DJ Debt Futures Review: Technical Strength After Soft Data, Stocks
By Allen Sykora
BEND, Ore. (Dow Jones)--Interest-rate futures in Chicago gained technical
momentum Thursday as they rose for the fourth day in a row and with the Dec
10-year notes above a key Fibonacci level, traders and analysts said.
The impetus for the most recent round of buying came from a rise in
weekly jobless claims, a widening of the U.S. trade deficit, soggy stocks and
muscular crude oil.
Dec 10-year notes settled up 14 ticks at 113-17, Dec Treasury bonds
gained 22 ticks to 113-13, and Mar Eurodollars rose 4 basis points to 97.595.
"Yesterday's close above 113 (in Dec 10-years) really shifted my opinion
and made me neutral on the market, if not mildly bullish," said Kevin
Riordan, Commodity Trading Adviser in Chicago with Fox Investments, a
division of Man Financial.
The area around 113 represented the 61.8% Fibonacci retracement of the
declines from the late-September highs to the early-October lows.
"If the bears were still in control, we should not have broken above 113
the way we did yesterday," said Riordan. The fact the contract reversed back
above this level so quickly "is an indication the market is much stronger
than we had thought."
Data Thursday morning showing that the U.S. trade deficit widened to $54
billion in August from $50.55 billion in July provided some support, said
Riordan and Kathleen Stephansen, director of global research in New York with
Credit Suisse First Boston.
As did traders Thursday morning, Riordan pointed out that this could mean
a downward revision in third-quarter gross domestic product.
"The economy might not be as strong as people had thought," he
said. "This morning's trade-balance number really caught the market by
surprise. When they see those types of figures, they anticipate that much of
the goods that consumers were buying over the summer were from companies
overseas."
A rising deficit also creates worries about international demand for
U.S. products, added Stephansen.
The 15,000 rise in first-time weekly jobless claims to 352,000, which
was above forecasts for 340,000, was yet another supportive influence, added
Stephansen.
"One has to take this with quite a grain of salt," she said. "There is a
lot of seasonal volatility, and the four-week average (a seven-month high of
353,000) might have been inflated by hurricane-related claims. So by no means
is this a clean number.
"But it (the debt market) really did react positively to that."
Riordan and Stephansen also cited the weaker tone in equities as
supportive for interest-rate products. "Some asset reallocation has given us
some support," said Stephansen.
The Dow industrials are down by triple digits.
"Crude oil also has people nervous," added Riordan. Nov crude gained
$1.12 to $54.76. The continued rise in this contract has generated worries
higher energy prices could hurt economic momentum, which in turn would be
supportive for interest-rate products.
The market will get a heavy slate of economic data on Friday. Reports
set for 0730 CT (1230 GMT) include:
-- the September Producer Price Index, expected to rise 0.1%, with core
PPI excluding food and energy expected to be up 0.2%;
-- September retail sales, forecast to jump 0.7% while sales excluding
autos are forecast to be up 0.3%; and
-- the New York Fed's Empire State Manufacturing Survey, with the
headline number expected to slip to 25.6 in October from 28.3 in September.
The Federal Reserve is scheduled to report on industrial production at
0815 CT (1315 GMT). The consensus forecast is for a 0.2% increase in
September, with capacity utilization expected to expected to hold at 77.3%.
The University of Michigan is due to issue its mid-month consumer-
sentiment index around 0845 CT (1345 GMT). The forecast is for a 94.2
reading, the same as at the end of September.
Lastly, August business inventories are scheduled for a release at 0900
CT (1400 GMT). The forecast is for a 0.7% increase.
Also on Friday, Federal Reserve Chairman Alan Greenspan is scheduled to
speak about oil at 1100 CT (1600 GMT), appearing before the National Italian-
American Foundation in Washington.
-By Allen Sykora; Dow Jones Newswires; 541-318-8765;
[email protected]
(END) Dow Jones Newswires