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This week all eyes are on the Federal Reserve and the FOMC [Fed Open Market Committee], who meet on Wednesday, September 20, 2006 to issue their latest proclamation on short term [Fed Funds] interest rates. With the Fed’s most recent policy statement, language was included in the statement indicating that some FOMC voting members were still “hawkish” with a bias toward higher short term interest rates. The policy statement that is published and released along with interest rate decisions is generally taken to mean, by most market watchers, the bias toward or the likelihood of future rate moves. On the other hand, since the last FOMC meeting we’ve been witness to mounting economic data pointing to a weakening U.S. economy – primarily real estate / housing market led. Bond market watchers and pundits alike are now beginning to voice their concern that, amid lessened inflationary expectations, not only is the Fed likely done raising rates – they may soon be pressed to lower them, The last set of minutes set out a clear tightening bias. The Fed thought on August 8 that its next move would be more likely up than down. However, the bond market now seems to think the opposite, and was not shaken out of this view when the minutes were released on August 29. As per usual this Wednesday at about 2:15 p.m. ET, interest rate watchers will be paying as much attention to the accompanying policy statement as the actual FOMC decision on interest rates. Analysis of and interpreting sometimes ambiguous language known as “Fed Speak” has been elevated to an art form over the years. The bulk of data that the Fed watches and analyses to make their decisions on interest rates you may all follow along, for free, at home; This Week's Calendar
After doing a little bit of homework and following the economic numbers as they are reported, informed readers may even have a little bit of fun answering the question themselves; whether they will or they won’t? Today’s Market Overseas equity markets were somewhat muted today with Japan’s Nikkei Index closed for a national holiday. North American markets ended the day mixed with the DOW off 5.77 to 11,555.00, the NASDAQ ahead .20 to 2,235.80 and the S & P gaining 1.35 to close at 1,321.20. NYMEX crude oil futures added .47 to close at 63.76 per barrel. Foreign exchange markets had the U.S. Dollar Index losing .18 to 85.48. The interest rate complex saw rates move higher across the board with the benchmark 2-year bond ending the day at 4.87%, the 5-year at 4.77% and the 10-year bond finishing up at 4.81%. Precious metals did better across the board with COMEX gold futures adding 8.70 per ounce while COMEX silver futures gained .43 to close at 11.22 per ounce. The XAU gained 3.88 to 130.14 while the HUI was up 8.42 – closing at 306.84. Higher interest rates, higher precious metals prices and a lower dollar along with mixed equities prices was largely attributed to weaker than expected U.S. Q2 Trade data released this morning along with lower than expected Net Foreign Purchases [TIC] data. On tap for tomorrow, at 8:30 a.m. August PPI data is due – expected +.2% vs. prior +.1% with CORE PPI expected +.2% vs. prior -.3%. Also at 8:30 a.m. August Building Permits and Housing Starts data is due – permits expected 1745K vs. prior 1763K and starts expected 1765K vs. prior 1795K. Wishing you all liberty, prosperity, a pleasant evening and a happy tomorrow! Rob Kirby |
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