wmeubank@ocp.kcmo.com
IRA EPSTEIN & COMPANY
223 West Jackson, 7th Floor, Chicago, Illinois
(November 17, 1997) FINANCIAL INSTRUMENTS: T-BONDS–The important day last week was Friday, when overall PPI and retail sales were released. Both numbers were bullish. Overall PPI was reported to be up only 0.1% (estimate was 0.2%) and retail sales were down 0.2% in October with September's reading revised to —0.1% after originally being reported as a 0.3% gain.
This lent support to the December bond future with the December bond option expiring at noon. Other factors that could have also lent support to bond future were tensions in the Middle East as well as the decline in gold prices which were down as much as $8 to $300 per ounce; an area that hasn't been seen in over twelve years.
An abbreviated summary of this week's economic reports and forecasts:
Tuesday 7:30 am: October Consumer Price Index
Median forecast: 0.2% Prior: 0.2%
Tuesday 9:00 am: October Real Earnings
Median forecast: 0.3% Prior: —0.3%
Wednesday 7:30: October Housing Starts
Median forecast: 1.47M Prior: 1.50M
Thursday 7:30: September Trade Deficit
Median forecast: —10.0B Prior: —10.4B
Questions that loom over the bond futures market have to do with the equity markets calming down of recent volatility, and the ever present tensions in the Middle East. Both of these factors could play an important part in trading, and both should have an effect of raising the December bond future higher should things get “hairy.” I believe most eyes will be closely monitoring these situations.
RECOMMENDATIONS–My recommendation is the same as last week's. Until this market proves otherwise, I recommend being long the bond futures for now. Options have also become more appealing in recent weeks, so I am recommending March call spreads.
Ole Rollag
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