FYI | Mar 19 2007
By Greg Peel
Is the rollercoaster ride coming to an end for now? After another week of peaks and troughs of diminishing value it may be that we’re shortly going to settle down – barring anything out of the blue of course. While the Dow was down nearly 50 points on Friday the SPI overnight is showing a 3 point rise.
Metal markets look healthier as well, with the exception of zinc. Gold is back up over the US$650/oz level which will appease those concerned about a technical breakdown being close.
Main news for the sector is, however, another interest rate hike in China announced on Saturday (Australian time) as the Chinese authorities continue their administrative battle against too high economic growth and too much money flowing into the country.
The People’s Bank of China raised the official lending rate by 0.27 basis points to 6.39%, the highest rate in nearly eight years. The new rate became effective on Sunday.
There is not a lot of economic data being released in Australia this week. The only highlights are fourth quarter dwelling starts on Tuesday and February new car sales on Wednesday. Wednesday also sees the Westpac Leading Indicator of economic activity.
While dwelling starts – and particularly the state breakdown thereof – will be closely scrutinised the real housing market action is in the US.
Tonight brings the housing market index for March, Tuesday February housing starts and building permits, and Friday existing home sales for February and the Conference Board Leading Index of economic activity.
While the US housing market has long been an area for global concern, and a barometer for the health of the US economy, it has become even more critical a factor recently during the great sub-prime mortgage crisis. Hence there will be high anticipation when the Fed announces its rates decision for the month on Wednesday.
Some experts believe there is a possibility that the Fed could lower rates for the first time in years in order to alleviate the pressure on the mortgage market and subsequent financial market despair, given inflation appears to be relatively under control. However, this is quite unlikely.
For starters, there is a feeling around economists that while the sub-prime situation is not healthy, it’s not so critical either, and reactions have been overdone. The Fed has spoken out about the so-called crisis, appeasing the markets with its own take on its impact. As the Fed remains ever wary of inflation re-emerging, the best bet is for no change to rates on Wednesday.
Elsewhere, it’s rate decision time in Japan on Tuesday. The yen has been pushing up strongly against the US dollar and other currencies this past three weeks as a result of carry trade unwinding. There is no strong feeling that Japan needs to raise rates at this time, so chances are the currency move will assist in an “unchanged” decision.