Inverted yield curve ahead? Not after this week’s action
In today’s shortened session even the
Employment Report failed to stir much interest, coming in slightly below
forecasts. August Non-Farm Payrolls increased by 169,000 versus the
consensus estimate of 190,000. The Unemployment Rate improved to 4.9% (from 5.0%
in July) versus the consensus estimate of 5.0%.
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for the Employment Situation Summary.
US treasuries closed slightly lower today, 10yr T-Note
-0.08%, 5yr T-Note -0.05% and 2yr T-Note -0.02%. The big event of
the week in the treasury market was the dramatic move in 2yr-notes, which had
the biggest price gain since January 2002. 2yr-note yields (which mover
inversely to price) hit the lowest level in more than 8-weeks as the market
reassessed the likelihood the Federal Reserve will continue to raise interest
rates in the aftermath of hurricane Katrina and recent economic data that
indicates the economy is slowing. 2yr-note yields have declined 35 basis points
this week and the spread between 10yr T-Notes and 2yr T-Notes has widened
sharply. The possibility of an inverted yield curve has diminished greatly this
week.
The US dollar experienced heavy selling, reinforcing the view
that interest rates will stop rising. The dollar had its biggest weekly drop
versus the euro since November as damage estimates from hurricane Katrina ranged
from $25 bln to $100 bln and could trim 0.5% of GDP.
Today’s report by the US Minerals Management Service showed
the number of platforms and rigs still evacuated or shut down declined sharply
but the production lost remained very high. 40.05% of 819 platforms and 39.55%
of 137 rigs in the Gulf of Mexico remain evacuated or shut down. Daily oil and
gas production lost in the Gulf of Mexico was 88.53% and 78.66% respectively.
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Energy prices declined as more details emerged about the
release of crude oil from the Strategic Petroleum Reserve and the EU pledged to
donate oil to the US. Harbor Unleaded Gas -9.35% led the energy complex
lower, followed by Heating Oil -4.89%,
Crude Oil -2.73% and Natural Gas -0.56%. Read other articles on
possible effects Katrina will have on interest rates, commodities, stocks and
currencies by
Mark Boucher,
Thomas Neuhaus and
Kathy Lien.
Cocoa +3.26% continued to rally as rebel forces and pro-government militias
moved closer to violence in Ivory Coast. To make matters worse the UN announced
a Cholera epidemic is spreading through west Africa.
Also in the softs, Coffee -2.04%, Cotton -0.18%
and Frozen Orange Juice -0.16% closed lower, Sugar closed
unchanged, while Lumber +0.61% closed higher.
The grains experienced selling, reports estimate that losses
stemming from Katrina could be as much as $1 bln due to higher fuel costs,
cancelled exports and transportation problems. Corn -1.92%, Soybeans
-1.24% and
Wheat -0.47% all declined.
Livestock was mixed, Lean Hogs -0.64% fell, Feeder
Cattle +0.65%, Pork Bellies +0.38% and Live Cattle +0.19%
rose.
In the metals, Copper +1.55% hit a 2-week high in New
York after a report by the LME showed inventories fell. Prices in London
hit a new all-time high. Demand for copper is also likely to increase due to
Katrina.
Economic News
Employment Report:
Non-Farm Payrolls, M/M Change – Actual 169,000 Consensus 190,000
Unemployment Rate, M/M Change – Actual 4.9% Consensus 5.0%
Average Hourly Earnings M/M Change – Actual 0.1% Consensus 0.2%
Average Workweek M/M Change – Actual 33.7 Consensus 33.7
Challenger Job-Cut Report:
Announced Layoffs – Actual 70,571
Ashton Dorkins