Dados para esta semana: Bulls eye bonds, baseball?

[notiCIas]

Bulls eye bonds, baseball?

Confused investors look to Treasury market, Fed chief for hints about the economy, interest rates.

June 5, 2005: 9:22 PM EDT
By Alexandra Twin, CNN/Money Staff Writer


NEW YORK (CNN/Money) - Please, Maestro, no baseball metaphors next week.

Confusion about what "inning" the Fed is in regarding raising interest rates -- not to mention zooming oil prices, a see-sawing bond market and a weaker than expected May payrolls report -- stopped a nearly month long stock rally dead in its tracks last week.

Whether the rally can be recharged next week may depend on what Federal Reserve Chairman Alan Greenspan has to say in his two scheduled speeches, not to mention how the Treasury bond market and oil markets behave.

Investors were thrown on Wednesday when new Dallas Fed President Richard Fischer indicated that the Fed is in the eighth inning of its tightening cycle. The baseball analogy, made in an interview with a news channel, was taken to mean both that the economy is perhaps not as strong as had been thought and that the central bank may not raise rates again after its June meeting.

"Suddenly, after Fischer's comments, everyone thinks the Fed will raise rates once more and stop, when previously everyone thought they would raise for at least two more meetings," said Paul Mendelsohn, chief investment strategist at Windham Financial Services.

Although Fed Governor Edward Gramlich Friday sought to downplay the comments, the damage may have already been done.

"Greenspan is giving a speech Monday night to some overseas bankers, then Thursday he will speak to Congress," said James Awad, chairman at Awad Asset Management. "Investors will be looking to him to clarify."

The Fed chair's comments are unlikely to echo Fischer's, or to offer any inning predictions, said John Davidson, president and CEO at PartnerRe Asset Management.

"He may say something to the effect that the economy remains strong and that they will continue to raise rates," Davidson said. He added that whether the Fed boosts rates beyond June and by how much will be dependent on future economic reports.

Watch the Treasury market
After slumping to nearly two-month lows Friday morning, bond yields abruptly reversed course in the afternoon, with the benchmark ten-year note yield surging to 3.97 percent by the close. Treasury bond prices and yields move in opposite directions.

Should bond yields continue to jump next week, that could keep the pressure on stocks, Mendelsohn added. And yields are likely to keep rising in the week ahead, as traders try to drive demand up ahead of two big auctions in Treasuries -- five-year notes on Wednesday and ten-year notes on Thursday.

Because of continued worries about oil prices, stock investors are also likely to focus on the Wednesday meeting between the European Union and OPEC, the international oil cartel. The EU will likely urge OPEC to boost its output, Mendelsohn said, due to worries about how higher oil prices and the recent weakness in the euro will hurt European economies.

Intel's mid-quarter update after the close Thursday will be of interest as well, the analysts said, particularly in light of the big run up that tech stocks, particularly chips, have had over the last few weeks.

In addition, a number of analysts have recently raised their earnings forecasts on Intel, amping up the pressure for the chip leader to deliver.

"Intel is going to have to have a very, very good report, or we could see more selling in that sector," Mendelsohn added.

Key events in the week ahead

Coca-Cola and Altria will be among the companies appearing at the Deutsche Bank Securities global retail and consumer conference on Monday. The two Dow components may issue earnings guidance or other hints about the health of their companies.


Alan Greenspan speaks via satellite to the China Banking panel Monday evening. The Fed chair also speaks before the Joint Economic Committee Thursday morning.


Motorola and Cisco Systems are among the companies due to appear at the Bear, Stearns annual technology conference Wednesday and may also issue forward-looking comments.


The April wholesale inventories report is due Wednesday. Inventories are expected to have risen 0.4 percent in the month, according to a consensus of economists surveyed by Briefing.com. Inventories rose 0.4 percent in March.


Intel gives its mid-quarter update after the bell Thursday. The technology leader has previously forecast revenue of between $8.6 billion and $9.2 billion for the second quarter and gross margins, a key measure of profitability, of 56 percent.


The April trade balance is due Friday. The deficit is expected to have widened to $58.0 billion in the month, from $55.0 billion in March.