Greenspan To Dominate Otherwise Dull Week

Monday, July 18, 2005

In the absence of any truly important economic data, capital markets are destined to see another week of rangebound trading. All eyes will therefore be set on the two public appearances of Federal Reserve Chairman Alan Greenspan.
On Wednesday Greenspan will deliver his semiannual report on monetary policy to the House of Representatives Financial Services Committee. On Thursday he will report the same to the Senate Banking Committee. Greenspan does two such two-day stints on Capitol Hill each year - in February and July - and his Senate panel appearance will be the second planned for this month and his last ones altogether if he retires on schedule in 197 days.
Taking the latst favourable economic indicators into account that pushed the Dow 2 percent northward last week it can be expected that the Fed chairman will paint an upbeat picture of growth but drop no hint the Fed is ready to pause raising interest rates.
What remains to wonder is whether the Fed will not stop raising rates but when it will actually tighten credit.

Consumer credit and Fed Funds rate

GRAPH: The rise in Fed Funds has so far failed to dampen the appetite for consumer debt. Data: Fed St. Louis
Apart from Greenspan's testimonials the coming week is left with few inspirations to move markets abruptly.
Most important will probably be Monday's release of Treasury Inflow Capital (TIC) data for May. After a slowdown in the two preceding months from 90 to roughly 49 billion dollars in April it will be interesting to see whether foreigners were still willing buyers of the ever expanding debt - never mind last weeks downward revision of the projected federal budget deficit in 2005. At 333 billion it is still a huge mountain of debt.
Tuesday's key event will be housing starts whereas Thursday's data (jobless claims, leading indicators) are likely to be overshadowed by Greenspan's testimonial to lawmakers.
This Week's Data
C = consensus; L = last.
TIC data May: no C; L 49.1 billion dollars.
Housing starts: C 2.05 million; L 2.01.
Jobless claims: C 325,000; L 336,000.
Leading indicators: C plus 0.5 %; L minus 0.5 %.
Philadelphia Fed survey: C plus 11.0; L minus 2.2.


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