Friday August 5, 2005 - 11:10:16 GMT
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Black Swan Capital - www.blackswantrading.com
Is it about growth?
“Beauty is no quality in things themselves. It exists merely in the mind which contemplates them.”
“The Bank of England celebrated its 100th monetary policy meeting by trimming its key lending rate by a quarter-point to 4.5 percent yesterday, marking the lowest peak in U.K. interest rates for more than half a century,” wrote Bloomberg columnist Market Gilbert in his commentary today.
Mr. Gilbert continued, “There may be a lesson here for the U.S. Federal Reserve and its seemingly relentless campaign to drive the overnight target rate ever higher. Maybe the elusive ‘neutral’ level that Fed officials are seeking is lower -- a lot lower -- than it was in the past.”
Or put another way, now that it’s becoming more evident the inflation genie is still safely tucked away in the bottle (even China is having trouble producing inflation as reported by The Standard today), will the Fed kill the goose that laid the golden egg in its quest to “normalize,” under the cover of “price stability” even though prices are relatively stable?
The point being: This week we saw there was much more to this game than simply interest rate differentials. There is the growth side of the equation to contend with. The re-rating, or at least the re-think, of euro economic pessimism seems to be gaining momentum. Maybe there is a growing fear the Fed will go too far, and the surprise will be not interest rate differentials, which seem to be much discounted, but growth differentials as Europe plays catch up. Now that would be a surprise.
Today we get a look at US Non-farm Payroll report for July. A blowout jobs number might just show the Fed is on the right track. Otherwise the dollar correction might start to look increasingly like a change in trend.
Black Swan Capital
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