Rising Labor Costs Support Upward Bias In T-Bonds

• August 27, 1999
• Manuel Ochoa

PREVIOUS POSITIONS
Market	Long/Short	Enter	size=2 color=000000>Exit	size=2 color=000000>P/L (per contract)
Sep. 99 T- bonds	Long	113-19	114-02	$468.75
Sep. 99 S&Ps	Short	1380	1364	$4000
Sep. 99 Swiss franc	Long	.6710	.6705	-$62.50

CURRENT POSITIONS (AS OF 8/27/99)
Market	Date	Long/Short	Enter	Stop	size=2 color=000000>Target
Sep. 99 T-bonds	–	Flat	–	–	–
Sep. 99 S&Ps	–	Flat	–	–	–
Sep. 99 Swiss franc	–	Flat	–	–	–

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Note: All price levels are approximate.

T-bond futures

The September futures [USU9>USU9] dropped today on profit taking after Greenspan made a speech today and hinted that labor costs may be rising faster than expected. (He said accounting distortions may be the reason for this.)

The personal income report had little effect on prices. We still believe bonds will be range-bound for the rest of the year, with a slight upward bias. The last part of the rally we had this week was made up of a lot of short covering, which is not supportive on an intermediate-term basis.

S&P 500 futures

The September contract [SPU9>SPU9] fell today on follow-through from yesterday’s price movement. The market was overbought after the recent rally and complacency was too high, as evidenced by the VIX (CBOE volatility index). We covered our shorts at our objective and have now moved to the sidelines. The bond market being in a trading range should influence the stock market similarly.

Figure 1. September S&P futures (SPU9), 15-minute bar. Liquidation of short sale, 16-point profit. Source: Quote.com.

Currency futures

The September Swiss franc [SFU9>SFU9] and Euro [ECU9>ECU9] did little today after an uneventful week. There have been few opportunities this month and we suspect that a decrease in volume has been the main reason. Many traders are on vacation, especially in Europe. Stay tuned.

Next update: Monday, August 30, 1999.

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