Tuesday August 24, 2004 - 09:59:52 GMT
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US OPEN MARKET POINTS 08-24-04
US OPEN MARKET POINTS 08-24-04
Published By: Boris Schlossberg, Fundamental Analyst
Fall in Oil - Rise in Rates?
As crude-oil futures close at their lowest level in a week will the Fed find reason to increase the Funds rate 25bp at the September meeting? Some market players seem to think so. In today’s morning note CALYON writes, “Fed speakers reiterated that the economy is in a ‘soft spot’ (due to oil), but that the recovery is ‘self sustaining’. McTeer stated that the Fed Funds rate is still ‘extremely low’. Overall, the comments indicate that the Fed is still biased towards tightening at the September 21 FOMC meeting.” Market conventional wisdom, dictated that Fed would hold off raising rates in September so as not to conflict with the US Presidential election. However, the persistently hawkish comments by Fed officials combined with possibly firmer US eco data, all set against the background of receding oil prices have emboldened dollar bulls to run roughshod over the euro causing it to lose 200 points against the dollar in just the first day of trading this week. Note that for all of last week the high/low range for the pair was only 110 points.
As tonight’s lackluster Euro-zone data continues to print in line with expectations dealer’s eyes will be focused on tomorrow’s Durable Goods data which many analysts expect to report better than 1.0% consensus projection. The strong number will help but not guarantee the bulls case, as the Fed will most likely will want to see the NFP report scheduled for September 3rd before fully committing to a rate hike. We of course have long argued that additional rate hikes will be economic suicide for US, but given the combination of tepid Euro-zone data and unrestrained USD bull sentiment see no reason for now to play hero and stand in front of the greenback express --misdirected as it may be.
NOTE: In last night’s Market Points we wrote that the marquee US eco report of the week will be Industrial Production. We of course meant Durable Goods. Our apologies.
Key Overnight Developments
- EUR DEM CPI rises 1.9% y/y as oil, healthcare and tobacco increase costs but at a reasonable pace
FX Spot Overnight
- EUR bounces to 2170 off 2130 bottom on model fund buying
- JPY loses the 110 handle again but comes back below on European buying
- GBP dives to 8030 but finds support and trades back to 8080 on bottom picking
- CHF loses the 2700 handle but finds resistance and trades back below
11:00GMT – (7:00 AM EST) CAD CPI m/m (July) Expected at 0.2%, Previous 0.1%
11:00GMT – (7:00 AM EST) CAD CPI y/y (July) Expected at 2.6%, Previous 2.5%
11:00GMT – (7:00 AM EST) CAD CPI-X8 y/y (July) Expected at 1.8%, Previous 1.7%
14:00GMT – (10:00 AM EST) USD Existing Home Sales (July) Expected at 6.80M, Previous 6.95M
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