Update
Bank of England
As was opined in my 2/2 research missive, the Bank of England's Monetary
Policy Committee did opt to hike the BOE's Repurchase Rate by 25 basis points.
It's my view that this action, in tandem with the BOE's first rate increase
on 11/6, forecloses just a little bit more the Greenspan Gang's desire to be
irrationally exuberant indefinitely (forever) with regard to its own monetary
policy.
Following is an excerpt released after the MPC's two-day policy meeting
that concluded today:
"The Bank of England's Monetary Policy Committee today voted to raise the
Bank's repo rate by 0.25 percentage points. [Repurchase Rate from 3.75% to
4%.]
"...The world economic recovery has become more broadly based. In the
United Kingdom, output growth in the second half of last year was above trend and
business surveys point to a further pickup in the first quarter. Household
spending and borrowing have been resilient, and the housing market remains
strong."
"Although sterling has appreciated, continued growth above trend means
that inflationary pressures are likely to pick up gradually over the next couple
of years. Against that background, and despite CPI inflation currently below
the 2% target, the Committee judged that an increase of 0.25 percentage points
in the repo rate to 4.0% was necessary to keep CPI inflation on track to meet
the new target in the medium term. ..."
Latest ISM Numbers
The Institute for Supply Management's index covering the economy's
non-manufacturing activity during January, released yesterday, came in at a reading
of 65.7. This was somewhat better than the consensus estimate and compared
with a December result of 58.0.
However, as was the case with ISM's manufacturing index (released
Monday), yesterday's number received a major boost from seasonal adjustment. Note
below the one category that's an exception -- "prices." The applicable
adjustment actually served to suppress them.
The following table breaks out the seasonal-adjustment factors used to
calculate ISM's January non-manufacturing index. Repeated below it are the data
that were used to adjust the PMI. To help put a seasonal with a value of
less than one into better perspective, I'm excerpting a passage contained in
Tuesday's research missive, to wit:
"The factors used come from the Commerce Department ... In application,
the adjustment factor is a divisor, and a divisor of less than 1.0 becomes a
multiplier. Thus, I have shown the reciprocal of each of the ... seasonals ...
to illustrate the impact on the January results. And as the numbers show, the
"multiplier effect" was quite material.
--------------------------------------------------
SEASONAL-ADJUSTMENT FACTORS APPLIED TO
THE INSTITUTE FOR SUPPLY MANAGEMENT'S
JANUARY NON-MANUFACTURING INDEX
--------------------------------------------------
------- Category (See Below) -------
[1] [2] [3] [4]
--------------------------------------------------
1/2004
Seasonal 0.913 0.948 0.974 1.021
--------------------------------------------------
Seasonal
Reciprocal 1.095 1.055 1.027 0.979
--------------------------------------------------
Weight (No Weights Provided)
--------------------------------------------------
[1]Business Activity, [2]New Orders.
[3]Employment, (4)Prices.
--------------------------------------------------
SEASONAL-ADJUSTMENT FACTORS APPLIED TO
THE INSTITUTE FOR SUPPLY MANAGEMENT'S
JANUARY PURCHASING MANAGERS' INDEX
--------------------------------------------------
------- Category (See Below) ------
[1] [2] [3] [4] [5]
--------------------------------------------------
1/2004
Seasonal 0.957 0.949 0.993 0.993 0.992
--------------------------------------------------
Seasonal
Reciprocal 1.045 1.054 1.007 1.007 1.008
--------------------------------------------------
Weight 30% 25% 20% 15% 10%
--------------------------------------------------
[1]New Orders, [2]Production, [3]Employment,
[4]Supplier Deliveries, [5]Inventories.
--------------------------------------------------
T-Bond Short
I have not given up on the goal of getting a Treasury bond short position
on the books in the model bond account. After my ill-fated last effort in
this area, the one resulting in a day-trade in the Treasury 5.375s of 2031, I'm
letting the dust settle a bit to reassess the appropriate levels at which a
transaction that will last longer than a few hours might make sense.
For some time, I had thought that something in the general range of 4.75%
to 4.90% was possible, and it was -- but for such a short period accompanied
by such high volatility that I missed getting done what I wanted to do. Which
was to establish a maximum short that would have entailed approximately
400,000 par value. I got a mere 150,000 par value on the books at a yield of 4.82%.
And when the 4.82% turned into a 4.92% a few hours later, with the account
holding the substandard position, I took the quick gain and ran!
Maybe something below a 4.90% yield basis remains possible, but I'm
beginning to think a short at something considerably richer than that is
increasingly unlikely. At any rate, I want everyone to know that shorting the long
on-the-run Treasury remains on my radar screen.
And Then There Were Five
I speak here of the remaining Democrat Presidential hopefuls. Six
recently became five, when Joe Lieberman threw in the towel after his poor showing
in Tuesday's seven Democrat political events. And in reality, there are only
three viable candidates remaining, since Dennis Kucinich and the Reverend Al
Sharpton never at any time came within miles of even resembling viable.
And according to today's news, Howard Dean may seriously be considering
hitting the road, too. The story goes that his showing on 2/17 in the
Wisconsin primary will determine that. (My own view: Even with some success in
Wisconsin, Democrats won't have Dr. Dean to kick around much longer.)
On the other side of the political aisle, I'm gearing up for another
President Bush "interview" pretty soon. In the meantime, here's the schedule for
the next few weeks of Democrat festivities.
------------------------------------------------------
PAST/FUTURE 2004 DEMOCRAT PRIMARY/CAUCUS ACTIVITY*
------------------------------------------------------
Date St. Cau. Pri. Winner Date St. Cau. Pri. Winner
-------------------------- --------------------------
01/19 IA x Kerry 02/14 DC x
01/27 NH x Kerry 02/14 NV x
02/03 AZ x Kerry 02/17 WI x
02/03 DE x Kerry 02/17 HI x
02/03 MO x Kerry 02/24 ID x
02/03 NM x Kerry 02/24 UT x
02/03 ND x Kerry 02/24 CA x
02/03 OK x Clark 03/02 CT x
02/03 SC x Edwards 03/02 GA x
=========================== 03/02 MD x
02/07 MI x 03/02 MA x
02/07 WA x 03/02 MN x
02/08 ME x 03/02 NY x
02/10 TN x 03/02 OH x
02/10 VA x 03/02 RI x
03/02 VT x
------------------------------------------------------
*Depending on the state and the nature of the con-
test, non-winners may still receive some delegates.
------------------------------------------------------
Preview
* I had three days of downtime this week on a major portion of my
computer capacity. It did not affect research work, but it has set me back -- again
-- on getting out the detailed memorandum on the website. This memo will be
out early next week!
* Tomorrow morning (8:30 AM [ET]), the Labor Department will release
employment data covering January. All employment reports have a tendency to push
the markets around after their release. Tomorrow's impact might be even more
exaggerated, though, since the consensus expectation is for a very large gain
in payroll jobs -- upwards of 170,000. There were high expectations for the
December, too, which came in at a paltry 1,000.
I have a strange feeling about tomorrow's report. It's nothing I can put
a specific finger on. I just have a feeling that the figure(s) will contain
some variety of major surprise. Something that would not surprise me very much
would be to see the December payroll number revised upward substantially. If
so, however, it also would not surprise me to see a December upward revision
come at some expense to the January result.
At any rate, I will look over the Labor Department's offering and get out
a short piece sometime thereafter.
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