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Goldman Sachs now sees Fed rate increase Tuesday
Fri Sep 16, 2005 02:57 PM ET
NEW YORK, Sept 16 (Reuters) - Goldman Sachs said on Friday it no longer expects the Federal Reserve to pause in its campaign to tighten interest rates at Tuesday's policy meeting.
In a note to clients, Goldman Sachs economists said the energy price shock generated by Hurricane Katrina as well as greater uncertainty about the economic outlook had "created a rationale for a pause."
"However, given the Fed's apparent comfort with market expectations and press reports to the contrary, we reluctantly have to conclude that a rate hike is now the most likely outcome next week," the economists said.
The Federal Reserve holds its next regular policy meeting on Sept. 20, and the majority of Wall Street finance houses polled by Reuters expects another quarter-point rate increase, which would be the 11th in a row.
Goldman Sachs said that over the longer term, the reconstruction of productive capacity destroyed by Katrina would boost both growth and inflation.
"Assuming that the economy proves resilient, as we expect, the longer-term impact of Katrina will be to lift interest rates," they said.
"In fact, given that Katrina has worsened the growth/inflation trade-off, there is a risk of a higher peak in interest rates than before," Goldman Sachs said.
Treasuries falter as inflation fears favor bears
Fri Sep 16, 2005 03:24 PM ET
(Adds analyst comments, updates prices)
By Pedro Nicolaci da Costa
NEW YORK, Sept 16 (Reuters) - Treasury debt sold off for a third session on Friday, sending benchmark yields to one-month highs as bearish technicals and growing inflation fears obscured a Katrina-related plunge in U.S. consumer confidence.
The University of Michigan's sentiment index fell to a 13-year low in September, but the market was too worried about an accompanying spike in inflation expectations to glean any benefit from Americans' gloomy assessment of the economy.
"One-year inflation expectations spiked from 3.1 percent to 4.6 percent, by far the highest reading since 1990," noted Stephen Stanley, chief economist at RBS Greenwich.
Coupled with two regional surveys this week showing a huge jump in factory costs for September, the data suggested the Federal Reserve would err on the side of caution and continue raising interest rates to ward off price gains.
This prospect hurt Treasuries across the yield curve, with benchmark 10-year notes (US10YT=RR: Quote, Profile, Research) losing 12/32 for a yield of 4.26 percent. At the height of the selling, yields reached 4.28 percent, the highest since mid-August and sharply up from 4.21 percent Thursday.
The break above 4.25 percent, a key chart support level, exacerbated the selling. Two-year notes (US2YT=RR: Quote, Profile, Research) also took a hit, slipping 4/32 to yield 3.96 percent from 3.89 percent.
"This move is a broader recognition that the Fed will continue tightening, that there will be significant fiscal stimulus (after the hurricane) and that there are significant risks to the inflation picture," said Joseph Di Censo, a fixed-income strategist at Lehman Brothers.
"The Treasury market has maybe had a moment of awakening here."
It was quite a brutal reality for bonds, too, since investors were reluctant to buy even on weak economic data given the underlying anxiety over inflation.
Five-year notes (US5YT=RR: Quote, Profile, Research) slid 8/32 for a yield of 4.05 percent, up from 3.99 percent. The 30-year bond (US30YT=RR: Quote, Profile, Research) dropped 23/32 to yield 4.55 percent from 4.51 percent.
CONFIDENTLY IGNORING SENTIMENT
Ultimately, the market failed to react to the plunge in confidence primarily because analysts have grown wary of such numbers in recent years.
They have not had a strong record of predicting actual spending, since consumers keep buying cars and homes in earnest even as they complain about their gloomy financial situation to sentiment surveys.
September's drop was unusually large, of course. But that only reinforced a sense that it was simply a knee-jerk reaction to the hurricane rather than the start of a persistent trend.
The index swooned to 76.9 so far this month, the lowest since 1992, from 89.1 in August, according to sources who saw the subscription-only report. Expectations about the future were also at their worst in 13 years.
"These are abysmal numbers, suggesting a deeply pessimistic consumer in the first half of September," said Christopher Low, chief economist at FTN Financial.
But again, strategists would wait for hard data on retail sales before they actually took any market positions based on the fallout of the Hurricane, and weekly chain store sales have so far proven resilient.
© Reuters 2005. All Rights Reserved.
US SWAPS - Inflation, rate worries widen spreads
Fri Sep 16, 2005 03:35 PM ET
NEW YORK, Sept 16 (Reuters) - Spreads on U.S. interest rates widened on Friday on worries that growing price pressure will keep the Federal Reserve on its campaign to increase short-term interest rates, analysts said.
Swap spreads expanded sharply for a second day, widening as much as 1.25 basis points. Ten-year spreads grew to 44.25 basis points, matching their widest closing level on May 23.
Spreads finished wider for the week after tightening earlier this week that was tied to hedge demand on new debt supply.
The 10-year swap yield rose 5 basis points to 4.70 percent, while the benchmark 10-year Treasury yield (US10YT=RR: Quote, Profile, Research) increased 5 basis points to 4.26 percent.
However, the two-to-10-year segment of the swap curve flattened slightly to 35.3 basis points, but finished more than 5 basis points steeper for the week.
Market players brushed off Friday's bond-friendly economic data and falling oil prices, and instead fretted over what the Fed may say in its policy statement after Tuesday's policy meeting, analysts said.
A pair of reports which showed heavy foreign buying of U.S. assets including bonds (USFBT=ECI: Quote, Profile, Research) in July and a plunge in U.S. consumer sentiment (USMSENT=ECI: Quote, Profile, Research) in early September failed to support the bond market, said Beth Malloy, bond market analyst at Briefing.com in Chicago.
NYMEX Oct crude futures (CLc1: Quote, Profile, Research) fell $1.75 to $63.00 a barrel, which was $1 lower than a week earlier.
In a Reuters poll conducted on Thursday, a majority of the Wall Street primary dealers expect the Fed to increase the key fed funds rate, the overnight borrowing cost between banks, for the 11th time since 2004 to 3.75 percent.
Investors lightened on curve-flatteners or bailed out of swaps outright, putting pressuring on swap spreads, analysts and traders said.
"You are seeing a lot of (flatteners) unwinding. And there are inflation worries," Malloy said,
Inflation concerns were heightened on Thursday after a pair of regional Fed manufacturing reports whose price indices rose sharply in September. They suggested that manufacturers paid much more for goods and services, and charged customers higher prices to make up for higher costs.
© Reuters 2005. All Rights Reserved.
Fri Sep 16, 2005 02:57 PM ET
NEW YORK, Sept 16 (Reuters) - Goldman Sachs said on Friday it no longer expects the Federal Reserve to pause in its campaign to tighten interest rates at Tuesday's policy meeting.
In a note to clients, Goldman Sachs economists said the energy price shock generated by Hurricane Katrina as well as greater uncertainty about the economic outlook had "created a rationale for a pause."
"However, given the Fed's apparent comfort with market expectations and press reports to the contrary, we reluctantly have to conclude that a rate hike is now the most likely outcome next week," the economists said.
The Federal Reserve holds its next regular policy meeting on Sept. 20, and the majority of Wall Street finance houses polled by Reuters expects another quarter-point rate increase, which would be the 11th in a row.
Goldman Sachs said that over the longer term, the reconstruction of productive capacity destroyed by Katrina would boost both growth and inflation.
"Assuming that the economy proves resilient, as we expect, the longer-term impact of Katrina will be to lift interest rates," they said.
"In fact, given that Katrina has worsened the growth/inflation trade-off, there is a risk of a higher peak in interest rates than before," Goldman Sachs said.
Treasuries falter as inflation fears favor bears
Fri Sep 16, 2005 03:24 PM ET
(Adds analyst comments, updates prices)
By Pedro Nicolaci da Costa
NEW YORK, Sept 16 (Reuters) - Treasury debt sold off for a third session on Friday, sending benchmark yields to one-month highs as bearish technicals and growing inflation fears obscured a Katrina-related plunge in U.S. consumer confidence.
The University of Michigan's sentiment index fell to a 13-year low in September, but the market was too worried about an accompanying spike in inflation expectations to glean any benefit from Americans' gloomy assessment of the economy.
"One-year inflation expectations spiked from 3.1 percent to 4.6 percent, by far the highest reading since 1990," noted Stephen Stanley, chief economist at RBS Greenwich.
Coupled with two regional surveys this week showing a huge jump in factory costs for September, the data suggested the Federal Reserve would err on the side of caution and continue raising interest rates to ward off price gains.
This prospect hurt Treasuries across the yield curve, with benchmark 10-year notes (US10YT=RR: Quote, Profile, Research) losing 12/32 for a yield of 4.26 percent. At the height of the selling, yields reached 4.28 percent, the highest since mid-August and sharply up from 4.21 percent Thursday.
The break above 4.25 percent, a key chart support level, exacerbated the selling. Two-year notes (US2YT=RR: Quote, Profile, Research) also took a hit, slipping 4/32 to yield 3.96 percent from 3.89 percent.
"This move is a broader recognition that the Fed will continue tightening, that there will be significant fiscal stimulus (after the hurricane) and that there are significant risks to the inflation picture," said Joseph Di Censo, a fixed-income strategist at Lehman Brothers.
"The Treasury market has maybe had a moment of awakening here."
It was quite a brutal reality for bonds, too, since investors were reluctant to buy even on weak economic data given the underlying anxiety over inflation.
Five-year notes (US5YT=RR: Quote, Profile, Research) slid 8/32 for a yield of 4.05 percent, up from 3.99 percent. The 30-year bond (US30YT=RR: Quote, Profile, Research) dropped 23/32 to yield 4.55 percent from 4.51 percent.
CONFIDENTLY IGNORING SENTIMENT
Ultimately, the market failed to react to the plunge in confidence primarily because analysts have grown wary of such numbers in recent years.
They have not had a strong record of predicting actual spending, since consumers keep buying cars and homes in earnest even as they complain about their gloomy financial situation to sentiment surveys.
September's drop was unusually large, of course. But that only reinforced a sense that it was simply a knee-jerk reaction to the hurricane rather than the start of a persistent trend.
The index swooned to 76.9 so far this month, the lowest since 1992, from 89.1 in August, according to sources who saw the subscription-only report. Expectations about the future were also at their worst in 13 years.
"These are abysmal numbers, suggesting a deeply pessimistic consumer in the first half of September," said Christopher Low, chief economist at FTN Financial.
But again, strategists would wait for hard data on retail sales before they actually took any market positions based on the fallout of the Hurricane, and weekly chain store sales have so far proven resilient.
© Reuters 2005. All Rights Reserved.
US SWAPS - Inflation, rate worries widen spreads
Fri Sep 16, 2005 03:35 PM ET
NEW YORK, Sept 16 (Reuters) - Spreads on U.S. interest rates widened on Friday on worries that growing price pressure will keep the Federal Reserve on its campaign to increase short-term interest rates, analysts said.
Swap spreads expanded sharply for a second day, widening as much as 1.25 basis points. Ten-year spreads grew to 44.25 basis points, matching their widest closing level on May 23.
Spreads finished wider for the week after tightening earlier this week that was tied to hedge demand on new debt supply.
The 10-year swap yield rose 5 basis points to 4.70 percent, while the benchmark 10-year Treasury yield (US10YT=RR: Quote, Profile, Research) increased 5 basis points to 4.26 percent.
However, the two-to-10-year segment of the swap curve flattened slightly to 35.3 basis points, but finished more than 5 basis points steeper for the week.
Market players brushed off Friday's bond-friendly economic data and falling oil prices, and instead fretted over what the Fed may say in its policy statement after Tuesday's policy meeting, analysts said.
A pair of reports which showed heavy foreign buying of U.S. assets including bonds (USFBT=ECI: Quote, Profile, Research) in July and a plunge in U.S. consumer sentiment (USMSENT=ECI: Quote, Profile, Research) in early September failed to support the bond market, said Beth Malloy, bond market analyst at Briefing.com in Chicago.
NYMEX Oct crude futures (CLc1: Quote, Profile, Research) fell $1.75 to $63.00 a barrel, which was $1 lower than a week earlier.
In a Reuters poll conducted on Thursday, a majority of the Wall Street primary dealers expect the Fed to increase the key fed funds rate, the overnight borrowing cost between banks, for the 11th time since 2004 to 3.75 percent.
Investors lightened on curve-flatteners or bailed out of swaps outright, putting pressuring on swap spreads, analysts and traders said.
"You are seeing a lot of (flatteners) unwinding. And there are inflation worries," Malloy said,
Inflation concerns were heightened on Thursday after a pair of regional Fed manufacturing reports whose price indices rose sharply in September. They suggested that manufacturers paid much more for goods and services, and charged customers higher prices to make up for higher costs.
© Reuters 2005. All Rights Reserved.
- bella l'apertura del bund 
... questo è un'articolo di uno dei più ascoltati opinionisti in materia di FED, buona lettura e buon caffè 
humm
