| Home Page
Mortgage News You Can Use
Iconocast SEM
US TREASURY OUTLOOK - Waiting for payrolls
Reuters, 02.04.04, 6:13 PM ET
By Ellen Freilich
NEW YORK, Feb 4 (Reuters) - New data on jobless claims, productivity and remarks by an influential Federal Reserve official will be features of trading in U.S. government securities on Thursday, but a big market move is unlikely with monthly employment data due the next day.
Economists polled by Reuters estimate that 340,000 new jobless claims were filed in the week ended Jan. 31, little changed from 342,000 filed a week earlier.
A preliminary estimate of fourth-quarter productivity is expected to be up 3.0 percent, those economists said, after a 9.4 percent third-quarter gain.
A productivity increase of that size would be "respectable," though slower than the average for the past four quarters, said Michael Moran, chief economist at Daiwa Securities America.
One reason for the expected sharp drop-off in the size of the productivity gain in the fourth quarter from the third is the "large random component" of the series, Moran said. The other reason is cyclical.
In the early stages of recovery, businesses are not operating at the most efficient levels, Moran said. As activity picks up, they begin operating at more efficient levels, spurring big gains in productivity. As the recovery progresses, productivity gains are more difficult to achieve.
But both the productivity and jobless claims numbers will be very much in the shadow of Friday's employment data, analysts said.
"Every month the payroll employment report casts a shadow over trading activity in the days leading up to it, but this month it's an especially long shadow," said Chris Rupkey, vice president and senior financial economist at Bank of Tokyo/Mitsubishi. "The productivity numbers will be interesting; there's no job creation, so all this GDP is getting created by the same number of jobs. And if jobless claims continue their descent, it might give people more confidence in the larger payroll growth estimates for Friday."
Rupkey said the market is now at a risky junction.
"The market is more afraid of a weak employment number than it is of a strong one," he said.
While the consensus forecast for January payroll growth is 150,000, chatter about an even higher number indicates that the market may already have factored in growth above 150,000 jobs.
"The number is going to have to be simply enormous to drag bond prices down," said Rupkey.
If job growth is weaker than the market's worst fears, a relief trade could push bond prices up and yields, which move in the opposite direction, lower.
"January is the third month in a row that the market has been promised a 150,000 or higher number and if we don't get it, the market is going to roar," Rupkey said.
"We are looking at (a range of) 4.00 to 4.25 (percent) on the 10-year yield and we think that another (payrolls) number like December's (when payrolls added just 1,000 jobs) would push us down to test the old low of 3.90 percent," said Jon Blumenfeld, interest-rate strategist at BNP Paribas.
Rupkey said the market might rally on news that January payrolls expanded by 150,000 jobs.
"The Federal Reserve wants to see job growth, so it's not as if they're going to tighten as soon as they see some job growth," he said.
Fed Governor Ben Bernanke could underscore that point when he speaks about the economy and monetary policy at a luncheon in Columbia, South Carolina on Thursday.
"There's been some rethinking about what the Fed's thinking since its statement was released last week," said Moran.
Last Wednesday, the Fed dropped a long-standing pledge to keep official interest rates low for "a considerable period." Instead, it said it could be "patient" in raising interest rates from a 1958 low of 1.0 percent. The Fed last raised rates in May 2000.
"There's less concern about near-term tightening of monetary policy," Moran said. "As people thought about it, they understood the word "patient" is very close to "considerable period."
Benchmark 10-year yields finished at 4.12 percent.
Copyright 2004, Reuters News Service
Continue with:
|
