Market moving factors for this week

Monday, May 23, 2005

Tomorrow's release of the FOMC minutes from the last meeting on May 3, the release of the second reading of GDP figures for the first quarter on Thursday and the PCE deflator on Friday are the top potential market movers in the US for this week. But there is a truckload of other interesting news and events that will provide insight in the future of the global economy.
According to CBS Marketwatch,
Incomes probably increased about 0.7% in April as wages and salaries surged on higher hourly wages and a longer workweek. Consumer spending rose about 0.7%, the economists say. Core inflation likely eased back to 1.6% year-on-year from 1.7%.
First-quarter GDP likely will be revised to 3.6% from 3.1% previously. Trade wasn't nearly the drag originally assumed, pushing GDP higher. On the other hand, inventories didn't build up as much as assumed, giving a better balance to the growth mixture.

NOTE: After all those positive surprises with the latest economic indicators which were far above analysts estimates, there are questions arising how reliable these figures really might be. I refer you to this post: RED ALERT - Don't trust TIC data
US businesses meanwhile dread slower economic growth. From a Reuters dispatch:
"The National Association for Business Economics said its panel of 50 forecasters trimmed its growth outlook for 2005 and 2006 from three months ago, taking the consensus for both years to 3.4 percent growth from the 3.6 percent forecast in February.The survey consensus called for a 2.5 percent increase in the Consumer Price Index excluding food and energy in 2005, up from a 2.3 percent forecast three months ago. The panel also projected a sharp acceleration in unit labor costs from 2004 to 2005 due to slowing productivity growth.

Tomorrow' release of the FOMC minutes will have Fed watchers seeking for clues how heated the debate about the inflation outlook inside the Fed is, remembering the highly unusual alteration of the latest FOMC release on May 3, when the belated addition of the sentence "Longer-term inflation expectations remain well contained" caused an uproar in the markets.
Outgoing Fed governor Ed Gramlich will elaborate on "The Politics of Inflation Targeting" in Paris on Thursday and Vice chairman Roger W. Ferguson, Jr. will talk about "Asset Price and Liquidity" in Berlin on Friday. Be on alert for some additional statements on current issues as journalists will most certainly press the Fed members into a short Q&A session after their speeches.
On Tuesday the release of (sluggish) German GDP growth figures for the first quarter will confirm that the European Central Bank will stay on autopilot for the foreseeable future.
The OECD will publish its most recent economic outlook for Germany on the same day. Don't expect any positive surprise from this one either. German inflation figures are due on Wednesday.
OPEC: Oil demand to rise to 85 million bpd
OPEC president Shaikh Ahmed Fahd al-Sabah said on the weekend that oil demand does not pause. "The culture of the market has changed and in the second quarter (where demand normally drops) there is a growth in demand," he said and added that global demand for oil grew 2.6 million barrels per day to 82.5 million bpd in 2004, and by the fourth quarter this year demand is expected to increase to 85 million bpd, Al-Jazeera reported. "Last year demand grew 4 to 5% while this year it is growing 3 to 4%. We've normally had such an increase in four years (in the past), while we had it in one year," the Opec chief said. Opec officials have said that current Opec's capacity is approaching 32.7 million bpd and it will reach 33 million bpd by the end of 2005. The IEA in contrast forecasts demand in 2005 at a level of 84.3 million bpd.


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