Saturday, November 17, 2007

Rate Cuts not likely to Continue..........

This is the title of an article in todays Wall Street Journel. This is also something I have been thinking for a while. The Fed, although concerned about slow growth, is just as concerned about inflation and I think they are happy to let the year play out and see what the Holiday season brings. In the past week or so Fed officials have been preparing the market for a pause. Kroszner said on Friday that "The economey will probably go through a rough patch during which a number of economic data releases may be downbeat". He also stated that "The current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer run sustainable rate". A few mintues later the Fed released Industrial production numbers which signaled a significant slowdown. This speech, in my opinion, was designed to prepare the market for this and other indications of slowing markets. As I said in the past I think that the Fed sees the economy from a very broad perspective. As such they see things that other's (even the talking heads on TV) do not see. Maybe they see these numbers reversing quicker then the rest of us. Clearly with oil prices nearing 100 usd per barrel, inflation as well as spending power will be an issue. Alot depends on the weather this winter. A harsh winter and the lay person will have a lot less cash to spend. All this being said the market's are still pricing in a 25bp cut in December. Stocks are off their high's (although not quite as much as I would have thought), and short term funding is definitly tight. Many company's (Starbuck's Kohl's and J.C. Penney to name a few) are warning of lower profits. It is a wait and see game with the economy on the edge.

The dollar has been very weak for a few years now. I am looking for a slight correction as overseas market's slow down and prepare to cut rates (U.K. and Europe).
Currently I am short the Euro with a stop above the highs of the overall move.

Good Luck and Good Forex Trading.



Anonymous Anonymous said...

If the FED doesn't cut they will be damn sorry they didn't after the markets finish melting down just in time for Christmas. I don't think they should cut mind you but if they don't look out below. The dumb asses would have been much better off to have skipped the last cut which would have taken the commodity markets down as the dollar rallied. Now they're screwed despite all the hyped worry about inflation talk.

I bet on 25bps cut although I must admit I could be wrong.


11:27 AM  
Blogger Banker said...

I agree that the market would love to see the 25bp, that is why the Fwd officials have been out and vocal, trying to prepare the market for no change. I agree it could get ulgy(ier?)...time will tell.


12:45 PM  

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