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IRA EPSTEIN & COMPANY
223 West Jackson, 7th Floor, Chicago, Illinois
(October 21, 1997) FINANCIAL INSTRUMENTS: The December bond future ended trading Tuesday up 1/32 at 115-3/32. This negligible performance was due in part to a lack of economic news so far this week.
Remarks made from some Federal Open Market Committee (FOMC) members seemed to portray a very watchful tone. In essence, with unemployment low and inflation in check, there appears to be little risk of a hike in interest rates. However, we all know this trend can not last forever and when the trend breaks, the Federal Reserve may feel it has to raise rates.
What Federal Reserve Chairman Alan Greenspan is waiting for, and has postponed his testimony until next Wednesday for, is the release of the third quarter Employment Cost Index (Q3 ECI) due out next Tuesday. This will give bond traders an indication on whether the Federal Reserve will raise rates in the near future.
RECOMMENDATIONS–Stay on the sidelines.
With lack of economic news and the Federal Reserve looking at Q3 ECI, the bond market could get a little volatile towards the end of the week. Technical indicators show it is anyone's ball game. The %K and %D momentum show that the December bond future is getting oversold, but how much lower it can go is anyone's guess. The December bond future is trading at the lower end of the 115 range. I suspect that if it goes lower than that, it is going to run a lot of stops.
Ole Rollag
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