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OPTIMA RESEARCH INVESTMENT, INC.
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Monday 8/3/98 -- Americas Comment -- The US markets today will
focus on (1) any weekend developments in the Asian and Russian
financial markets, (2) today's US June personal income &
consumption report, July NAPM index, June construction spending
report, and the early wave of July auto sales reports, (3) the US
Treasury market which was supported late last week by the strength
in the dollar/yen and the weakness in the stock market but faces
the quarterly refunding operation next week, (4) the dollar which
settled a bit stronger last Friday, underpinned by the listless
policy approach seen in the new Japanese government, (5) the US
stock market which settled sharply lower last Friday on worries
about earnings, and (6) the CRB index which closed sharply lower
last Friday.
Today's July NAPM index is expected to show a -0.4 point
decline to 49.2%, pushing it further below the pivotal level of 50.
That would point to further contraction in the manufacturing sector
of the economy. Expectations for a decline in the index center on
the impact of the GM strike which will leave today's report skewed
to the weak side. That will reduce the significance of today's
report. Moreover, now that the walkout has been settled, the Aug
NAPM index will certainly show a sharp rebound in factory activity.
The markets will keep a close eye as usual on the prices paid
and employment sub-indexes. In June the employment sub-index fell
by -3.2 points to a new 1-1/3 year low of 47.8%. A further decline
is likely today due to the impact of the walkouts. The price sub-
index in June fell by -2.7 points to a new 7-year low of 38.4%.
Today's report should point to ongoing deflationary trends in the
manufacturing sector.
Today's June personal income report (expected +0.3%) and
consumption report (expected +0.4%) will be completely overlooked
by the markets. All of the data in today's report was incorporated
in last Friday's Q2 GDP report.
The remainder of this week's calendar is fairly busy.
Tomorrow brings the June LEI and the weekly retailer sales surveys.
Wednesday brings the NAPM's July non-manufacturing index, June
housing completions, Fed's Tan Book, and the final July auto sales
figures. Thursday brings June factory orders. Friday brings the
July unemployment report, June wholesale trade report, and June
consumer credit report.
Overseas, the Japanese markets will monitor Friday's policy
address by new Prime Minister Obuchi in which he is expected to
provide a fairly detailed outline of his response to the banking
crisis and the recessionary economy. The German markets will keep
an eye on Thursday's July unemployment report. The British markets
are nervously awaiting the BOE's Monetary Policy Committee meeting
on Wed-Thur due to the outside chance of another notch of
tightening. The Canadian markets are eyeing the weak Canadian
dollar and whether the Bank of Canada may be forced to raise
interest rates to stop the currency's demise.
US Q2 GDP is much stronger than expected at +1.4% (+1.9% ex-
GM) and final sales are strong at +3.9% -- Q2 real GDP eased to a
3-year low of +1.4% (q/q annualized) but was much stronger than
expectations of +0.4%. Q1 GDP growth was revised a bit stronger to
+5.5% from the earlier report of +5.4%. Q2 final sales (overall
GDP excluding inventories) eased mildly to +3.9% from Q1's +4.3%.
Q2 final sales to domestic purchasers (final sales less net
exports) eased just slightly to +6.3% from Q1's +6.6% pace.
The Commerce Department early Friday said that the impact of
the GM strike subtracted about 1.0 point from Q2 GDP growth but
then revised that figure downward to 0.5 points later in the day.
The Commerce Department said there was a conceptual error that led
to initial incorrect figure. The Department said that the strike
weighed on GDP by slowing inventory accumulation, exports, and
imports. More concrete estimates of the impact of the GM strike
will be available in future revisions.
As expected, the two main factors that slowed Q2 GDP growth
were non-farm inventories and net exports. Non-farm inventories
subtracted -$51.9 billion from the economy in Q2, thereby
subtracting 2.3 points from GDP growth. Inventory accumulation
slowed to $38.6 billion in the Apr-June period from the $90.5
billion pace seen in Q1. Net exports subtracted -$54.4 billion
from the economy in Q2 following the -$49.5 billion subtracted in
Q1. Q2 exports fell by -8.0%, while imports climbed by +11.9%.
Net exports subtracted 1.0 point from Q2 GDP growth.
Offsetting the weakness in inventories and exports was ongoing
growth in consumer spending, investment, and government spending.
Consumer spending climbed at an annual rate of +5.8% in Q2, down
just a bit from the +6.1% pace seen in Q1. That added 3.9 points
to GDP growth.
Non-residential fixed investment climbed by +11.4% in Q2, down
from the +22.2% pace seen in Q1. Spending on producers' durable
equipment climbed by +17.8%, down from the impressive +34.3% pace
seen in Q2. Residential fixed investment climbed by +13.2%, down
from the +15.6% pace seen in Q1.
Government spending accelerated to +3.7%, the sharpest
increase in 2 years. In Q1 government spending fell by -1.9%. The
jump in government spending was tied to a surge in defense
spending.
The personal savings rate in Q2 plunged to 0.6% from the 1.2%
pace seen in Q1. However, that slide was tied largely to a change
in the definition of dividend payments which resulted in a
reconfigured benchmark for personal spending.
There was again favorable news on the inflation front as both
the implicit price deflator and chain-type price index continued to
point to the near-absence of inflationary pressures. The implicit
price deflator edged up to +0.9% from the 34-1/2 year low of +0.8%
seen in Q1. The chain-type price index slipped to a new 35-year
low of +0.8% from the +0.9% increase seen in Q1.
Last Friday's Q2 GDP report also included benchmark revisions
for 1995-1997. In sum, those revisions resulted in sharply
stronger average quarterly growth during that period of +3.3%
(versus the previous average of +2.9%). However, inflationary
pressures were revised lower as the average quarterly increase in
the chain-type price index was revised downward to +1.7% from
+2.0%.
Last Friday's advance Q2 GDP report of +1.4% was certainly
stronger than expected. Moreover, the impact of the GM strike
subtracted about 0.5 points from GDP growth, leaving "core" growth
at about +1.9%. That is certainly quite impressive given the
substantial slowdown in economic activity from both net exports and
inventory accumulation which pared some 3.3 points from Q2 GDP.
While the strength in GDP growth was a surprise, the
composition of GDP was no surprise. As expected, inventories and
net exports slowed sharply in Q2, while consumer spending,
investment, and government spending boosted economic activity. The
result was stronger than expected growth in both final sales and
final sales to domestic purchasers.
Final sales in Q2 slowed only slightly to +3.9% from the +4.2%
pace seen in Q1. This suggests that even when the deterioration in
the US trade position is taken into account, US economic growth
remains above trend. Final sales to domestic purchasers also only
slowed slightly to +6.3% from the +6.6% pace seen in Q1. Such
growth is far above sustainable non-inflationary growth. Moreover,
it sealed speculation that strength in domestic demand in the US
economy continued unabated in the first half of the year. That
figure is unlikely to be revised downward in future reports when
there may be large revisions to net exports and inventory
accumulation.
Looking ahead, last Friday's stronger-than-expected Q2 GDP
report lays the groundwork for a rebound in growth in the second
half of the year. Given the very tight inventory-to-sales ratios,
it can be assumed that the slowdown in inventory accumulation
should not last very long. Therefore, a pick-up in inventory
growth is expected in Q3 and Q4. Moreover, the settlement of the
GM strike will bolster inventory growth, as well as production and
investment spending on durable equipment. The strength in home
sales should boost construction spending and, more importantly,
consumer spending which accounts for about two-thirds of GDP.
Lastly, consumer spending will receive a boost from the ongoing
strength in the labor market and the acceleration in wage
pressures. The result should be a rebound in GDP growth to the
+3-4% range, perhaps enough to elicit a Fed tightening if wage
pressures continue to accelerate and if productivity continues to
soften.
Last Friday's GDP report added to last Thursday's ECI report
to suggest that the Fed's current policy stance is correct, i.e.,
an unchanged policy but with a bias toward tightening. The full
impact of the Asian crisis and the strong dollar has yet to be felt
on the US economy and will continue to weigh on net exports and
manufacturing activity. At the same time, domestic demand remains
extremely strong and wage pressures are accelerating, especially as
benefits costs continue to rise. The continued strength in
consumer demand should erase any talk in the popular media that the
US economy might slip into a recession.
Last Friday's GDP report provided grist for the debate about
how such strong economic growth can coexist with low inflation.
The benchmark revisions for 1995-97 show even stronger GDP growth
than earlier reported (which averaged +3.3% per quarter) and lower
inflation (which averaged +1.7% per quarter). This is a phenomena
that cries out for further study. In the meantime, last Friday's
revisions encourage the US credit market to ignore strong GDP
growth rates that would have been quite frightening not long ago.
US July Chicago Purchasing index posts sharp gain -- The July
Chicago-area Purchasing Managers index climbed by +4.7 points to a
new 3-month high of 57.6%. The strength in the index was broad-
based as the production, new orders, order backlog, inventories,
and supplier deliveries sub-indexes all climbed. Only the price
(-1.4 points to a 7-1/4 year low of 42.8%) and employment (-1.2
points to 50.3%) sub-indexes fell.
The strength in last Friday's Chicago-area index caused some
upward revisions in expectations for today's release of the
national index. Perhaps the most remarkable part of last Friday's
Chicago-area report was that it occurred in the midst of the GM
strike. That suggests underlying strength in the manufacturing
sector of the economy.
Elsewhere, the July Milwaukee-area Purchasing index fell by -6
points to 45%. That drop may be tied to the GM strike as the firm
has operations in the Milwaukee-area.
US consumer sentiment rebounds in late July -- The University
of Michigan last Friday reported that its final July index of
consumer sentiment rebounded by +0.4 points to 105.2 from the
early-July reading of 104.8, but remained -0.4 points below the
June level of 105.6. The July expectations index climbed by +0.7
points to 100.0 from both the June and early-July readings of 99.3.
The current economic conditions index slipped by -0.1 point to
113.3 from the early-July level of 113.4. That left it -2.1 points
below the June level of 115.4.
Last Friday's mixed readings on the late July consumer
sentiment survey had no market impact. The various consumer
sentiment/confidence/comfort indexes remain at historically strong
levels. That, combined with other factors such as the strong labor
market, strong personal income and the wealth effect from the stock
market, suggests that the outlook for consumer spending remains
quite healthy.
US Interest Rates -- US credit market settles little changed,
shaking off strong GDP report -- Sep T-bonds last Friday edged
upward in European trading, sold off after the release of the GDP
data, but rebounded upward through the remainder of the US session
to finally settle little changed. Futures closes: USU98 +0-01 at
122-19; TYU98 unch at 113-18; FVU98 -0-005 at 109-155; TUU98 -0-002
at 104-052; TBZ98 -.010 at 95.030; EDH99 unch at 94.310. Cash
closes (3PM NY): cash 30-yr +0-02 at 105-22; cash 30-yr yield -.005
at 5.722; cash 10-yr unch at 100-30; cash 10-yr yield unch at
5.500; cash 5-yr unch at 99-14; cash 5-yr yield unch at 5.508; cash
2-yr unch at 99-250; cash 2-yr yield unch at 5.459; 3-mo T-bill
+.015 at 4.950.
Sep T-bonds last Friday rebounded above last Thursday's 8-week
low of 121-24 where they sold off by a total of 2-22/32 points from
the contract high of 124-14 (6/16/98). The cash 30-year bond yield
last Friday fell back from last Thursday's 8-week high of 5.789%
where it rebounded by a total of 21.9 bp from the all-time low of
5.570% (7/6/98). On that all-time low, the yield was down by 52.3
bp from the 3-month high of 6.093% (4/29/98). March Euros last
Friday held above last Thursday's 5-week low of 94.285 where they
continued to consolidate 5-month high of 94.44 (6/16/98).
Bullish factors last Friday included (1) the very favorable Q2
price deflators, (2) short-covering, (3) the sharp sell-off in
share prices which rekindled capital flight back into Treasuries,
and (4) the surge in the dollar/yen amid general pessimism about
Japan. Bearish factors included (1) the stronger-than-expected Q2
GDP report which suggested that the Fed will continue to lean
toward tightening (especially when taken in conjunction with last
Thursday's Q2 ECI report of +0.9% q/q and +3.5% y/y), (2) the
unexpected jump in the Chicago Purchasing Managers index (+4.7
points to a new 3-month high of 57.6%) which illustrated the
strength in US domestic demand, and (3) some supply pressures ahead
of the Aug refunding in 1-1/2 weeks and amidst the ongoing flood of
corporate supply.
Last Thursday's Q2 Employment Cost Index and last Friday's GDP
report cemented expectations for a steady Fed policy over the near
to intermediate-term. That is seen in the flat fed funds futures
curve. The Dec contract settled last Friday at 94.45, thereby
pointing to a 5.55% funds rate target or about a 10% chance of a
tightening by year-end. The March 1999 contract settled at 94.50,
thereby implying an unchanged funds rate target of 5.50%.
The credit market this week may overlook normally important US
economic data such as today's July NAPM index and Friday's July
unemployment report. Both of those reports, as with this week's
July automakers' sales reports, will be sharply skewed by the
impact of the GM strike. Instead, the market will likely continue
last week's trend of trading off the Treasury supply situation, the
behavior of stock market, and the behavior of the dollar/yen.
Regarding the supply situation, the Treasury on Wednesday
morning will unveil the details of next week's quarterly refunding
operation. Expectations call for $38 billion package with $16
billion in 5-year notes, $12 billion in 10-year notes, and $10
billion in 30-year bonds. Although that will raise about $10.2
billion in new cash, there is plenty of liquidity available to mop
up next week's sales. The Treasury's most current three interest
payments (i.e., last Fri, Aug 15, Aug 31) total a huge $63.5 bln,
leaving plenty of cash ready to reinvested in the market. The
current budget surplus has virtually eliminated the angst that was
always associated with refunding operations in the 1980s and early
1990s.
One potential concern with next week's refunding is that it
will now feature 5-year notes rather than 3-year notes. That could
boost the risk associated with the refunding as it extends the
duration of the issues. Still, given the very favorable inflation
climate (as seen in the Q2 implicit and chain-type price indexes),
that may not be much of a concern at the present time.
Another possible concern could be corporate supply with as
much as $10 billion in issues possible this week. The key will be
just how much debt is issued by WorldCom to finance its purchase of
MCI.
Fed may conduct a supplemental system repo -- The Fed today
may conduct a supplemental system repo operation in order to stay
on top of its $4-6 bln add need in the new 2-week maintenance
period that began last Thursday. That add need is fueled largely
by high (but slipping) levels of currency in circulation as the
summer vacation season remains in high gear. Although the Fed
still has last Tuesday's fixed $4.00 billion 7-day system repo in
place until tomorrow, it will need to replace last Friday's $4.026
billion over-the-weekend system repo. Last Friday's weekend system
repo was conducted with the funds rate trading at 5-11/16%, mildly
above the 5-1/2% target.
US Stock Market -- The US stock market last Friday opened
slightly higher, traded steadily lower, and then broke sharply
lower in the afternoon. Settlements: Dow Industrials -143.66 at
8883.29, DJU98 -151 at 8900, Dow Utilities -6.20 at 278.65, OEX
-11.31 at 550.93, S&P 500 -22.28 at 1120.67, SPU98 -23.10 at
1123.00, NASDAQ Composite -47.23 at 1872.39, and the Russell 2000
-9.75 at 419.75.
Stock market breadth was bearish last Friday with declining
issues (2,224) leading advancing issues (775) by nearly a 3 to 1
margin. Volume was above average at 641 million shares with
declining volume accounting for 77% of the total. The percentage
of NYSE stocks above their 200-day averages rose to 38% where it
stood just above last Tuesday's 3-1/2 year low of 37% and down
sharply from the July 10th 2-1/4 month high of 52%. The number of
shares posting new 52-week lows (616) swamped the number posting
new 52-week highs (94).
The NASDAQ led the market lower last Friday with a loss of
-2.46%. The Russell 2000 was down -2.27%, the S&P 500 was down
-1.95%, and the Dow was down -1.59%. For the year-to-date, the
NASDAQ is in first place with a +19.23% gain, followed by the S&P
500 at +15.48% and the Dow at +12.32%. The Russell 2000 has
slipped into negative territory and is down -3.95% for 1998.
Bearish factors for the stock market included (1) worries that
earnings growth will not improve rapidly in the second half of the
year, (2) concerns that the recession in Asian economies will curb
corporate profits, (3) the excessive bullish sentiment seen in the
past several weeks, and (4) worries that stock prices have
outstripped earnings with the PE ratio on the S&P 500 posting an
all-time high of 28.5 on July 15th despite slower earnings growth.
Bullish factors included (1) bargain hunting as the major
indexes post multi-week lows, (2) the slightly higher US credit
market which overcame a stronger than expected Q2 GDP report, and
(3) the continued heavy cash flow into equity mutual funds which is
running at about $1 billion per day on average, roughly 20% above
1997's rate.
At the top of last Friday's most active list was Ascend
Communications (-13.52% to 44-15/16) which traded 25.17 million
shares. Ascend tumbled as investors worried that a planned
acquisition of Stratus Computer will hurt earnings. Sales at
Stratus fell -20% in the latest quarter and the firm, which
specializes in computers which run continuously, is cutting jobs in
an attempt to boost profits. Ascend is a maker of networking
equipment used by telephone companies to switch communications
traffic between the internet and the public telephone network.
Ascend itself is a possible acquisition target for companies such
as Ericsson and Lucent Technologies.
Also on the most active list, Winfield Capital (-29.12% to
6-5/16) traded 14.21 million shares last Friday after posting a
52-week high of 13-1/8 earlier in the day. Winfield owns 9.3% of
Cyberian Outpost Inc., an Internet retailer that sells computers
and software. Cyberian Outpost made its initial public offering
last Friday and rose a less than expected 14% from its initial
price of $18 per share. At last Friday's close, Cyberian enjoyed
a market capitalization of $451 million which equated to more than
one-fourth of CompUSA, a computer retailer with 164 superstores
throughout the US. Cyberian's capitalization seems heavily
unbalanced with its sales of only $22.7 million in the fiscal year
ended Feb 28th versus CompUSA's sales of $4.61 billion in fiscal
1997.
Market breadth was bearish with 422 of the S&P 500 stocks
closing lower while 70 rose. On a capitalization weighted basis,
the health care sector (-3.11) was last Friday's worst performer.
Bristol-Myers Squibb (-3-7/16), Johnson & Johnson (-2-1/8), and
Warner Lambert (-3-1/16) all led the sector lower. Last week, the
FDA and Warner Lambert reached an agreement that the diabetes drug
Rezulin will carry additional warnings about the risk of liver
damage. The new warnings mark the third such time that Rezulin's
label has been altered in order to alert patients and doctors to
its risks. Exxon (-2), Royal-Dutch Shell (-1-7/16), and Chevron
(-2-5/8) paced the declines in the international oil sector which
was the second worst performer last Friday. The drug sector
(+2.57) was the third worst performer as Pfizer (-2-1/8) and Merck
(-2-7/8) both traded lower.
Of the 30 Dow stocks, 26 fell last Friday while 4 rose.
Sixteen Dow stocks registered losses of one point or more. Procter
& Gamble (-4-1/4 to 79-3/8) was the Dow's biggest loser for the
second day running as the consumer products powerhouse said last
Thursday that earnings could be stunted in the next year by
weakness in Asia and price competition. Asian sales account for
10% of total sales and will be vulnerable to Asian economic
weakness and the stronger dollar. Procter & Gamble's Q2 earnings
grew by 12% to 47 cents per share from 41 cents a year ago. J.P.
Morgan (+1-13/16 to 126) was the Dow's biggest winner. Last
Thursday, the CFTC's Born agreed to discuss with Congress any
proposed rules for over-the-counter derivatives. Derivatives
dealers had worried that a CFTC review of the OTC market might
force swaps dealers into overseas markets. Congress will be left
to decide how futures laws apply to the derivatives market.
On last Friday's 1-1/4 month low of 1114.30, the cash S&P 500
was down 6.40% from the July 20th all-time high of 1190.58. On
that high, the index had extended its 5-week rally from 1074.67
(June 16) to a total of 115.91 points (10.79%). On last Friday's
6-month low of 419.75, the Russell 2000 was down -9.60% from the
July 17th 2-1/4 month high at 464.33. On last Tuesday's 1-1/4
month low of 8816.09, the Dow Industrials index fell 5.88% below
the July 20th all-time high of 9367.84. On that high, the index
had extended its 5-week upmove to a total of 9.31%. On last
Friday's 1-1/4 month low of 1872.22, the NASDAQ composite index
retraced 50% of its 18.24% upmove from the June 15th 4-1/2 month
low of 1715.19 to the July 21st all-time high of 2028.06.
Among the companies expected to report earnings today and
their consensus estimates according to First Call are: Entergy
($.60), Sun International Hotels ($.61), and St. Paul Companies
($.38). Tomorrow, America Online ($.19), British Petroleum ($.88),
Browning-Ferris Industries ($.50), Equitable Companies ($.93), MBIA
($1.13), and Seagrams (-$.01) are expected to report.
Commodities -- CRB closes lower as natural gas lacks spark --
The CRB index last Friday closed down -1.25 points at 206.00 and
posted a new 5-year low of 205.99. The major lows on the downside
are last Friday's 5-year low of 205.99, 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 -3.93% on a month-on-month basis and down -15.06% on
a year-on-year basis.
Closes: Energy: CLU98 unch at 14.21; HUU98 +.0043 at .4237;
HOU98 unch at .3673; NGU98 -.062 at 1.844. Precious Metals: GCZ98
-2.7 at 290.5; SIU98 -5.7 at 545.8; PLV98 -3.1 at 377.6. Grains:
S X98 -10-6 at 560-6; SMZ98 -3.00 at 145.30; BOZ98 -.17 at 24.62;
C Z98 -3-0 at 223-6; W Z98 -1-0 at 268-2. Livestock: LCV98 -.70 at
59.92; FCQ98 -1.25 at 67.27; LHV98 -.95 at 42.45; PBQ98 +1.05 at
55.95. Softs: SBV98 -.08 at 8.76; KCU98 +5.75 at 129.20; CCU98
+12. at 1552.; JOU98 +.50 at 107.95. Industrials: CTZ98 -.76 at
71.11; HGU98 -1.40 at 76.95; LBU98 +2.60 at 301.30.
Sep natural gas was the CRB's biggest loser last Friday as the
contract fell -.062 cents to close at 1.844. On last Friday's
1-1/2 year low at 1.830, natural gas fell .710 (27.95%) from the
July 1st 3-1/4 month high of 2.540. Analysts expect that excess
supplies of natural gas will remain when utility use tapers off in
September. Last Wednesday, the American Gas Association reported
that US natural gas stocks rose +66 bcf to 2,323 bcf which leaves
storage capacity 73% full with three months left before the winter
heating season. The Energy Information Administration reported
that industrial use declined -5.1% y/y in the first quarter. The
EIA forecasts that natural gas production will rise +1.2% this
year.
Nov soybeans were the CRB's second biggest loser as the
contract fell -10-6 cents to close at 560-6. On last Friday's
contract low of 560-0, soybeans fell 97-0 cents (14.76%) from the
June 24th 5-month high at 657-0. Soybeans reacted to forecasts of
weekend rains in the western Midwest which should help alleviate
dryness in some parts of the upper Midwest. Weather models
continue to show a generally favorable pattern for the Midwest as
soybeans make the transition between setting pods and filling pods
when adequate soil moisture is necessary. Last Thursday, the USDA
announced that soybean exports fell to 155,100 tons from 196,400
tons in the prior week.
Sep crude oil closed unchanged last Friday as the contract
settled at $14.21. On June 15th, crude oil futures touched a
12-year low of $11.40 on the weekly-nearest chart (July 98
contract). The US Senate is expected to approve a $420 mln plan to
buy excess domestic /crude oil. The purchase would most likely
occur after October and would equate to 28 mln barrels or 8% of the
current US oil companies' storage level. OPEC reported last
Thursday that production in July fell -610,000 barrels per day to
27.32 mln barrels per day. The OPEC countries are still producing
733,000 barrels per day more than agreed upon at the June meeting
in Vienna. Kuwait's oil minister said that OPEC should review
output cuts if crude oil prices do not reach $17 per barrel by
November.
Dec gold last Friday closed down -2.7 at $290.5 and remained
below the psychologically important $300 level. The Japanese yen
traded lower against the dollar last Friday. Asian gold demand is
vulnerable to a weakening in the Japanese yen with the metal
already expensive in local currency terms. On last Friday's low at
$290.1, Dec gold held just 0.6 above the June 15th 6-1/4 month low
of $289.5. The next major line of support is at $283.9, the 18-2/3
year weekly-nearest low.
Canada -- The Canadian May GDP report of -0.2% m/m and +3.0%
y/y was much weaker than expectations of +0.3% m/m and was weaker
than April's report of unchanged. Stats Canada reported that this
marked the first time the Canadian economy has not grown in 2
consecutive months in at least 2 years. Moreover, the agency said
that the Canadian economy will see "more moderate" growth in Q2
than the strong +3.7% annual rate posted in the first 3 months of
the year. In fact, forecasts for Q2 GDP growth will likely fall to
the lower-end of the current +1.5-2.5% range.
The Canadian dollar last Friday closed .55 cents weaker at
C$1.5119/US$ as it fell to yet another new all-time low of
C$1.5127. The Canadian dollar has now fallen by 3.1% from the its
Jun 30th close of C$1.4678. The Canadian dollar remains depressed
by (1) the slowdown in Canadian economic activity (as seen in last
Friday's GDP report) which appears to be forcing the BOC to leave
its monetary policy unchanged, and (2) the weakness in commodity
prices based largely on the Asian crisis.
The Sep Canadian bond last Friday settled -.14 points at
124.05 as it held mildly above last Thursday's 3-month low of
123.65. The Canadian 10-year cash yield last Friday settled +0.4
bp at 5.464% as it held below last Thursday's 3-month high of
5.500% where it climbed by a total of 27.2 bp from 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 Dec 3-month
bankers acceptance last Friday closed -7 bp at 94.47, as it fell to
a new 7-month low of 94.46. On yesterday's low, the Dec contract
sold off by a total of 59 bp from the 9-month high of 95.04
(4/3/98). The slide in short-term interest rate futures is tied to
speculation that the BOC will have to tighten monetary policy to
defend the flagging currency.
The Toronto-300 stock index last Friday closed -114.60 points
at 6931.40 as it held fell to a new 5-month low of 6931.40. On
last Friday's 5-month low, the index was down by 906.30 points
(11.6%) from the all-time high of 7837.70 (3/23/98).
Forex -- Dollar settles mildly stronger as yen plunges on
doubts about new Japanese government -- The dollar last Friday
edged upward through most of the session to finally settle a bit
stronger. Dollar closes (3PM NY): cash dollar index +.09 at
101.20; dlr/yen +1.00 at 144.63; dlr/mark -.0014 at 1.7783;
dlr/Swiss +.0010 at 1.4913; stlg/dlr -.0037 at 1.6318; USD/CAD
+.0055 at 1.5119. Mark closes: mark/yen +.63 at 81.32; stlg/DM
-.0090 at 2.9025; mark/FRF -.0015 at 3.3526; mark/lira +.70 at
986.51; mark/Swiss +.0013 at .8385. Futures closes: DXU98 +.13 at
101.09; JYU98 -.0047 at .6954; DMU98 +.0004 at .5637; SFU98 unch at
.6739; BPU98 -.0040 at 1.6280; CDU98 -.0021 at .6619; ADU98 -.0042
at .6064.
The dlr/yen last Friday closed +1.00 yen as it climbed to a
new 7-week high of 144.80 yen where it held just 1.93 yen below the
7-3/4 year high of 146.73 yen (6/17/98). The dlr/mark last Friday
closed -.14 pfennigs at 1.7783 DM, as it held above last Thursday's
2-month low of 1.7643 DM. On last Thursday's low, the dlr/DM sold
off by a total of 6.83 pfennigs from the 3-month high of 1.8325 DM
(7/9/98).
Bullish factors for the dollar included (1) continued fallout
following last week's comments by Finance Minister Miyazawa which
fanned worries that the new Obuchi government will allow the yen to
fall without much, if any, support, (2) both last Friday's stronger
than expected US Q2 GDP report and last Thursday's Q2 ECI report
which will likely keep intact the Fed's bias toward tightening, (3)
the barrage of weak Japanese economic data released last Friday
(June unemployment, CPI, and housing starts), (4) short-covering
and technical buying, and (5) underlying worries about reform
efforts in Russia which pressured the mark. Bearish factors for
the dollar included (1) testimony by Ms. Lewinsky and President
Clinton to the grand jury which could occur as early as this week,
(2) some long liquidation pressures with the 8-week low in the
dlr/mark, and (3) the sharp sell-off in US share prices.
The forex market remains focused on the behavior of the
dollar/yen, especially following last week's candid remarks by
newly appointed Japanese finance minister Miyazawa who said that
the yen's level should be left to the market to decide. That
raised speculation that Mr. Miyazawa may not pursue intervention to
support the yen and gave a green light to yen bears.
Finance Minister Miyazawa last Friday tried to back away
somewhat from his hands-off comments on the yen by saying that he
was only discussing forex issues in "general terms" and that he
does not favor a weak yen. However, he could not have been more
explicit last Thursday in indicating that he will not be inclined
to aggressively intervene on behalf of the yen. He also reportedly
said that forex moves since the June 17 joint US-Japan intervention
have not been disruptive, suggesting that it will take a move above
the recent cyclical high of 146.73 yen to grab his attention
(although that isn't far away from current levels of 144.60 yen).
Worse still, Mr. Miyazawa raised some concerns about the
government's commitment to pursue an aggressive effort to
rejuvenate the economy. Mr. Miyazawa suggested that the 10
trillion yen stimulus plan put forward by Prime Minister Obuchi
during the campaign may not be needed. That raised the prospects
of continued, indecisive Japanese economic policy-making. In
addition, the finance minister suggested that he is in no hurry to
act on the economy. Regarding tax cuts he said that the scope and
timing of any tax cuts has yet to be determined, adding that he
plans to meet with the LDP's tax commission this week to talk about
tax cuts. To the forex markets, this appears to be the same old
muddled policy-making seen through most of this decade.
Lastly, Mr. Miyazawa even hinted that the government will
pursue the same tired strategy of protecting the largest
institutions of the Japanese banking system, regardless of their
solvency. Mr. Miyazawa last week said that he does not believe any
of the 19 largest Japanese banks will fail. Certainly some of
those banks are technically insolvent with bad loan estimates for
the system as a whole now running as high as $1 trillion. A return
to even more conservative policies than the Hashimoto government
embraced would certainly be a step backward for Japan and may force
the dollar/yen to a test of its recent high.
European Comment -- The European markets today will focus on
(1) the release of the UK CBI employment trends survey and M0 money
supply report, as well as the French July PPI and new car sales
reports, (2) the European credit markets which closed mixed last
Friday, and (3) the European stock markets which closed sharply
lower last Friday.
Germany -- This should be another relatively quiet week for
the German financial markets. The BBK remains on its summer
holidays and the next 3 weekly repo operations have already been
pre-announced at the fixed 3.30% rate seen since last October.
Moreover, expectations continue to center on early Q4 as the
earliest time frame for any tightening aimed at short-term rate
convergence ahead of EMU.
On the economic front, the July pan-German CPI report may be
released this week and is expected to show a modest downtick from
the +1.1% y/y increase seen in June. Such expectations are
centered on the preliminary July west German CPI report of +0.9%
y/y which was down from June's 1.1% y/y gain.
The July unemployment report is due out on Thursday.
Expectations call for a -30,000 worker decline on a seasonally-
adjusted basis. However, the German markets tend to pay much
closer attention to the unadjusted data. It was reported last week
that July west German unemployment rose mildly by at least 30,000
workers to more than 2.8 mln from June's 2.77 mln, according to a
purported leak last Thursday in a German newspaper. That leak was
denied by a government spokesperson.
The German credit market closed little changed last Friday.
Bullish factors included expectations that Asia's economic slowdown
will continue to curb global economic growth. The EU statistics
office reported that June inflation in the Euro-11 was unchanged
m/m and up +1.4% y/y. The German credit market is focussed on June
industrial production and Thursday's July unemployment.
The 10-year Bund yield last Friday closed unchanged at 4.630%
and posted an all-time low yield of 4.622%. Liffe Sep Bunds last
Friday closed up +.05 at 109.39 and posted a contract high of
109.44. The Liffe Dec Euromark last Friday closed down -.005 at
96.140 after posting a contract high of 96.185 on Jul 20th.
The Dax index last Friday closed down -45 points at 5861
(-0.8%), but held above last Wednesday's 5-week low of 5811 where
it sold off by a total of 407 points (6.5%) from the all-time high
of 6218 which was established last Tuesday. The Dax is up +38.75%
for the year to date in mark terms and +40.40% in US dollar terms.
France -- This should also be a fairly quiet week for the
French markets as the August summer holiday season has arrived.
The Bank of France is on holiday and will not hold another Council
meeting until Aug 20th.
In data released last Friday, the French June unemployment
rate fell by -0.1 point to a 2-1/2 year low of 11.8%. That was in
line with expectations and left the rate down -0.8 points from the
post-war high of 12.6% which was posted in June and July 1997. The
number of unemployed workers fell by about -0.5% m/m, although a
computer glitch prevented the exact figure from being released. It
will be released with the July unemployment report next month. The
decline in French unemployment over the past year (although the
drop in the rate did not really pick-up speed until last Nov) has
been fueled by falling unemployment among youths. That, in turn,
is tied to government programs which cloud the answer to whether
the French labor market is really beginning to strengthen.
The French franc last Friday closed .15 centimes stronger at
3.3526 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 slightly higher last Friday.
Jun unemployment fell -0.1% m/m to 11.8%, as expected. The EU
statistics office reported that June inflation in the Euro-11 was
unchanged m/m and up +1.4% y/y. The French credit market is
focussed on Wednesday's INSEE consumer confidence.
The 10-year Notional yield closed last Friday down -0.6 bp at
4.746% and posted an all-time low yield of 4.737%. The Sep
Notional bond closed up +.07 at 105.32 and posted a contract high
of 105.38. The Dec Pibor closed up +.005 at 96.165 after posting
a contract high at 96.220 on Jul 21st.
The CAC40 stock index last Friday closed -20 points at 4177
(-0.5%) as held above last Wednesday's 6-week low of 4095. On last
Wednesday's low, the CAC40 sold off by a total of 310 points (7.0%)
from the all-time high of 4405 (7/20/98). The CAC40 is up by
39.29% for the year-to-date in franc terms and by 40.04% in US
dollar terms.
UK -- The British financial markets this week will focus on
the 2-day monthly Monetary Policy Committee meeting on Wednesday
and Thursday. Expectations call for an unchanged monetary policy
but there is still the chance for another 25 bp tightening. The
MPC last month surprised the market with a 25 bp rate hike which
pushed the base rate up to 7.5%.
Speculation about a follow-up tightening centers on the Bank's
effort to meet its underlying inflation (RPIX) target of +2.5%.
While the RPIX did slow to +2.8% y/y in June from May's peak of
+3.2%, there are plenty of threats to price stability in the
British economy. Chief among these is the acceleration in wage
pressures. In April, underlying average earnings growth climbed by
+5.4% y/y, up from March's +5.3% and Feb's +5.0% pace, and well
above the +4.5% y/y ceiling which the Bank believes is consistent
with reaching its inflation target. Moreover, there are additional
wage pressures in the pipeline given the government's planned
introduction of a 3.60 sterling per hour minimum wage next April.
Speculation about a possible tightening also centers on the
recent softness in sterling. The MPC has previously spoken of the
strong pound as an important deferent against price pressures.
However, sterling has sold off by 8.69 pfennigs since the July MPC
meeting (from the July 9th close of 2.9849 DM to last Thursday's
8-week low of 2.8980 DM).
On the other hand, there is clear evidence that the British
economy is slowing. In fact, the pain in the manufacturing sector
was clearly visible in last week's CBI industrial trends survey
which showed the sharpest decline in business confidence in 7 years
as a net 44% of firms held a weak outlook on the economy. Slower
growth was seen in the advance Q2 GDP report of +0.5% q/q and +2.6%
y/y. That marked the slowest year-on-year increase in GDP in at
least 2 years and was moderately below the +3.0% pace seen in Q1.
In addition, June retail sales slowed to +2.6% y/y from May's +4.6%
pace. While sales were held down by the bad weather and the World
Cup, that was still the smallest year-on-year increase in sales in
2 years.
Perhaps the wildcard in the MPC's decision-making process will
be next week's release of the Quarterly Inflation Report. The MPC
will have to ask itself just how difficult it will be to leave its
policy unchanged this week if the Quarterly Inflation Report warns
that inflationary pressures will run above the +2.5% target over
the long-run. That inflation prediction is entirely possible since
next week's report will include the impact of the government's
expansionary fiscal policy which calls for real +2.75% increases in
spending in each of the next 3 fiscal years. That is far more than
the +1.5% real annual increases the bank assumed in its May report.
That fiscal easing will be frowned upon by the Bank's hawks.
Moreover, next week's report will include the new minimum wage in
its forecasts for the first time.
Sterling last Friday settled -.90 pfennigs at 2.9025 DM, as it
held above last Thursday's 8-week low of 2.8980 DM. On last
Thursday's low, the pound sold off by a total of 12.91 pfennigs
from the 2-1/2 month high of 3.0271 DM (7/2/98). On that 2-1/2
month 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 higher last Friday. Participants
are looking ahead to the BOE Monetary Policy Committee meeting this
week which is expected to produce an unchanged policy. The UK
credit market is focussed on today's July M0 money supply (June
+0.2% m/m, +5.5% y/y), Wednesday's July manufacturing production
and July industrial production, and Thursday's BOE Monetary Policy
Committee announcement.
The 10-year gilt yield last Friday closed -3.9 bp at 5.769%
after posting a 2-1/2 month high yield at 5.953% last Monday. Sep
gilts last Friday closed up +.38 at 109.04 after posting a 2-1/2
month low at 107.59 last Monday. Dec short sterling last Friday
closed up +.005 at 92.295 where it remained below the Jul 15th
1-3/4 month high of 92.370.
The FTSE index closed down -73.7 points last Friday at 5837.0,
as it held above last Wednesday's 6-week low of 5782.2. On last
Wednesday's low, the FTSE sold off by a total of 401.5 points
(6.5%) from the all-time high of 6183.7 (7/20/98). The FTSE is up
13.66% for the year-to-date in sterling terms and up 12.80% in US
dollar terms.
Asian Comment -- Japan -- The Japanese financial markets this
week will focus largely on this Friday's policy speech by newly-
elected Prime Minister Obuchi. The markets expect Mr. Obuchi to
reiterate his campaign promise for 6 trillion yen in permanent
individual and corporate tax cuts, as well as a 10 trillion yen
fiscal stimulus plan.
However, the key for the markets will be whether Mr. Obuchi
provides any details on the government's plan to clean up the
sclerotic banking system. A New York Times report last week
suggested that the outstanding amount of bad loans could total $1.0
trillion, nearly double previous estimates of about $600 billion.
The markets are hoping that Mr. Obuchi proposes an aggressive
clean-up of the banking system, similar to the way the US solved
its S&L crisis in the 1980s. Of course, the markets have been
waiting for such a plan from Tokyo for years, but hope was renewed
once again with the bridge bank scheme and the subsequent
replacement of the Hashimoto government. The bridge bank scheme is
clearly modeled on the Resolution Trust Corporation which was
established by US authorities to expedite the seizure of bad loans
and the dud assets that backed them. The hope is that Japan will
only allow so-called bridge banks to maintain credit lines to
worthy borrowers. The fear is that the bridge banks will keep open
credit lines to virtually all borrowers, especially the
politically-well-connected construction industry which employs some
10% of the labor force. Unfortunately, a vast number of
construction firms are insolvent. Maintaining credit lines to such
firms will not solve the banking crisis, but continue to sweep it
under the rug.
Certainly, a swift and aggressive clean-up of the banking
system will involve short-term pain on the economy. However, that
is preferable to the continued malaise seen in Japan throughout the
1990s which finally turned recessionary last year.
In data released last Friday, Japan's June unemployment rate
rose by .12 percentage points to a new all-time record high of
4.26% from May's 4.14%. The number of job holders in June fell by
-710,000 y/y, the steepest decline in 13 years. The average
workweek fell to 42.9 hours in June from May's 43.1 hours and the
year-earlier level of 43.3 hours. June non-farm payroll salaries
fell by -1.0% y/y, as overtime pay plunged by -9.2% y/y and as
bonus pay fell by -1.6% y/y.
The June labor supply-demand ratio fell by 0.02 points to
match the all-time record low of .51 originally posted in Jan 1978.
Overall new job offers fell by -0.4% m/m and by -5.6% y/y. However
there was a light ray of hope as new job offers climbed by +8.6%
m/m and by +4.0% y/y.
Still, the continued deterioration in Japan's labor market has
created a very negative cycle where consumer pessimism about jobs
leads to even more weaknessin the economy. Since the economy has
not yet hit bottom, and since the labor market lags the overall
economy, the labor market is likely to continue to get worse over
the near-term. Any significant recovery will have to wait until
1999 at the earliest.
Japan's June CPI of -0.4% m/m and +0.1% y/y suggested some
mild deflation since the CPI fell on a month-on-month basis and
since the CPI is generally believed to overstate inflation by as
much as 0.5-1.0 percentage points. The July Tokyo CPI was unch m/m
and -0.8% y/y. Japan is not in imminent danger of falling into a
deflationary cycle but the markets are nevertheless aware of the
risks.
June housing starts fell by -11.7% y/y to an annual rate of
1.213 million. June construction starts fell by -14.3% y/y, while
construction orders slipped by -3.9% y/y.
Prime Minister Obuchi last Friday said that he is determined
to carry out his pledge for 6 trillion yen in permanent tax cuts
and a 10+ trillion yen stimulus package. He said he expects to
pull the economy "back onto an upward trend within a year or two."
Finance Minister Miyazawa last Friday said that tax cuts will
need to be financed through deficit-covering bond issues. That
will likely weigh on the Japanese credit market. In a piece of
good news, Mr. Miyazawa denied that tax cuts would be financed
partly through lowering the minimum taxable income level (which
would have resulted in a tax increase).
The minutes from the June 25th BOJ Policy Board meeting showed
that theboard voted by an 8 to 1 margin to leave its policy stance
unchanged. Mr. Nobuyoki Nakahara voted for an immediate easing of
the overnight call loan rate to 0.40%. The Board agreed that the
economy worsened in the period since the previous meeting on June
12th, but was fearful that any easing would undermine the yen and
exacerbate the problems elsewhere in Asia.
The Nikkei index last Friday closed +177 points at 16,379,
recovering a bit further from last Monday's 3-week low. The Nikkei
index in late July moved lower from the recent 4-month high of
16,757 (7/16/98) where it recovered sharply by 14.66% (2,142
points) from the recent 6-month low of 14,615 (6/16/98).
Sep Tokyo JGBs last Friday posted a new 1-1/2 month high of
134.09 but then faded to close -.11 points at 133.53, just
moderately below the contract high of 134.43 (6/5/98). In London,
Sep JGBs settled at 133.49, little changed from the Tokyo close.
The benchmark No. 182 10-year JGB last Friday closed +1.5 bp at
1.240%, which is 11 bp above the recent all-time record low closing
yield of 1.130% (6/2/98). The Dec Euroyen last Friday closed -0.5
bp at 99.285, moderately above the recent 3-1/2 month low of 99.145
(6/26/98).
Asian Stock Market Closes: Japan Nikkei index +1.09%, Hong
Kong Hang Seng +.38%, Australia All-Ordinaries +.12%, Singapore
Straights Times Industrials +.44%, South Korea Composite Index
-.46%, Thailand Stock Exch -.01%, Taiwan weighted index -1.00%,
Philippines composite index -.37%, Malaysia composite index +3.37%,
China SE Shanghai A +.14%, Indonesia Jakarta composite index -.20%.
OPTIMA FINANCIAL NEWS SCHEDULE^ Monday 8/3/98
A. Today's News (local & GMT release times shown)
Mon US 0830 ET 1230 June personal income expected +0.3%, May
+0.5%;
June personal consumption expected +0.4%,
May +0.6%.
1000 ET 1400 July NAPM index expected -0.4 points to
49.2%, June -1.8 points to 49.6%.
1000 ET 1400 June construction spending expected +0.8%,
May -1.5%.
N/A Most US automakers release July sales
reports expected 13.0 mln unit annual rate,
June 14.4 mln unit pace.
1500 ET 1900 Treasury announces its quarterly borrowing
needs.
UK 0001 UK CBI releases its employment trends survey.
0930 UK 0830 July M0 expected +0.4% m/m & +5.7% y/y,
June +0.2% m/m & +5.5% y/y.
0930 UK 0830 July Purchasing Managers index.
FRA 0845 CET 0645 June PPI expected -0.2% m/m & -0.6% y/y,
May -0.2% m/m & -0.3% y/y.
1100 CET 0900 July new car registrations, June +9.1% y/y.
JPN 1400 JT 0500 July vehicle sales, June -9.2% y/y, with
passenger car sales -2.2% y/y.
1630 JT 0730 July forex reserves.
B. Future News
Sometime this week:
US N/A US to release report on auto trade with
Japan.
GER N/A June wholesale sales, real May sales +7.4%
y/y.
N/A June industrial production expected +0.4%
m/m & +3.2% y/y, May +1.0% m/m & +6.2%
y/y.
N/A June manufacturing orders expected +0.5%
m/m & +4.7% y/y, May -0.3% m/m & +8.7%
y/y.
N/A July pan-German CPI, June +0.1% m/m &
+1.2% y/y.
Tue US 0900 ET 1300 BTM/Schroder weekly retail sales, last +0.4%
w/w.
1000 ET 1400 June LEI expected -0.2%, May unch.
1030 ET 1230 Deputy Treasury Secretary Summers speaks
on the world economy at the National
Governors Association meeting.
1400 ET 1800 Minneapolis Fed Governor Stern speaks in
Billings, MT.
1440 ET 1840 Redbook retailer sales survey for week ended
Aug 1st, 1st 3 weeks +0.7%.
N/A GM expected to release its July vehicle sales
report, overall sales 13.0 mln unit annual rate,
June 14.4 mln unit pace.
CAN 0830 ET 1230 July building permits.
JPN 1400 JT 0500 June real household spending expected -1.2%
y/y, May -0.6% y/y.
Wed US 0930 ET 1330 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 to raise $10.2 bln in new
cash).
1000 ET 1400 July NAPM non-manufacturing index, June
-2.5 points to 61.5%.
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.
N/A Ford releases July vehicle sales, overall sales
13.0 mln unit annual rate, June 14.4 mln unit
pace.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence, last +2 points to 22.
CAN N/A 3-day Premiers' conference in Saskatoon
begins.
UK 0930 UK 0830 June industrial production expected +0.3%
m/m & -0.5% y/y, May -1.2% m/m & +0.8%
y/y.
June manufacturing production expected
-0.1% m/m & -0.6% y/y, May -0.4% m/m &
unch y/y.
0930 UK 0830 July Purchasing Managers service-sector
index.
N/A 2-day BOE MPC meeting begins.
FRA 0845 CET 0945 July household spending.
JPN N/A Finance Minister Miyazawa holds press
conference.
Thu US N/A July same-store retail chain sales reports.
0830 ET 1230 Initial unemployment claims for week ended
Aug 1st expected +16,000 to 320,000, last
-13,000 to 304,000.
1000 ET 1400 June factory orders expected unch, May
-1.8%.
1400 ET 1800 SF Fed President Parry speaks in Utah.
1630 ET 2030 Money supply report for week ended July
27th expected: M1 +$2.0 bln, M2 +$6.5 bln,
M3 +$10.0 bln; 1st-week reserves.
CAN N/A 3-day Premiers' conference in Saskatoon
continues.
UK 1100 UK 1000 CBI releases its July distributive trades
survey.
1200 UK 1100 2-day BOE MPC meeting concludes,
announcement expected at noon UK.
GER N/A July unemployment report expected -30,000
workers (seasonally adjusted), June -49,000
workers.
1700 CET 1500 OECD releases its report on Germany.
FRA 0845 CET 0945 INSEE releases its quarterly industrial survey.
Fri US 0830 ET 1230 July unemployment report: July non-farm
payrolls expected +75,000, June +205,000;
July manufacturing payrolls expected
-150,000, 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 expected +0.1
point to 4.6%, 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.
1430 ET 1830 Treasury announce details of next week's
52-week bill auction (expected $11.0 bln).
1500 ET 1900 June consumer credit, May +$400 mln.
CAN N/A 2-day Premiers' conference in Saskatoon
ends.
0700 ET 1100 July unemployment report.
JPN N/A Prime Minister Obuchi delivers his policy
speech to the Diet.
1400 JT 0500 June key machinery orders expected +3.0%
m/m, May -4.0% m/m.
1500 JT 0600 July city bank lending, June +2.9% y/y.
Week of Aug 10-14:
Sometime this week:
JPN N/A EPA releases its Aug monthly report.
Mon US 1300 ET 1700 Weekly Treasury auction of 3 & 6-month bills.
Tue US 0900 ET 1300 BTM/Schroder weekly retail sales.
1000 ET 1400 Q2 non-farm productivity, Q1 +1.1%, with unit
labor costs +3.1%
1000 ET 1400 Richmond Fed releases its July business
conditions survey.
1300 ET 1700 Treasury's quarterly refunding begins with
auction 5-year notes.
1440 ET 1840 Redbook retailer sales survey for week ended
Aug 8th.
JPN 0850 JT July wholesale prices, June -0.3% y/y; July
domestic WPI, June -2.1% y/y.
N/A BOJ Monetary Policy Board meeting.
Wed US 0900 ET 1300 Atlanta Fed releases its July economic
survey, June +0.2 points to 17.6.
1300 ET 1700 Treasury's quarterly refunding continues with
auction of 10-year notes.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
UK N/A BOE releases its Quarterly Inflation Report.
JPN 0850 JT BOJ releases its July bank lending report,
June -2.3% y/y.
Thu US 0830 ET 1230 Initial unemployment claims for week ended
aug 8th.
0830 ET 1230 July retail sales, June +0.1%; July non-auto
retail sales, June +0.1%.
1000 ET 1400 July import prices, June -0.5%; July export
prices, June -0.6%.
1300 ET 1700 Treasury's quarterly refunding concludes with
auction of 30-year bonds.
1630 ET 2030 Money supply report for week ended Aug 3rd;
July money supply report; 2nd-week
reserves.
JPN 0920 JT 0020 BOJ releases its monthly report.
Fri US 0830 ET 1230 July PPI, June -0.1%; July core PPI, June
+0.2%.
0830 ET 1230 June business inventories, May -0.1%; June
business sales, May +0.1%; June inv-to-
sales ratio, May -0.01 point to 1.38 mos.
0915 ET 1315 July industrial production, June -0.6%; July
capacity utilization rate, June -0.8 points to
81.6%.
JPN 1330 JT 0430 Revised June industrial production,
preliminary report was +1.3% m/m & -7.9% y/y.
1400 JT 0500 BOJ releases minutes from the July 16th
Monetary Policy Board meeting.
Week of Aug 17-21:
Mon US 1300 ET 1700 Weekly Treasury auction of 3 & 6-month bills.
N/A President Clinton gives video tape testimony
in the Lewinsky case.
Tue US 0830 ET 1230 June goods & services trade deficit, May
-$15.7 bln.
0830 ET 1230 July CPI, June +0.1%; July core CPI, June
+0.1%.
0900 ET 1300 BTM/Schroder weekly retail sales.
1000 ET 1400 July real earnings, June -0.3%.
1300 ET 1700 National Association of Home Builders release
their Aug home sales index, July +1 point to
72.
N/A FOMC meeting, announcement expected
between 2 and 2:15 PM EDT.
1440 ET 1840 Redbook retailer sales survey for week ended
Aug 15th.
Wed US 0830 ET 1230 July housing starts, June +5.6% to 1.615 mln
units.
July building permits, June -1.7% to 1.517
mln units.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
Thu US 0830 ET 1230 Initial unemployment claims for week ended
Aug 15th.
1000 ET 1400 Philadelphia Fed releases its Aug
manufacturing survey, July -16.6 points to
11.6.
1400 ET 1800 Fed releases minutes from the June 30th and
July 1st FOMC meeting.
1630 ET 2030 Money supply report for week ended Aug
10th; 1st-week reserves.
Fri US 1400 ET 1800 July Treasury statement, July 1997 -$25.624
bln deficit.
Future News:
Sep 9: Finance Minister Strauss-Kahn presents his final 1999 budget to
parliament.
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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