Weekly Market Update – June 16, 2008
John Thomas
June 17, 2008
NOT MUCH MOVEMENT LAST WEEK: The markets did not move much: The Dow was up 0.80% and the S & P 500 was down 0.05%.
NEXT INTEREST RATE MOVEMENT WILL BE UP?:
The Fed’s increased public anti-inflation discussion has led to market expectations of one or more rate hikes by the year-end. The Fed funds futures market is pricing in 75 basis points by January. The Fed outlook has changed over the last several weeks. In the April 30 policy statement, the Federal Open Market Committee hinted strongly that it was finished with rate cuts, but the market expected that a weakening economy would force the Fed to cut at least once more. Since late April, economic data have been mixed, but not as bad as many feared. The price of crude oil has continued to rise, to a point where the Fed’s concerns about inflation are now dominant.
IN EUROPE: At the European Central Bank (ECB), they have made it clear that inflation is their number one concern and they aren’t thinking about a cut in rates. Jean-Claude Trichet, the ECB Chairman, has strongly hinted that their next move is likely to be an increase in rates. If that happens, and the U. S. doesn’t match the increase, it will put added downward pressure on the dollar and likely cause oil prices to continue to go up.
ECONOMISTS LESS PESSIMISTIC: This past week, once again, the Wall Street Journal asked a panel of Wall Street economists whether we are in a Recession. 52% say yes. That’s the bad news. The good news is that this same group was asked the same question in April and 76% said yes. It looks like economist opinions are as volatile as the markets.
DEBT CAN BITE YOU AT ANY TIME, AND COMPOUNDING WILL KILL YOU:
