FYI | Jun 29 2007
By Greg Peel
Last night Fed left rates unchanged as expected, but the attention was always going to be focused on the subtleties of language appearing in the Fed’s accompanying statement. The good news was that the words “somewhat elevated”, which had appeared in previous statements to describe inflation risks, were missing. The committee suggested core inflation, which omits food and energy prices, had improved “modestly”.
Woohoo!
But it wasn’t all beer and skittles. The Fed suggested the biggest risk now was that inflation failed to “moderate” further, as expected. In other words, the Fed is still on inflation watch.
The Dow initially responded by rallying 71 points, but then began to fizzle. As if on cue in an environment of inflation paranoia, the crude oil price jumped up through the US$70/bbl level to as high as US$70.52/bbl and remained there for most of the session. The reason was given as – you guessed it – inventories, which appear to be lower than expected as the US driving season reaches its peak. A late pullback saw oil for August delivery drift off to close at US$69.57/bbl – up 60c.
The Dow also faded in the afternoon to finish the session down 5 points.
An easing in inflation rhetoric means a lesser chance of a rate rise, means good for gold. And the surging crude price also conspired to push gold up another US$5 to US$648.00/oz. Silver also gained some much needed momentum, rising US18c to US$12.45/oz. Both moves shift the precious metals just slightly further away from chart breaks.
It was a mixed night in base metals with New York copper rising 1.6%, and zinc 2%, but beleaguered nickel fell 1.9%.
Next week should be an interesting one, with Americans in holiday mode surrounding Wednesday’s Fourth of July break and the chance to lie on a beach. Australia, too will be largely in school holiday mode for the week, which could make for some interesting times either side of the Pacific. Trading will either be quiet and subdued or thin and volatile. It wouldn’t be a great time for another US hedge fund to go belly up.
Despite yesterday’s 80 point rally on the local bourse, and little lead from Wall Street, the SPI Overnight closed up 24 points, suggesting another positive opening this morning. There will then possibly be some pre-holiday squaring up, but which way?
