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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: gregor_us who wrote (1246)	3/4/2004 11:44:21 PM
From: mishedlo	Respond to of 116555

Forex analysis [Note only a few snips below - those interested in international currency analysis should take a better look] scotiacapital.com Expectations at the start of the year were geared towards the Bank of Canada cutting rates once or maybe twice, in an attempt to bolster domestic demand enough to compensate for the negative impact of last year's CAD appreciation on the external sector of the economy. In light of further signs of disinflation, weak underlying growth at the end of 2003 and the bank's more openly dovish remarks in the past two months, the probability of even more aggressive easing during the first half has increased. A 25 bps rate cut materialized at the March 2nd policy meeting and investors are seriously considering another such move in either April or June. This would still leave Canada's overnight target rate a full 100bps above fed funds, which some would consider to be excessively wide given that Canadian growth will again fall behind the US by at least a full percentage point this year, with disinflationary trends still in place. For the US, the latest remarks from Mr. Greenspan and his colleagues have reinforced the view that policy will remain on hold until job growth becomes more firmly established. This takes us into the second half. We have maintained our call for tightening to start no earlier than the fourth quarter. EURO ZONE - USD/EUR has settled back after reaching a record high in mid-month. A brief period of consolidation may ensue; however, we expect the euro's bias towards appreciation to resume soon alongside stronger economic numbers and an ongoing process of asset diversification. JAPAN - The period of yen appreciation is not over. The recent step-up in the value of the USD to 3½-month highs of USD/JPY110 will prove temporary. While the Bank of Japan (BoJ) will maintain its zero interest policy, the pressures on the yen caused by massive current account surpluses and portfolio investment inflows will be key factors leading to yen strengthening despite repeated BoJ intervention. SWITZERLAND - The combination of CHF depreciation against EUR and appreciation against the USD has been a major contributor to Switzerland's improved economic prospects. We anticipate that the Swiss National Bank will be successful in its efforts to ensure that these trends are not reversed. UNITED KINGDOM - The pound may have approached its cyclical peak with its recent run-up to a 14-year high of GBP/USD1.914. Persistent, large trade deficits may offset the impact of a further widening in interest rate spreads vis-àvis the euro zone and the United States. AUSTRALIA - Expectations of another interest rate hike in the second quarter, rising commodity prices and a recovery in the EUR/USD following its very recent retreat will underpin further gains in AUD/USD over the next year. NEW ZEALAND - Further NZD/USD appreciation is likely alongside widening interest rate spreads, and the ongoing process of asset diversification. ========================================================== Mish note: I was long a WBA (canada Bax dec 05 future and short a March 04 future in case they did not cut) Futures would have been hammered if they did not cut. I covered the short future today -3 and am +20 or better and holding the dec05 future. Roughly 1/8 point cut is priced in and I think the next move is another 1/4 cut. Dec 05 is still priced for hikes and seems like a good buy to me BUT... It is not liquid at all. No bids or offers on it the last couple day.