The bond market's having enough trouble with what's already on the calendar, so today's accidental early release of the
National Association of Purchasing Management's
manufacturing survey seemed like needless abuse. The strength contained in the surprise data was more than Treasuries could handle.
Last week's utopian vision of a
on hold for the rest of the year was quickly being stamped out, as the market retreated to a closing level last seen on Aug. 16. The market was still reeling this morning from Fed Chairman
speech Friday, and strength in both the NAPM survey and its regional counterpart, the
Chicago Purchasing Managers' Index
, didn't exactly enhance the mood.
"I think it indicates that we ran a long way on some spurious thinking," said Gib Clark, co-head of government trading at
Zions First Capital Markets
in Jersey City, N.J. "Greenspan wasn't going to hold off on a tightening if it was necessary, and that was the basis of our rally
Of late, the 30-year benchmark Treasury was off by 4/32 to 100 25/32. The yield rose to 6.07%, up 1 basis point from yesterday. By 12:19 p.m. the bond was down 20/32, but recovered late in the day. "We bounced from a real sharp selloff, but we're still lower," said Clark, scoffing at the notion of a late recovery.
NAPM's faux pas exacerbated the selling in an already jittery day of trading. An NAPM employee wrote the incorrect date for the report's release when faxing it to
Broadcast Fax Service
, causing them to release the report a day early. The survey was scheduled for release tomorrow at 10 a.m. EDT.
The market's not averse to receiving news early -- unless it's bad news. And while the headline NAPM figure of 54.2 was under
expectations for 54.5, several components of the report displayed growing strength in manufacturing, stoking inflation fears. In particular, the prices paid component, which indicates higher prices paid by manufacturers, rose 5.1 points to 59.8, its highest level since June 1995.
"It's just one of those little indicators that says pricing pressures are building," said Joel Naroff, chief economist at
Naroff Economic Advisors
The employment component rose to 53.4 in August from 49.6 in July, and the new orders component rose to 56.6 from 54.4 the previous month. A reading above 50 indicates expansion in the manufacturing economy; below 50, contraction.
The goof-up sort of takes all the fun out of predicting the NAPM based on the results of the Chicago Purchasing Managers' Index, which fell to 56.1 in August from 60.5 the previous week. Like the nationwide survey, the new orders and prices paid components rose during this month, indications that the sector continues to pick up steam.
The strength in these two numbers, coupled with continued worry over how Greenspan's going to view the growth in asset prices, has the market rethinking last week's notion that the Fed might be finished raising interest rates for the year. (The central bank raised the fed funds target rate to 5.25% from 5% Aug. 24.)
The interest rate implied by the November fed funds contract, traded on the
Chicago Board of Trade
, rose to 5.41% today from 5.40% yesterday, reflecting a 64% chance that the Fed will raise rates once by the beginning of that month. (The Fed's next meeting is Oct. 5.).
"Personally, we don't think the Fed will tighten," said Dana Johnson, head of capital markets research at
Banc One Capital Markets
. "The manufacturing sector has not been a good bellwether for overall economy, because it was hit so hard by the trade drag. We think it's giving people a misleading sense of what's going on overall. Growth has moderated somewhat, and we suspect the
data will reinforce that."