yesterday at an all-
time high settlement of 6179.0. The FTSE is up 20.32% for the
year-to-date in sterling terms and up 20.5% in US dollar terms.
Banking stocks were hit yesterday by a report from Ernst & Young
that called for an immediate 1% hike in interest rates from the
Bank of England. Gains in Diageo and British Telecom, however,
were enough to offset those losses and push the FTSE to a new
record.
Asian Comment -- Japan -- The Japanese markets were closed
today for a public holiday. The MOF's Sakakibara said in the US
over the weekend that the current political uncertainty will not
delaytax cuts or delay bank reform and may in fact speed up the
process.
The 3 leading candidates for the LDP leadership participated
in 2 televised debates on Sunday. This probably marked a first in
Japan where LDP leadership decisions were previously relegated to
back-room politicking. All 3 candidates called for permanent tax
cuts, as well as tax reform. However, Health Minister Koizumi was
virtually alone in pressing for a complete overhaul of the Japanese
bureaucracy, calling for the elimination of half of Japan's civil
servants. Mr. Kajiyama pressed for aggressive banking reform,
while the front-runner Foreign Minister Obuchi called for a 10
trillion yen fiscal stimulus package. The markets appear to favor
the election of either Mr. Kajiyama or Mr. Koizumi, as investors
see Mr. Obuchi as leading to more of the same muffled policy
proposals that came from the Hashimoto government.
The Japanese stock market was closed yesterday for a public
holiday. As a review, the Nikkei index last Friday closed down 161
points 16,571 (-.96%). On last Thursday's 3-1/2 month high of
16,757, the Nikkei index recovered sharply by 14.66% (2,142 points)
from the recent 6-month low of 14,615 (6/16/98). The Nikkei is up
8.6% in yen terms and 2.08% in US dollar terms.
Sep JGBs in London yesterday settled down -.11 points at
131.70, down .19 points from last Friday's Tokyo close of +.13 at
131.89. Tokyo Sep JGBs last Friday posted a new 2-1/2 month low of
131.50 and extended its 1-1/2 month downmove from June 5th's
contract high of 134.43 to a total of 2.93 points. The benchmark
No. 182 10-year JGB last Friday closed -2 bp at 1.415%, well above
the recent all-time record low closing yield of 1.130% (6/2/98).
The Dec Euroyen yesterday settled -0.5 bp at 99.170 and is just
mildly above the recent 3-1/2 month low of 99.145 (6/26/98).
Asian Stock Market Closes: Hong Kong Hang Seng -1.57%,
Australia All-Ordinaries -.95%, Singapore Straights Times
Industrials +.66%, South Korea Composite Index +6.10%, Thailand
Stock Exch +.83%, Taiwan weighted index +.10%, Philippines
composite index -2.95%, Malaysia composite index -.01%, China SE
Shanghai A -2.13%, Indonesia Jakarta composite index +.50%.
OPTIMA FINANCIAL NEWS SCHEDULE^ Tuesday 7/21/98
A. Today's News (local & GMT release times shown)
Tue US 0830 ET 1230 June housing starts expected +1.3% to 1.55
mln units, May -0.7% to 1.530 mln.
June building permits, May +1.7% to 1.543
mln units.
0830 ET 1230 June experimental CPI, May +1.5% y/y; May
core experimental CPI +2.0% y/y.
0900 ET 1300 BTM/Schroder weekly retail sales, last -1.0%
w/w.
1000 ET 1400 Fed Chairman Greenspan delivers his semi-
annual Humphrey-Hawkins testimony before
the Senate Banking Committee.
1300 ET 1700 NY Fed President McDonough speaks in
Mexico.
1440 ET 1840 Redbook retailer sales survey for week ended
July 18th, 1st-week +0.8%.
N/A Earnings: Banc One ($.84), BellSouth ($.80),
Bristol-Meyers Squibb ($.82), Burlington
Northern Santa Fe ($1.72), Chase Manhattan
($1.19), Citicorp ($2.29), Computer
Associates ($.33), Exxon ($.63), Merck
($1.08), Northern Telecom ($.40), Phillip
Morris ($.82), Southern ($.35), Sprint ($.47),
& Texas Instruments ($.37).
CAN 0830 ET 1230 May retail sales expected +0.5% m/m, April
+1.0% m/m.
JPN 0920 JT 0020 BOJ releases its monthly report.
1500 JT 0600 BOJ Governor Hayami holds press
conference.
B. Future News
Sometime this week:
GER N/A June PPI expected unch m/m & unch y/y,
May unch m/m & +0.1% y/y.
N/A May retail sales, April real sales -2% y/y
(unadjusted) & -4.7% y/y (adjusted).
N/A June M3 money supply expected +4.4%, May
+4.4%.
N/A June Ifo business climate index expected -0.2
points to 98.5, May unch at 98.7.
N/A June import prices expected -0.5% m/m &
-1.8% y/y, May -0.6% m/m & -1.6% y/y.
N/A Individual west German states release July
CPI reports.
N/A Preliminary July west German CPI expected
+0.2% m/m & +0.9% y/y, June +0.1% m/m &
+1.1% y/y.
Wed US 0930 ET 1330 Treasury Secretary Rubin & Deputy Treasury
Secretary Summer testify before the Senate
Finance Committee regarding retirement
issues.
0930 ET 1400 Fed Chairman Greenspan delivers his semi-
annual Humphrey-Hawkins testimony before
the House Banking subcommittee.
1400 ET 1800 June Treasury statement expected $56.0 bln
surplus, June 1997 $54.635 bln surplus.
1430 ET 1830 Treasury announces the details of next
week's 2-year note auction (expected $15.0
bln).
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
N/A Earnings: Allstate ($.73), Amgen ($.74),
Anheuser-Busch ($.77), Disney ($.21), Duke
Energy ($.68), DuPont ($.87), Lilly ($.43),
Lucent Technologies ($.27), Mobil ($.81), &
US Airways ($1.86).
UK 0930 UK 0830 June retail sales expected -0.9% m/m &
+2.9% y/y, May +1.7% m/m & +4.6% y/y.
GER 1800 CET 1600 ECB member Issing speaks in Frankfurt.
FRA 0845 CET 0645 May industrial production (excluding energy)
expected +0.4% m/m & +7.1% y/y, April
-0.7% m/m & +7.5% y/y.
N/A Prime Minister Jospin announces budget
framework to the Cabinet.
JPN 0850 JT June trade surplus expected 1.4 tln yen, May
1.2 tln yen surplus.
1400 JT 0500 BOJ releases minutes from the June 12th
Policy Board meeting.
N/A Finance Minister Matsunaga holds press
conference.
Thu US 0830 ET 1230 Initial unemployment claims for week ended
July 18th expected -20,000 to 316,000, last
-58,000 to 336,000.
1630 ET 2030 Money supply report for week ended July
13th; 1st-week reserves.
N/A Earnings: 3M ($.92), Boeing ($.33), Chevron
($.75), Dow Chemical ($1.84), Southwest
Airlines ($.54) & Union Pacific (-$.17).
UK 0930 UK 0830 May global visible trade deficit expected -2.2
bln sterling, April -1.390 bln sterling.
June non-EU visible trade deficit expected
-1.2 bln sterling, May -1.603 bln sterling.
GER N/A Regular bi-weekly BBK Council meeting, last
before summer recess (next mtg Aug 20th).
2000 CET 1800 BBK member Schmidhuber speaks to CDU
group.
FRA 0845 CET 0645 June household consumption expected unch
m/m, May +0.4% m/m & +6.3% y/y.
N/A BOF MPC meeting.
JPN 1400 JT 0500 May LEI expected 33.3, April 11.1; May
coincident indicator expected 20.0, April 10.0.
Fri US 1000 ET 1400 Fed Chairman Greenspan & CFTC
Chairwoman Born testify before the House
Banking Committee regarding derivatives
regulation.
UK 0930 UK 0830 Advance Q2 GDP expected +0.5% q/q &
+2.6% y/y, Q1 +0.5% q/q & +3.0% y/y.
FRA 0845 CET 0645 May merchandise trade surplus expected 14.0
bln francs, April 15.4 bln franc surplus.
0850 CET 0650 Final June CPI, preliminary report was unch
to +0.1% m/m & +1.0% y/y.
JPN N/A LDP elects new leader.
1400 JT 0500 EPA releases its June consumer confidence
index, March 38.2.
Week of July 27-31:
Mon US 1000 ET 1400 June existing home sales expected -0.4% to
4.80 mln units, May +1.0% to an annual rate
of 4.82 mln units.
1300 ET 1700 Weekly Treasury auction of 3 & 6-month bills.
Tue US 0900 ET 1300 BTM/Schroder weekly retail sales.
1000 ET 1400 Conference Board releases its July consumer
confidence index expected -1.4 points to
136.2, June +1.4 points to 137.6.
1440 ET 1840 Redbook retailer sales survey for week ended
July 25th.
JPN N/A BOJ Policy Board meeting.
Wed US 0830 ET 1230 Advance June durable goods orders expected
-0.5%, May -2.4%.
1300 ET 1700 Treasury auction of 2-year notes.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
CAN 0830 ET 1230 June industrial product price index.
June raw materials product price index.
UK 0930 UK 0830 Final June M4 money supply, preliminary
report was +0.7% m/m & +9.0% y/y.
JPN N/A Preliminary June industrial production, May
-2.0% m/m & -11.2% y/y.
N/A June large retailers sales, May -0.9% y/y.
Thu US 0830 ET 1230 Initial unemployment claims for week ended
July 25th.
0830 ET 1230 July APICS Business Outlook Index, June
+3.6 points to 51.0.
0830 ET 1230 Q2 Employment Cost Index expected +0.8%
q/q & +3.3% y/y, Q1 +0.7% q/q & +3.3% y/y.
1000 ET 1400 June new single-family home sales expected
-1.3% to 878,000 units, May +0.3% to an
annual rate of 890,000 units.
1630 ET 2030 Money supply report for week ended July
20th; 2nd-week reserves.
Fri US 0830 ET 1230 Preliminary Q2 GDP expected +1.0%, with
chain price index of +1.4%, Q1 +5.4% with
chain price index +1.2%.
1000 ET 1400 July Chicago-area Purchasing Managers
index, June -3.4 points to 52.9%.
1000 ET 1400 Final July consumer sentiment index, early-
July -0.8 points to 104.8.
CAN 0830 ET 1230 May GDP expected +0.2%, April unch.
JPN N/A July Tokyo CPI, June -0.1% m/m & +0.4%
y/y.
N/A June pan-Japan CPI, May unch m/m & +0.5%
y/y.
N/A June unemployment rate, May +0.01 point to
4.14%.
N/A June labor supply/demand ratio, May -0.02
points to 0.53.
Week of Aug 3-7:
Mon US 0830 ET 1230 June personal income, May +0.5%; June
personal consumption, May +0.6%.
1000 ET 1400 July NAPM index, June -1.8 points to 49.6%.
1000 ET 1400 June construction spending, May -1.5%.
N/A Most US automakers release July sales
reports, June 14.4 mln unit pace.
UK 0930 UK 0830 July M0 money supply, June +0.2% m/m &
+5.5% y/y.
Tue US 0900 ET 1300 BTM/Schroder weekly retail sales.
1000 ET 1400 June LEI, May unch.
1440 ET 1840 Redbook retailer sales survey for week ended
Aug 1st.
N/A GM expected to release its July vehicle sales
report.
CAN 0830 ET 1230 July building permits.
Wed US 1000 ET 1400 June housing completions, May -3.0% to an
annual rate of 1.455 mln units.
1400 ET 1800 Fed releases Tan Book ahead of Aug 18th
FOMC meeting.
1430 ET 1830 Treasury announces details of Aug refunding
operation (expected: $16.0 bln in 5-year
notes, $12.0 bln in 10-year notes, & $10.0 bln
in 30-year bonds).
N/A Ford releases July vehicle sales.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
CAN N/A 3-day Premiers' conference in Saskatoon
begins.
UK N/A 2-day BOE MPC meeting begins.
Thu US N/A July same-store retail chain sales reports.
0830 ET 1230 Initial unemployment claims for week ended
Aug 1st.
1000 ET 1400 June factory orders, May -1.6%.
1630 ET 2030 Money supply report for week ended July
27th; 1st-week reserves.
CAN N/A 3-day Premiers' conference in Saskatoon
continues.
UK N/A 2-day BOE MPC meeting concludes,
announcement expected at noon UK.
Fri US 0830 ET 1230 July unemployment report: July non-farm
payrolls, June +205,000;
July manufacturing payrolls, June -29,000;
July average workweek, June -0.1 hour to
34.6 hours;
July average hourly earnings, June +0.1%
m/m & +4.1% y/y to $12.74;
July civilian unemployment rate, June +0.2
points to 4.5%.
1000 ET 1400 June wholesale trade: May inventories
+0.6%; May sales -0.3%; May inv-to-sales
ratio +0.01 point to 1.30 mos.
1000 ET 1400 July leading inflation index, June 102.9.
1500 ET 1900 June consumer credit.
CAN N/A 2-day Premiers' conference in Saskatoon
ends.
0700 ET 1100 July unemployment report.
Future News:
Aug 12: BOE releases its Quarterly Inflation Report.
Sep 27: German general election.
Upcoming Central Bank meetings:
FOMC: Aug 18, Sep 29, Nov 17, Dec 22.
Last G7 monetary policy changes:
US Federal funds target raised +25 bp to 5.5% on 3/25/97; discount
rate cut -25 bp to 5.0% on 1/31/96.
CAN Overnight rate target band +50 bp to 4.5-5.0% on 1/30/98.
UK Base rate +25 bp to 7.50% on 6/4/98.
GER Discount rate -50 bp to 2.50% and Lombard rate -50 bp to 4.50%
on 4/18/96 (effective 4/19/96).
2-wk repo rate +30 bp to 3.3% on 10/9/97 for 10/15/97 wkly repo;
after 13-1/2 months at fixed-rate 3.0%.
FRA Intervention rate +20 bp to 3.30% on 10/9/97; 5-10 day repo rate
-15 bp to 4.60% on 12/17/96.
ITA Discount rate -75 bp to 5.50% on 12/23/97; Lombard rate -75 bp
to 7.0% on 12/23/97.
JPN Discount rate -50 bp to .50%, unsecured overnight call loan rate
-40 bp to .45-.50% from .85-.90% on 9/8/95.
Times: US Eastern Time ET=GMT-4; British Time UK=GMT; Continental
European Time CET=GMT+2; Japan Time JT=GMT+9.
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