The Fed holds a regularly scheduled policy meeting next week. Whereas a few weeks ago most investors expected that the FOMC would contemplate either a 25 bp or 50 bp rate cut, the consensus seems to have shifted to no more than a 25 bp cut. Indeed, a few market participants think the FOMC may keep policy unchanged next week.
[I]E. Silvia, Ph.D. Chief Economist, Wachovia[/I]
[B]Weekly Bank Research Center 04-28-08[/B]
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[B][B][B][B][B] Foreign Official Reserves Could Reach US$8 Trillion by Year-End [/B][/B][/B][/B][/B]
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[I] Stephen Roach, Head Economist, Morgan Stanley [/I]
The world’s official reserves have now reached a level of US$6.6 trillion, and have grown by about 25% over the last year. At this rate, they could easily breach the US$8 trillion mark before the end of 2008. Japan has breached the US$1 trillion level in reserves and Russia could follow in about two years. Asian countries and oil exporters continue to be the main accumulators of reserves. Interventions continue to be the main source of reserve accumulation, especially in oil-exporting countries. With the current high oil prices leading to big C/A surpluses in oil-exporting countries, we estimate that official reserves of the GCC countries could increase by between 3 and 7-fold between now and 2015, depending on the scenario. This would make the GCC countries the fourth-biggest holder of official reserves.
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[B] Federal Reserve: Cuts Slowing, But is the Fed Finished? [/B]
[/B] [/B] [/B] <em> Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
Financial markets have shown some signs of recovery in the past 3-4 weeks (see Financial Crisis update), and this has formed the backdrop for the recent strong increase in yields. Higher yields mean that the market now expects the Federal Reserve to make do with cutting its key rate by 25bp to 2% at next week.s meeting and then keeping it un-changed for the rest of the year. In other words, the pressure on the central bank to cut further has eased considera-bly compared to expectations ahead of the previous meeting, when the market was discounting rates going down to around 1.25-1.50% in the course of the year. Given that increasing yields and reduced expectations on the Fed reflect improved market conditions, this will of course influence the Fed.s rate decision. The extraordinarily large rate cuts from the Fed in H1 were very much driven by the turmoil on the markets. In order to avert a systemic breakdown, the central bank felt forced to cut rates faster and deeper than it normally would given the economic data.
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[B] Fed: 0 or 25? [/B]
[/B] [/B] [/B] [I] E. Silvia, Ph.D. Chief Economist, Wachovia[/I]
The Fed holds a regularly scheduled policy meeting next week. Whereas a few weeks ago most investors expected that the FOMC would contemplate either a 25 bp or 50 bp rate cut, the consensus seems to have shifted to no more than a 25 bp cut. Indeed, a few market participants think the FOMC may keep policy unchanged next week. An argument in favor of no further easing is the string of recent data, which suggests the economy is not completely falling apart. GDP data, which will be released on the day the FOMC meets, likely will show that growth was positive, albeit very weak, in the first quarter. In addition, CPI inflation, which remained at 4.0 percent in March, is well above the rate that every FOMC member deems consistent with price stability.
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[B][B][B][B][B] Is the Credit Crunch Pushing the U.S. Federal Reserve to its Limit? [/B][/B][/B][/B][/B]
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[I] Steve Chan, Economist, TD Bank Financial Group [/I]
Since the onset of the global credit crunch in August 2007, the U.S. Federal Reserve has resorted to a slew of innovative (and sometimes unconventional) approaches to dealing with the ongoing disruptions in the U.S. financial sector. In fact, when the money markets seized up unexpectedly in the summer of 2007, it became apparent to the U.S. monetary authority that the discount window had become too limited and inadequate for dealing with the financial market dislocation that had ensued. As a result, the Fed was forced to introduce various new measures that were aimed at providing short term cash to the distressed U.S. financial institutions that have been unable to raise the requisite liquidity on the interbank money market.
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[B][B][B][B][B] Is a Bubble Developing in Commodities? [/B][/B][/B][/B][/B]
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[I] Trevor Williams, Chief Economist at Lloyds TSB Financial Markets [/I]
It may be strange to be worrying about where the next bubble may come from when we are not yet in the clear from the latest one, which is still unwinding in credit markets. But that is exactly what is causing concern amongst some commentators currently, based on the startlingly sharp rise in a range of commodity prices in the last year or so. These increases are not just in gold or oil but also in metals and in a range of agricultural foodstuff. How worried should we be? The headline evidence would suggest that there is certainly a lot to be concerned about. Oil prices have doubled, so has the price of gold, copper, wheat and a range of other commodities, all within the last 12 to 18 months. Charts a and b illustrate the scale of this rise. In fact since 2005, industrial metals prices have risen by 350%; crude oil is up nearly 400%, food prices are up by around 250%, with wheat, corn and soya prices rising by at least that rate. It is causing concern about whether price inflation will accelerate back to the sort of levels seen in the 1970s and 1980s, and about hunger and famine amongst the poor that in some places have already led to riots and deaths.
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[B][B][B][B][B] Other Pre-screened Independent Contributors[/B][/B][/B][/B][/B]
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[I] J-Chart [/I]
J-Chart is an innovative charting and bias-neutral market analysis tool. Based on its proprietary theoretical concept and display of market price action, J-Chart provides a much clearer and unique insight into the market than conventional charting methods. This innovative charting and market analysis tool is designed to visualize market price action that constructs unique price patterns called “Equilibriums”. Based on its “non-fixed time frame” concept and “Kinetic Equilibrium” application, J-Chart users are able to forecast markets’ future movements with high accuracy.