Minutes that will shape a day - but not more

Monday, April 11, 2005

With the markets focusing on Tuesday's publication of the "minutes" of the latest meeting of the Federal Open Market Committee (FOMC), trading activity remained very subdued today. Investors are hoping for an indication for the results of the next FOMC meeting, scheduled for May 3.
Given the inexhaustible cryptic vocabulary the Fed has been mastering to cloud economic realities like the sluggishness in the labour market and accelerating producer prices (as well as creating jobs for thousands of Fed watchers in the financial industry), there is
not much new Fed talk to expect that could make up for the much more important economic figures that will be published on Tuesday, the trade balance and the treasury budget figures for March.
The Fed's room for maneuver is squeezed between the need to raise the Fed Funds rate in order to close the gap between that rate and the frontrunner CPI figure on the one hand.
On the other hand are the looming dangers of suffocating economic growth, which is already forecast to slow to a flatter path in the second half of 2005.
Don't be too worried about the wording of the FOMC minutes. They should anyway be overshadowed by the two all-important economic figures of the same day.
In the light of the spikes in oil prices a worsening trade balance figure can be almost guaranteed. After a minus of 56.4 billion dollars last February the Bloomberg consensus estimate for March comes in at minus 59 billion dollars.
The ongoing recovery of the dollar in March from it's Decembers lows won't do much to change the picture as the terrifying trade balance figures are solidly underpinned by the stoic spending patterns of US consumers, gobbling up foreign goods. This could provide for a surprise on the negative upside, keeping the dollar on its weakening route seen since last week.
The trade figure is the all-important number as it gives an indication how willing foreigner are to finance the US national debt.
This willingness depends to a good part on the capability of the US government to contain its treasury debt which so far has only marginally decreased to 223,4 (228.4) billion in the running fiscal year. Estimates for the March deficit range from 94 to 110 billion dollars after a record figure of 113.9 billion in February, the highest for any month in history.
Closing reminder for today's post: The Bush administration does not want to obligate itself to more than to bring down the deficit by half in the next three years.
No reason to get bullish, neither short nor long term, I would suggest.


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