With
this
week's
heavy
slate of
economic
approaching,
Treasuries
are at
last
showing
a
retreat
from the
gains
made two
weeks
ago.
Stocks
are
currently
ahead
slightly.
Two
weeks
ago,
Treasuries
made
sharp
gains on
relief
following
the
well-anticipated,
quarter-point
Fed rate
increase
and on a
weaker
than
expected
employment
report
for
June.
Some
flight-to-safety
support
in front
of the
three-day
holiday
weekend
also
helped.
One
might
normally
expect a
round of
profit-taking
to
follow,
especially
with
additional
supply
headed
to
market
(last
week's
5-Year
Note and
10-Year
TIPS
offerings).But
Treasuries
marked
time as
traders
waited
out the
holiday-shortened
week
that
offered
little
economic
data for
guidance.
Today's
release
was
doubly
bond-unfriendly.
The
Commerce
Department
reported
that the
dollar
value of
imported
goods
and
services
exceeded
that of
exports
by $46.0
billion
in May,
down
from
April's
revised$48.1
billion
(revised
down
from
$48.3
billion
but
still a
record
high).
The
deficit
figure
was
smaller
than the
$48.0
that
analysts
were
predicting.
Net
exports
constitute
a
negative
for
gross
domestic
product
so a
larger
deficit
subtracts
more
than a
smaller
one. The
smaller
gap for
May
means
that
projections
for the
second
quarter
(currently
about
4.3%)
may be
revised
higher.
A strong
GDP
reading
will
ease the
way for
the Fed
to raise
interest
rates in
order to
ward off
the
threat
of
inflation.
Secondly,
today's
report
showed
that
while
the
difference
between
the
categories
narrowed
relative
to
April's
gap,
both the
import
and
export
totals
hit
record
highs in
May.
Imports
rose by
0.4% and
exports
increased
by 2.9%.
The high
import
level,
though
partly
due to
increases
in oil
prices,
reflects
strong
buying
demand
by U.S.
consumers
and is a
bullish
indicator.
In
the
stock
market,
traders
are
remaining
cautious
despite
the
trade
news and
an
easing
of oil
prices.
The
quarterly
earnings
report
season
is just
getting
underway
in
earnest
and a
recent
string
of
warnings
by
companies
and
analysts
has
market
participants
on edge.
This
afternoon,
the
Treasury
will
release
its
budget
figures
for last
month. A
surplus
of $16.3
billion
isforecast
versus a
surplus
of $21.2
billion
in June
of 2003.
Projected
deficits
in July
and
August
and
asurplus
in
September
are
anticipated
to
result
in a
record
deficit
for the
fiscal
year of
over
$400.0billion.
High
deficits
mean the
government
will
maintain
a heavy
issuance
of debt
securities
(Treasuries),which
will
compete
with
those
already
in the
market
