Bonds Explode Confidently

  • January 30, 2001
  • Marc Dupee

Debt futures across the yield curve rallied and T-bonds
exploded as a much weaker-than-expected Consumer Confidence Survey turned
traders more confident than at any time so far this year that the Federal
Reserve will take aggressive rate-cutting action tomorrow to stimulate the
economy.  

This morning’s Consumer Confidence tumbled by its biggest month-to-month margin
in over four years. Markets took the report to mean that the Fed is likely to
cut rates by 50 basis points, and may in fact become even more proactive by
continuing to aggressively cut rates in coming months. 

Indeed, the February Federal Funds futures
(
FFG1 |
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PowerRating),
went even further in the wake of today’s report, pricing in a slight 6% chance
of a 75-basis-point move by the end of February. The March Fed Funds
(
FFH1 |
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PowerRating)
priced in as high as a 96% chance of a 75-basis-point cut by the end of that
month, and April
(
FFJ1 |
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PowerRating) rallied to price as much as a 100 b.p cut by the
end of that month. By the end of June, the futures is pricing in a certain
100 b.p cut and a 12% chance of a 125-basis-point cut. This would leave Federal
Fund futures–the rate the Fed charges banks for short-term loans–somewhere
between 4.75% and 5.00% by the summer. 


T-bonds
(
USH1 |
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PowerRating) and 10-year notes
(
TYH1 |
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PowerRating) also shot
higher now that economic conditions point to a weakening economy and a more aggressive easing stance required by the Fed. March bonds closed 1 1/32
higher at 103 15/32 and TYH1 finished 16/32 higher at 104 25/32.

Stock index futures closed mixed after starting in a
holding pattern ahead of tomorrow’s FOMC rate announcement. Today’s action in
basics and consumer stocks took Dow futures
(
DJH1 |
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PowerRating) for their biggest
rally in weeks, hinting these may be the areas most likely to (continue to) benefit
from sharper cuts. Du Pont
(
DD |
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PowerRating), International Paper
(
IP |
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PowerRating) and Proctor
& Gamble
(
PG |
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PowerRating) all rallied between 3% and 6%. Dow futures ended 168.00
higher at 10,920, making good on their Volatility
setup. 

The S&P futures
(
SPH1 |
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PowerRating) burst out of
intraday handles to close up 12.00 at 1382.00 and have been showing upside price
persistency, enough to place them on the Momentum-5
List for the past five days. 

Nasdaq 100 futures
(
NDH1 |
Quote |
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PowerRating) closed 8.00 lower
at 2697.50, unable to capitalize on their Pullback From Highs
and Momentum readings.  

March dollar index futures
(
DXH1 |
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PowerRating) sank, losing .85 to 110.97,
on the prospect of even lower interest rates, and higher relative interest rates
in different nations. The Japanese yen
(
JYH1 |
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PowerRating), euro FX futures
(
ECH1 |
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PowerRating),

Swiss franc
(
SFH1 |
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PowerRating) and British pound
(
BPH1 |
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PowerRating)Live cattle
(
LCG1 |
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PowerRating) and feeder cattle
(
FCH1 |
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PowerRating) plunged on mad cow fears that have been swirling in the media in
Europe and have immigrated to US news outlets. Feeders exhibited the
second-strongest downside momentum on the Implosion-5 List
and tanked 1.500 to 85.375, their daily limit. 

Cocoa
(
CCH1 |
Quote |
Chart |
News |
PowerRating) tested lower levels, but came
back to end 11 higher at 1056 and leave a bullish tail, reiterating the market’s
strength that has led it to dominate the Momentum-5
List.