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What might next week bring to us?
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Financial markets are transfixed by the speed with which the rest of the world is following the U.S. economy into its credit-driven downturn, with the dollar recovering sharply as the heat switches to Europe and Japan and oil and commodities retreating rapidly on demand concerns.
The next shoe to drop for most investors would be signs the giant emerging economies of Brazil, Russia, India and China -- crucial drivers of the rapid global expansion this decade -- are now following suit. Seepage of G7 economic weakness -- where five of the seven have now printed negative Q2 GDP -- into the emerging world may now determine the extent of the dollar rally, the depth of the commodities pullback and hence the inflation and interest rate outlook everywhere.
Many commentators, including former Fed chief Greenspan, are reluctant to forecast the end of the global credit crunch until they can see US housing market bottoming. With two consecutive housing reports over recent weeks coming in better than forecast for July, there will be intense interest in Monday's National Association of Home Builders report and Tuesday's housing starts/permits release for clues to the health of US homes. With financial markets rapidly pricing in interest rate cuts in the euro zone, UK and elsewhere -- any sign of stabilisation of US housing will underpin the dollar rally by reinforcing expectations that the next U.S. interest rate move is up.
As the second-quarter corporate earnings season in the United States and Europe winds down, the focus on how ugly macroeconomic numbers will start to feed into Q3 company estimates is already in focus. Q2 reports in Europe have been mixed but avoided the worse case scenario and analysts currently have a relatively benign outlook for Q3 as the euro and input prices ease. However, Q4 may be a very different story.
Traders see no rate hike this year
Treasuries gained, driving yields on two-year notes close to a three-month low, as falling commodity prices and a strengthening dollar spurred speculation the Federal Reserve won't raise interest rates this year.
Ten-year notes gained for a third straight week as central bank policy makers said in speeches and interviews the economy is unlikely to improve soon. Reports showed sales at U.S. retailers dropped in July for the first time in five months. The euro zone's economy contracted for the first time since the European common currency debuted in 1999.
The yield on the two-year note fell 12 basis points, or 0.12 percentage point, this week to 2.39 percent in New York, according to BGCantor Market Data. It touched 2.31 percent, close to the lowest since May 21. The price of the 2.75 percent security due in July 2010 rose 7/32, or $2.19 per $1,000 face amount, to 100 22/32.
The 10-year note's yield dropped 10 basis points this week to 3.84 percent. It touched 3.82 percent, the lowest since July 16. Yields on 30-year bonds fell 7 basis points to 4.46 percent.
Treasuries remained higher even after a report showed consumer-price growth quickened in July more than expected. The Standard & Poor's 500 index rose 0.2 percent on the week.
`Extremely Sluggish'
Investors bought bonds as credit-market losses widened after JPMorgan Chase & Co. said Aug. 12 it will write down the value of mortgage-backed assets by at least $1.5 billion this quarter and UBS AG forecast ``adverse economic and financial trends'' will continue this year.
Chicago Fed President Charles Evans said in a speech at Bloomington, Illinois the, second half will ``likely be extremely sluggish'' and inflation should ease ``over the medium term.'' Other Fed policy makers said this week the worst for the U.S. may still be ahead as bank losses mount and credit conditions tighten.
Consumer spending at U.S. retailers in July fell 0.1 percent from a month earlier, the Commerce Department said Aug. 13. Home seizures by banks rose the most since reporting began in 2005, RealtyTrac Inc. of Irvine, California, said.
Mortgage finance company Fannie Mae's 30-year bond yields yielded 5.96 percent yesterday, 2.12 percentage points more than 10-year Treasuries, according to data compiled by Bloomberg. That's 26 basis points from the 22-year high of 2.38 percentage points on March 6, about a week before the Fed helped bail out Bear Stearns Cos.
Traders boosted bets the Fed will leave its target rate for overnight lending between banks at 2 percent through December, futures contracts on the Chicago Board of Trade showed. The likelihood yesterday was 74 percent, compared with 62 percent a week earlier and 49 percent a month earlier.
The dollar advanced 1.8 percent against the currencies of six trading partners as the euro region's economy weakened.
Ten-year Treasuries yield less than the annual rate of inflation by close to the most since 1980. The so-called real yield is now a negative 1.8 percentage points.
Falling commodity prices have stoked speculation the global economy will weaken enough to cap inflation. Crude oil futures have declined 24 percent from a record $147.27 a barrel on July 11. The Reuters/Jefferies CRB Index of 19 raw materials has dropped 20 percent from its July 2 peak.
`Shift in Fed-Speak'
``We've had commodities come off a little bit, and we've had a reasonably significant shift in Fed-speak,'' said Ian Lyngen, an interest-rate strategist in Greenwich, Connecticut, at RBS Greenwich Capital, another primary dealer.
Minneapolis Fed President Gary Stern warned last month of inflation, and Dallas Fed President Richard Fisher dissented at the central bank's Aug. 5 decision to keep rates unchanged. Both have since said the economy is weakening.
Treasuries also gained this week as a portion of more than $43 billion in government debt maturing yesterday reentered the market. They included issues of three-, five-, and 30-year securities, according to the Treasury Department.
Net purchases of Treasury notes and bonds by foreign investors increased $28.3 billion in June, compared with $5.7 billion a month earlier, the Treasury Department said.
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| Tarih
: 8/17/2008 |
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© 2006 Mert TOKER All Rights Reserved. |
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