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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Giordano Bruno who wrote (23951)	8/26/1999 11:31:00 PM
From: Les H	Respond to of 99985

EconomyWatch -- America poised for sharp recovery August 26 1999 19:23 GMT America's economy grew more slowly in the second quarter than was originally reported. It will rebound all the higher for the revisions. The strange tale of how America's economy slowed in the second quarter of the year is all down to stocks and trade. But we're not talking about Wall Street. No; we're dealing with the drier concepts of stockpiling and the balance of payments. Firms drew down on their stockpiles more heavily than first recorded, a report today showed. (The first result showed they drew down a lot.) Why does this matter? Because the goods companies sold included fewer newly-produced ones than expected. It's the production of these new goods that counts as economic output. With warehouse shelves emptier in the third quarter, production should bounce back. There will also be unusually-high demand for new goods: companies will start stockpiling in case the millennium bug disrupts their supply lines. IDEAglobal.com's US economist Harvinder Kalirai expects GDP to grow at an annualised rate between 3.5% and 4% over the second half of the year. That's much higher than the 3% speed limit the Fed considers consistent with low and stable inflation. The other big revision in today's report had to do with trade. Up went the deficit. The US bought much more from abroad than it sold in the second quarter, with the gap slicing 1.6 percentage points off the overall growth rate. This will change, with US exporters again taking up the slack. Many emerging-market economies are on the road to recovery, which should mean they'll buy more US goods and rely less on flooding America with cheap imports to keep their economies growing. It's also getting cheaper for the US to sell abroad -- and more expensive for it to import. Since mid-July, the dollar has fallen around 3% against a basket of currencies weighted according to their importance on the US trade accounts. The trade performance should nevertheless be taken in context. We're still looking at a monthly trade gap of at least $19bn by December, down from $24.6bn in June, the last month for which figures are available. Stocks and trade aside, the rest of today's growth report was familiar reading. The GDP deflator, one of the broadest measures of inflation, was revised down to the 1.5% from 1.6%. But there were signs of building price pressure. The 4.6% gain in personal consumption, earlier recorded as 4.0%, shows consumer spending is growing faster than disposable incomes. They will only grow about 3% this year. Fighting against this demand will be the effects of higher interest rates. But they won't do most of their work this year. That takes at least six months to feed through, and rates first went up on June 30. The long-term borrowing costs paid by mortgage-holders started rising six months ago. That hasn't stopped house prices booming in some areas. With inflation still brewing, investors should reconsider assumptions that rates won't rise again before the year's out. They should also beware the rally in the bond market. Stocks will continue to be choppy in coming sessions, but IDEaglobal.com's Gabriel believes the general trend in the next couple of weeks will be upwards. InterMoney thinks investors are bound to get their appetites back for US equities soon. Many market players think the Federal Reserve is done raising rates for this year and October's earnings reports are just around the corner. They are forecast to be strong. The Dow closed 127.59 points lower at 11,198.45. The Nasdaq-100 fell 43.62 points to 2,417.30. The Amex internet index was off 3.27 points at 304.21. Stock outlook -- Mixed The Dow should head higher once it hits 11,117, the Nasdaq-100 will probably bottom out around 2,387 and the Amex internet index probably won't go lower than 300. intermoney.com