What Are Treasuries Telling Us About The Next Fed Meeting?
Stocks rallied after the
non-manufacturing managers survey indicated that the service sector of the US
economy is showing signs of improvement. Meanwhile, Treasuries continued higher
today in the wake of Mr. Greenspan’s comments yesterday that signaled the Fed
may cut rates at its next meeting in order to preempt deflation, despite the
relatively small risk associated with this event will occur.
Equities
Equities rallied on major advances in
computer-related shares–hardware, semiconductor, and communications equipment
indexes–pharmaceutical and diversified bank stocks. Meanwhile, auto stocks were
lower after the world’s fifth largest carmaker said one of its major units will
not meet its goal for a full-year operating profit of $2 billion. The Nasdaq
future
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up 13.75 to finish at 986.25,
and the Dow
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Fixed Income
Treasuries rose for a second straight day after
Mr. Greenspan signaled upped the likelihood of a rate cut yesterday. The July
Fed funds future is now pricing in a 90% chance of a 25 bp cut. Additionally,
the 2-year note now has a lower yield than the current fed funds rate–again,
implying that that the Fed will continue to lower rates. The 10 year futures contract
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up -100 to close at 119-195; the 30 year
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was up -15 at 121-05; and the five year note was up 160 at 116-290
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Metals
July gold
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stronger dollar–speculative longs in gold are now at a record 68,000 contract,
which could trigger a decent correction in the commodity–and stronger stocks.
The yellow metal finished lower by 3.5 to close at 362.60;
silver
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result of the tepid auto data. Copper was up .50 at 78.05
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down .0055 to close at .6625.
Energy
Crude was down for a second day after US crude
inventories rose unexpectedly during the latest week. July crude
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was down .27 to close at 29.78. And natural gas was up by .053 to
close at 6.322
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Currencies
The dollar rose for a fourth session against the
euro on the increasing likelihood that the European Central Bank will lower
rates tomorrow. The USD index
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finished at 93.56.