Your Economy (No Politics)

[Bullwinkle]

Overnight Debt/Forex Report
Thursday, February 9, 2006 8:13:30 AM
By Garry Shilson-Josling, AAP Economist
http://www.aap.com.au


SYDNEY, Feb 9 AAP - US Treasuries ended modestly weaker on Wednesday as investors braced themselves for the final leg of the Treasury's quarterly refunding later today and a rallying share market offered an alternative home for funds. European bonds ended about steady as early gains were halted by the firming equity market.

The Australian bond futures market weakened marginally overnight in line with Treasuries as traders battened down the hatches ahead of the monthly employment report from the Australian Bureau of Statistics (ABS) today.

In the foreign exchange market yesterday's pullback in the US dollar gave way to a resumption of the former upward trend.

It was helped by second-hand reports that just-retired Federal Reserve chairman Alan Greenspan had spoken at a private function held by Lehman Brothers on Tuesday, and hinted at a more bearish interest rate outlook than currently factored into the money market.

The reports should be treated with great caution - if Greenspan's view on Tuesday differed significantly from the market's assessment of it only a week earlier when he was still chairman, it would imply either an implausibly dramatic change of mind in only a few days, or one of the most spectacular failures of communication in the history of central banking.

Since before the latest US rate hike to 4.50 per cent from 4.25 per cent on 31 January the futures market has been factoring in another, to move fed funds to 4.75 per cent, on 28 March.

A further hike to 5.00 per cent on 10 May or 29 June had been given a less-than-even chance, but opinions have hardened over the past couple of weeks. A fed funds rate of 5.00 per cent is now seen as strongly likely, although futures only moved 1-2 ticks on Wednesday after news of Greenspan's comments leaked out into the market.

In any case, the US dollar was half a yen higher from yesterday afternoon at JPY141.68 at 0745 AEDT, the euro was down by a quarter of a cent at $US1.1953, the pound was half a cent lower at $US1.7409.

The Australian dollar was steadier at $US0.7386, after bouncing off support at $US0.7370, EUR0.6150 and JPY87.00, but stalling on the rebound to just over $US0.7400.

With the exception of nickel, most base metals were lower again overnight, which could weigh on the Aussie today if the employment figures show no signs of strength, although a likely better performance by the local share market today should be an offsetting positive.

The US Treasury's auction of $US13 billion of 10-year notes on Wednesday attracted bids totalling 2.32 times the offering.

That was a reassuring sign of solid demand, and so was the news that indirect bidders had taken up a hefty 40.4 per cent of the total after buying only a little more than one fifth of the $US21 billion of three-year notes sold on Tuesday.

Even so, prices backed down as dealers lightened their books ahead of the auction of $US14 billion of 30-year bonds on Thursday, the first long bond sale for four years, and pondered the reports of Greenspan's talk.

The two-year Treasury note ended at 4.63 per cent from 4.60 per cent at the previous close, while the 10-year note finished the day at 4.59 per cent from 4.58 per cent.

In the US share market, the S&P 500 index gained 0.8 per cent.

The FTSE Eurotop 100 index fell by 0.3 per cent, partly a response to Wall Street's losses the day before, but trended higher through the course of the day after a soft start.

The UK 10-year gilt ended steady at 4.21 per cent and the German 10-year bund was also unchanged, yielding 3.49 per cent at the close on Wednesday.

In the Sydney Futures Exchange's overnight session the March three-year bond futures contract fell by 2.0 ticks to 94.73 (5.27 per cent) and 10-year lost 3.0 ticks to 94.675 (5.325 per cent).

Today the focus will be on the January labour force data from the ABS.

The unemployment rate is expected to be steady at 5.1 per cent, where it was both in December and January last year, with employment expected to be up by about 14,000 (0.14 per cent) in the month and by 172,800 (1.75 per
cent) from a year before.

Most of that annual growth would have been racked up in the first six moths of the past year, with growth of only 17,300 in the six months to January.

Those result would be consistent with a wait-and-see attitude from the Reserve Bank of Australia, although trends in the full-time jobs component are probably a better guide to the state of the labour market and therefore to the outlook for interest rates.

In the US there are no major macroeconomic data releases due, although the weekly unemployment insurance claims data, a timely snapshot of labour market pressures, will bear watching.

OVERNIGHT MARKETS
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US interest rates: Yield changes:
(Late New York) Yield Latest Prev. day
3m T-bill (yield) 4.50% 0.01% 0.03%
2 year note (cash) 4.63% 0.03% -0.01%
5 year note (cash) 4.55% 0.03% 0.02%
10 year note (cash) 4.59% 0.01% 0.03%
30 year bond (cash) 4.68% 0.02% 0.04%
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Australian futures: Yield changes:
Instrument: Price Yield O'night Prev. Day
90 day bills (Dec) 94.38 5.62% 0.01% 0.00%
90 day bills (Mar) 94.39 5.61% 0.01% -0.01%
3 yr bond (Sep) 94.73 5.27% 0.02% -0.05%
10 yr bond (Sep) 94.675 5.325% 0.030% -0.045%
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Foreign exchange: Changes:
Rate: Level O'night Prev. day
AUD/USD 0.7386 0.0004 -0.0041
AUD/JPY 87.54 0.44 -1.20
AUD/GBP 0.4242 0.0013 -0.0015
AUD/EUR 0.6180 0.0017 -0.0032
USD/JPY 118.54 0.52 -0.93
EUR/USD 1.1953 -0.0022 0.0001
EUR/JPY 141.68 0.37 -1.11
GBP/USD 1.7409 -0.0047 -0.0035
NZD/USD 0.6771 -0.0015 -0.0048
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* Note: The tables of debt and forex prices show the changes between the previous Australian afternoon closes and the end of overnight trading, along with the changes in the preceding 24 hours.

http://www.fxstreet.com/nou/noticies/afx/noticia.asp?pv_noticia=aapnew2006291330