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Dec Bund secures 114.60 support -- probes 115.26 top next; Dec Bobl builds on 110.80 base -- rallies to 111.40 resistance
Sales at U.S. retailers may have fallen in August as receipts at car dealers slumped, economists said ahead of a report today. A 0.1 pct decline was likely last month after July's 0.7 pct advance.
DEVELOPMENTS TO WATCH TODAY: Sept. 14 - Europe
- German investor confidence probably declined to the lowest in more than a year in September as higher oil prices and rising unemployment weigh on a recovery in Europe's largest economy, a survey of economists showed. The ZEW Center for European Economic Research's index of institutional and analyst sentiment may have fallen to 45 from August's 45.3, the median of forecasts. ZEW will release the report at 11 a.m. in Mannheim. Germany's economy is lagging that of the U.S. as companies threaten to cut jobs, hurting consumer confidence which last month fell to the lowest since June 2003. As a 37 percent surge in oil prices this year jeopardizes foreign demand, a German recovery may struggle to gather pace. Exports drove German growth in the past year. In the U.S., economists have cut half a percentage point from their third- quarter growth forecast over the past two months and now expect the world's largest economy to expand at a 3.7 percent annualized rate in the period.
- Sales at U.S. retailers may have fallen in August as receipts at car dealers slumped, a survey of economists showed ahead of a government report today. A 0.1 percent decline was likely last month after July's 0.7 percent advance, according to the median of forecasts. Excluding autos, sales probably rose 0.2 percent, the same as in July, for the smallest gains since spending declined in February. The Commerce Department issues the report at 8:30 a.m. in Washington. Surging gasoline prices and a slowdown in payroll gains in June and July limited the ability and willingness of consumers to spend. Sales may recover this month, according to economists, and H. Lee Scott, chief executive of Wal-Mart Stores Inc., said last week he's ``optimistic'' about the Christmas shopping season.
- New Zealand retail sales rose for a third month in July, buoyed by higher household incomes and consumer spending that may prompt the central bank to raise interest rates to a four-year high next month. Retail sales rose 1.2 percent from June, Statistics New Zealand said in Wellington, citing seasonally adjusted figures. Economists forecast sales would be unchanged. From a year earlier, sales gained 8.1 percent. House prices jumped almost a fifth in July from a year earlier and the second-quarter jobless rate was a 17-year-low 4 percent, boosting the wealth of households and encouraging consumers to borrow and spend. Reserve Bank Governor Alan Bollard last week increased interest rates for a fifth time this year to slow the economy and said another increase is likely.
- Canadian companies intend to add workers at a faster pace in the fourth quarter, including factories that have had to cope with a surge in the country's dollar, according to a survey by Manpower Inc. The poll's net employment outlook, which subtracts the percentage of companies that plan to fire workers from the share that expect to add staff, rose 3 percentage points to 17 percent in the fourth quarter. All 10 industries surveyed said they intend to hire. Canadian manufacturers had to cut costs this year to match foreign competition after a record 21 percent rise in the dollar in 2003, and unions and economists predicted job cuts would be needed to do it. Factories employ 2.3 million Canadians, or about one in seven workers, and hired 3,400 people between January and August, suggesting they are economizing elsewhere.
- Crude oil was little changed after rising 2.5 percent yesterday as Hurricane Ivan disrupted supply to ports on the Gulf of Mexico, where more than half of U.S. oil imports arrive and 50 percent of the nation's fuel is refined. Royal Dutch/Shell Group was evacuating oil rigs yesterday and the Louisiana Offshore Oil Port, the nation's biggest import terminal, stopped offloading tankers. Ivan is forecast to hit the U.S. near the Alabama-Florida border early tomorrow, about 170 miles (274 kilometers) from the port. Crude oil for October delivery rose 4 cents to $43.91 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 12:54 p.m. Singapore time. Yesterday, the contract rose $1.06 to $43.87 a barrel. Prices are 56 percent higher than a year ago. Natural gas for October delivery rose 28 cents, or 6.2 percent, to close at $4.85 per million British thermal units in New York. It traded at $4.90 per million British thermal units in after-hours trading.
Bond Market Summary -
U.S. 10-year Treasuries fell in Asia on the view five-month low yields already reflect the outlook for waning economic growth and a slower pace of interest rate increases than some previously expected. Ten-year yields yesterday fell to near their lowest since April after Fed Governor Susan Bies said there is ``no urgency'' to boost the central bank's key interest rate until there are more signs of stable growth. Policy makers will meet next week for the first of three meetings left this year. The 4 1/4 percent note maturing in August 2014 fell 3/32, or 94 cents per $1,000 face amount, to 100 26/32 at 1:20 p.m. in Singapore. Its yield rose 1 basis point to 4.15 percent. The yield was 4.11 percent on Aug. 31, its lowest close since early April and has dropped from 4.88 percent in mid-June.
Monday's summary: The bond market closed Monday's session just shy of the highs with a price run up aided by oil prices, which rallied on Ivan's shipment disruption. Bond trade has reclaimed loses suffered last week and is looking to test some key technical levels (4.125% for starters). Comments from Fed governor Bies offered support, while PIMCO's Gross talked positively of TIPS and international bonds.
Investors had little economic data to consider Monday outside of a new quarterly services sector report, which showed that revenue growth in the second quarter among the services categories covered in the survey rebounded sharply from a lackluster first quarter. That positive news was partially blunted, however, by another jump in oil prices as traders speculate that Hurricane Ivan could disrupt offshore drilling activity in the Gulf of Mexico. Overall, bond prices rose, pushing the yield on the 10-year Treasury note down nearly three basis points to 4.15%.
Mixed trading marked Monday's fed funds session. The start of the week was relatively light in terms of new data, giving trading no apparent direction. fed fund contract prices were varied, with near-term contracts seeing some marginal gains, while medium-term contracts saw equally small price increases. This resembles the activity for much of the past month as traders have had little news on which to base significant changes to their expectations. Given current contract prices, the consensus remains certain of a 25 basis point tightening following the September 21 FOMC meeting. Prices indicate a pause during one of the final two FOMC meetings on the year; November appears the most likely month, but given the volatility in these contracts, the consensus could easily shift in the upcoming weeks and months.
- Dec 04 T-Bond - the bond contract found support at 110-28, firmer than we expected, and is set to probe major resistance. The contract may trade sideways further from here but support seems well established above 111-00. The rally should go on thereafter, test and then finally break the 111-28 barrier -- which is a signal that the 113-07 contract high will be in jeopardy.
- Dec 04 10-yr Note - the note contract support at 112-06, sooner than expected, and is set to test major resistance area. The contract nay go sideways further but support seems firm above 112-10. The rally should resumes soon -- the uptrend should test the 112-25 high, then finally take out the 113-05 top.
- March 05 3-mo. Eurodollars -- the rally has been to 97.575 and did pullback, but found support sooner than expected. With support firm at 97.52, the contract should rally towards the 97.65 top. We have the upside target to 97.80 further out still, objective which are confirmed by break of the 97.65 top.
- Dec 04 German Bunds - the contract found support sooner than we thought at 114.60 -- with firm support established, the contract should advance further towards the 115.26 top, and should eventually should extend gains further towards the 116.16 contract high.
- Dec 04 German Bobl - the contract has been to 111.20 but consolidates somewhat -- support is expected at 110.70. But the uptrend should thereafter proceed to the 111.40 top, which is now the next focal point, and should extend higher thereafter towards 111.81 contract high.
DEVELOPMENTS TO WATCH TODAY: Sept. 13 - New York
- Industrial production in France, Europe's third-biggest economy, rose for a third month in July, led by food and machinery manufacturing. Growth in June was more than double the previous estimate. Production increased 0.2 percent from June, Paris-based government statistics office Insee said. In June, output climbed 0.5 percent from May, compared with the 0.2 percent initially reported. July output advanced 3.2 percent from a year earlier. Economists had expected a 0.3 percent July increase, according to the median forecast of 29.
- Crude oil futures rose on concern hurricane Ivan may disrupt output and shipments in the Gulf of Mexico, source of a quarter of U.S. oil and gas production. Royal Dutch/Shell Group, BP Plc, Exxon Mobil Corp. and Kerr- McGee Corp. yesterday began evacuating non-essential workers from platforms in the eastern Gulf. Ivan is forecast to make landfall in Alabama, closer to rigs than Charley and Frances. Output may still be unaffected as the storm brushes past. Crude oil for October delivery rose 15 cents to 42.96 at 12:16 p.m. London time in electronic trading on the New York Mercantile Exchange after adding as much as 82 cents to $43.63 a barrel. It has gained 32 percent this year.
- Wal-Mart Stores Inc., the world's largest retailer, said September same-store sales are rising within forecast for a gain of 2 percent to 4 percent as shoppers bought back to school supplies. The discounter had forecast a gain of as much as 4 percent from a year earlier. Bentonville, Arkansas-based Wal-Mart updated results at U.S. stores open at least a year through Friday in a recorded call.
- OPEC, pumping oil at the fastest pace in 25 years, has little ammunition left to reduce near- record prices at a meeting in Vienna this week, and some analysts are forecasting crude above $40 a barrel for the rest of the year. Ministers of the OPEC, producer of about 40 percent of the world's oil, gather Sept. 15 in Vienna to consider raising the group's official output limits and price targets. OPEC is ignoring a current quota of 26 million barrels a day, producing 8.1 percent above that in August. The problem now is not one that OPEC can solve; New York oil will probably sell for $41 or $42 a barrel by year-end. Demand is the key variable; OPEC's got no more capacity to speak of.
Bond Market Summary -
Early market indications: The market has been treading water through the weekend, looking to hold itself in a tight range ahead of the big-ticket numbers (CPI, industrial production and capacity utilization), which do no hit until late in the week. The Federal Reserve has a muzzle on until post - Sept 21 FOMC announcement, and the calendar is fairly dry, so expect technical levels to drive trade and watch for levels to be the sticking points. Technical analysts say there is a mild bearish bias in the very short-term, but ownership structure and the overall trend remains positive for prices.
Susan Bies, NY Fed Reserve Governor, told a New Mexico crowd Sunday, economy is "not hitting on all cylinders...no urgency" to lift key rate.
The U.S. 10-year Treasury note rose in Asia after Federal Reserve Governor Susan Bies said there is ``no urgency'' to lift interest rates as the central bank waits for evidence the economy is accelerating. The economy is ``not hitting on all cylinders,'' Bies said yesterday in Albuquerque, New Mexico. Economists slashed half a percentage point from third-quarter estimates in the past two months on concern higher energy prices will curb consumer spending on other items. With growth expectations being revised, there is still room for Treasuries to rise; there's also less concern of rising inflation, and that will push yields lower. The 4 1/4 percent note maturing in August 2014 rose 3/32, or 94 cents per $1,000 face amount, to 100 19/32 at 11:03 a.m. in Singapore. Its yield fell 1 basis point to 4.17 percent.
Friday's summary: Treasury prices shot up in the wake of the PPI release, but gave back much of the gains by the end of the session. The absence of a sustained rally is due in part to the details of the producer price report. Renewed acceleration in core and intermediate goods prices supports the likelihood of continued policy tightening by the Fed. Both the 5-year and 10-year note coughed up one basis point, yielding 3.40% and 4.18% respectively.
Fed funds contract prices increased across the board on Friday. The subdued PPI release eased traders' inflationary fears. While intermediate goods showed some upward price movement, the decline in the headline number pushed stronger expectations for a pause in monetary tightening. Given current contract prices, the consensus remains certain of a 25 basis point tightening following the September 21 FOMC meeting. Prices indicate a pause in during one of the final two FOMC meetings on the year, which would place the target rate at 2.00% by year end.
- Dec 04 T-Bond - no change in outlook -- the bond contract was primed by PPI data on Friday, and consolidates sideways to lower, waiting for fresh leads -- support expected at 110-22 area. The rally should go on, then test and finally break the 111-28 barrier -- which is a signal that the 113-07 contract high will be in jeopardy.
- Dec 04 10-yr Note - no change in outlook -- the bond contract found good news from benign PPI data on Friday and consolidates sideways to lower -- support should firm up at circa 112-00. But the rally resumes soon -- the uptrend is about to test the 112-25 high, then finally take out the 113-05 top.
- March 05 3-mo. Eurodollars -- the rally has resumed from 97.48 minor support and has been to 97.575 and may pullback to 97.49 again -- we have the upside target to 97.80 further out still, objective which are confirmed by break of the 97.65 top.
- Dec 04 German Bunds - the contract has been to 115.11 and pulls back somewhat -- support should appear at 114.45. But it should thereafter advance further towards the 115.26 top, which is now the next target, and eventually should extend gains further.
- Dec 04 German Bobl - the contract has been to 111.20 but consolidates somewhat -- support is expected at 110.70. But the uptrend should thereafter proceed to the 111.40 top, which is now the next focal point, and should extend higher thereafter.
News, data, references and commentaries compiled from Bloomberg, Reuters, Financial Times, Wall Street Journal, CBSMarketWatch, Briefing.com, and Economy.com
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