Tuesday April 27, 2004 - 13:56:31 GMT
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GVI -- Morning Daily Strategy Session
It seems that the markets are looking for some direction at the moment. The intensity of feeling about a 25bp hike in the Fed Funds rate in August is not going to be enough for the next 3-1/2 months. Besides the markets are going to require some confirmation that the +308K increase in March jobs was for real. The next employment release comes on May 7 and early street estimates have been for an increase of 175-200,000. Today’s data, March Existing Home Sales and the CB Consumer Confidence Index will be viewed in that light. The 1Q04 GDP report from the U.S. on Thursday could also be key with real growth of 5% or so widely anticipated.
European Parliamentary testimony by Trichet today has done nothing to encourage speculation about an ECB rate cut. I hear a lot of talk about a mid-year rate cut, but have seen absolutely no evidence that the markets feel that such is a credible risk. Eurozone April CPI is due on Friday. A yr/yr rise of 1.7-1.8% is expected. That would be precisely in line with the bank’s “below 2%” target. The FT reports today about the ECB governing council that of the 18 members, 8 have recently offered the view that Eurozone interest rates are at least neutral or appropriate and three others have said the Eurozone will experience a gradual recovery. Thus more than half the members seem to be happy with leaving rates where they are.
There is a lot more intensity to expectations for BOE policy. The markets are set up for rate hikes of 100 bp’s over the next year and these expectations should sustain sterling for those looking for longer term carry trades. Also don’t forget that the SNB has been preparing the markets for its departure from an ultra-easy monetary policy as well.
Wednesday sees the release of Australia’s 1Q04 CPI at 01:30 GMT. The Reserve Bank targets headline CPI at 2-3% in the medium term. Street forecasts are for a rise of about 0.7% in the quarter or +1.8% yr/yr. The recent cooling of the overheated housing sector and below target CPI growth should keep the Reserve Bank on the sidelines for a while.
We have no good explanation for the sudden yen move a short while ago. It might just have been stops, but a reason should surface over the NY morning. Trade in Japan will slow starting Thursday as the Golden Week holidays begin and last through the following Wednesday. The Bank of Japan will meet on Wednesday. No policy changes are widely anticipated. Of greater interest will be the semiannual BOJ’s FY 2004 CPI forecasts. The BOJ will not back off from its ultra-easy monetary policy until yr/yr CPI turns positive. It was reported a week or so ago that its CPI forecast would remain barely negative.
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