I agree partially with your assessments. Specifically, with regards to international political shocks that would invariability affect US investor confidence. Unfortunately, the saying "when the US sneezes Canada catches a cold", still rings true. I too don't forsee any major international crises upcoming, EMU included.
This leaves us with US Monetary Policy and it's ability to control the business cycle. Their goal being to eliminate the cycle and have steady non-inflationary growth in Real GDP of 3.5%, with 5.5% unemployment(remember this is the US). I was questioning whether 5.5% may be too high a number, perhaps 4.5% should be considered full employment. Undoubtedly, structural changes are ongoing in the US economy and such rates must be dynamic in order to best account for those changes in labor force character.
I maintain that upcoming inflation numbers(PPI this Friday, CPI next Tuesday) will provide some important evidence on whether the conventional asumptions are to be respected. If the assumptions are still valid, the Fed will tighten on July 2.
I see this week starting off well, with some profit taking in the middle of the week. Friday, the markets will be very sensitive, another 100 point day possible.
That's the way I see it.
Jan |
