02 May 2001
the surface, real U.S. Gross Domestic Product grew by 0.5%, or at
an annualized rate of 2% for the first quarter (2001). That was
only the first surprise, but it was enough to give dollar bulls
the impetus to hammer back Forex markets on Friday, as it was first
despite broad dollar momentum, the GDP data upset a premature recovery
effort in the Treasury bond, and forced a retest of the prior week's
lows before pulling itself up again by Tuesday, of this week, in
order to threaten a two week double bottom - with neckline resistance
at 102 on the June contract.
Association of Purchasing Managers Index
Year Treasury Price - 3 month chart
Tuesday, bond traders were fed fresh news from the manufacturing
front: the National Association of Purchasing Managers informed
us that their index couldn't muster enough valor to, well, exceed
market expectations. Further troubling for the bond bears
(though even more so for the Treasury) were reports, which have
begun to reveal that auto sales fell so significantly in April that
discounts couldn't even lure customers into the car lot. As regards
the Treasury, I wonder how many people had already spent their "tax
refund" in the first quarter, considering that autos were the single
one largest factor affecting the consumption component of this GDP
even giving that a second thought, however, the still optimistic
crowd on Wall Street grabbed the moment and bid up stock prices
in anticipation of yet another ½ point rate cut (Bloomberg headline).
Undoubtedly, the boys club (which includes ladies these days) at
the Federal Reserve Board approved of the equity market's belated
reaction to their repeated stimuli, even if stock prices weren't
the official target of their deliberations. Nonetheless, it does
not tend to work out well for them when markets price in additional
rate cuts, before they arrive.
Week in the GIC:
Should the Fed Target a Dollar/Gold Price?
New versus Old Dollar Paradigm
Outlook for Dollar / Gold
views on the retirement of the public debt spoken to the Bond
Market Association in West Virginia, April 27 2001.
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Edmond J. Bugos
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