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

To: yard_man who wrote (3313)	4/1/2004 11:17:03 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Thoughts on PPI from Roger on the FOOL Add up the inflation in crude goods over the last 12 months and you get 12.8%, double the last 6 months and you get 26.8%. Doing the same for intermediate goods you only get 2.7% and 4.4%. Doing the same for the finished goods you only get 2.2% and 3.2%. What really isn't rising are labor costs, and that is probably a large part of why intermediate and finished numbers haven't gone up much as the crude goods numbers. When inflation ran away in the 70s, labor costs continually rose as well. People on fixed incomes were hurt, but workers did OK and people with large fixed mortgages did great. (I vaguely remember commentators back then blaming inflation on workers and unions because they kept demanding higher salaries.) Inflation hurts workers more, now, since wages aren't keeping up.

To: yard_man who wrote (3313)	4/1/2004 11:34:15 AM
From: mishedlo	Read Replies (2) \| Respond to of 116555

EU Commission Mulls More Early Budget Warnings in Apr Thursday, April 1, 2004 11:34:00 AM By Matthew Saltmarsh BRUSSELS (MktNews) - The European Commission is considering whether to issue a new round of "early warnings" this month to those member states whose budget deficits are around the 3% ceiling stipulated in the Stability and Growth Pact. Sources close to the issue told Market News International that warnings were being considered for the Netherlands, Italy, Greece and the U.K. There is also a possibility that Portugal's current excessive deficit procedure might be terminated, only to be restarted via a new warning. The executive has been seriously weighing whether to give one or more warnings in part to show that the Stability and Growth Pact is still alive after its sanction mechanism was effectively suspended last autumn, they said. The Commission is obliged to act if its sees a grave budget overshoot. "If it's established that the Commission sees an excessive deficit emerging, they have to act immediately, according to the treaty," said an EU official. If agreed by finance ministers, the warnings would constitute the start of close surveillance of the country's budget policy by the executive and fellow finance ministers to try and rectify the high deficit. "My sense is the Commission wants to give the Pact a shot in the arm and show it's not dead," said another finance official involved in the process. Next Wednesday, the executive will release its semi-annual economic forecasts, including deficit estimates for 2004. If there is no improvement in the budget outlook then it will be obliged to propose initiating budget procedures against certain members. Final 2003 data released last month by Eurostat, the Commission's statistic agency, showed that the U.K.'s deficit was 3.2% of GDP, the Netherlands was at 3.0% and Italy was at 2.4%. Greece's deficit was 1.7%, but the new government in Athens has been conducting an internal audit, which is expected to increase the final 2003 figure. At the time, Eurostat said due to ongoing discussions with the national statistical authorities, notably on the surplus of social security funds, the notified figures for debt and deficit were considered as provisional and could be revised. If issued, the warnings would probably come after Easter as the executive would have to prepare draft statements. One source said the Netherlands looks like a prime candidate for a warning, as it's 3% deficit last year might also eventually be revised upwards. A slap on the wrist is also possible for Italy -- given its continued reliance on one-off measures to keep the deficit down combined with pledges for tax cuts -- and Greece, where the deficit should rise on the re-assessment of the government's books. The cases of the U.K. and Portugal are more complex. The U.K.'s public finances are of concern as the country is already over the 3% deficit limit and spending is unlikely to fall ahead of the general election either next year or in 2006. But the U.K. is not bound by the Stability and Growth Pact's 3% deficit ceiling -- it has an opt-out of the Maastricht treaty. So it can be given a warning, but cannot be subject to sanctions. "The U.K. public finances are on a very dangerous path, it's really concerning that current practises might become engrained," said a senior EU official. "But of course you have to pick your battles." Another official agreed that the appetite for a budget-related tussle with feisty U.K. Chancellor Gordon Brown was, for now, "low." Portugal, already subject to an excessive deficit procedure under the Pact, has been below the 3% threshold since 2001. But officials remain concerned that Lisbon is also using one-off fiscal transfers to keep the nominal deficit low (it was at 2.8% in 2003). One option could be for finance ministers to end the current procedure and re-start a new one. Germany and France are also already under the deficit procedure. However, the Pact's teeth were essentially removed last autumn when finance ministers narrowly rejected a proposal by the Commission to require the French and German governments to take tougher action to stay within their permitted budget deficit limits. That move effectively suspended the procedure and meant that the Pact's financial sanctions would not be implemented. Earlier this year, the Commission decided to challenge in court that decision, and later this month the European Court of Justice will hear the legal challenge by the executive. The Commission, which is responsible for enforcing and monitoring EU laws, has argued a court ruling is vital to clarify the disciplinary procedures applied to those who break the Pact's rules. It has also said it would not challenge the opinion of the ECJ. Meanwhile, on current projections, up to six of the ten new members that will join the EU in May are likely to receive formal budget warnings from the Commission and go into the first stage of the excessive deficit procedure, probably at the July meeting of EU finance ministers. The list includes three of the largest economies. Eurostat's 2003 data showed Poland's deficit at 4.1%, Hungary's at 5.9% and the Czech Republic's at 12.9%. Cyprus (6.3%), Malta (9.7%) and Slovakia (3.6%) will also likely overshoot. fxstreet.com

To: yard_man who wrote (3313)	4/1/2004 12:29:02 PM
From: mishedlo	Respond to of 116555

Slow Eurozone Recovery, IMF Job To Dominate EU Finance Summit Thursday, April 1, 2004 4:36:00 PM BRUSSELS (MktNews) - The selection of the next chief of the International Monetary Fund and the slow pace of economic recovery in the euro area look set to dominate this weekend's meeting of EU finance ministers in Dublin. The meeting will address and will hear from European Central Bank President Jean-Claude Trichet, who Thursday justified the Bank's decision to leave interest rates on hold. Trichet is expected to come under pressure from at least some finance ministers to cut interest rates when he meets with the Eurogroup on Friday afternoon. However, the recent softening of the euro and some signs that economic outlook is somewhat mixed may have taken the sting out of calls for a monetary easing. The ministers are also due to hear EU Economic Affairs Commissioner Pedro Solbes outline the main elements of next week's autumn economic forecasts. The numbers are due to be released publicly on April 7 but Commission officials have already stated that growth in the eurozone will be around 1.7% this year, accelerating to over 2% next year. Solbes will also warn of the deteriorating budget situation in many eurozone member states. The Netherlands, Italy, the U.K. and Greece all look in danger of receiving early warnings from the executive on their deficits later this month. Final 2003 data released last month by Eurostat, the Commission's statistic agency, showed that the U.K.'s deficit was 3.2% of GDP, the Netherlands' 3.0% and Italy's 2.4%. Greece's deficit was 1.7%, but the new government in Athens has been conducting an internal audit, which is expected to increase the final 2003 figure. If issued, the warnings would probably come after Easter as the executive would have to prepare draft statements. Recent weaker-than-expected economic data appear to have put a rate cut on the ECB's agenda, but the overall economic outlook remains very mixed. Trichet is likely to tell the ministers that a rate cut would do little to solve the main problem facing the eurozone's fledgling recovery -- still weak consumer confidence. The recent stabilisation of the euro may also allow the ministers to relax their pressure on the ECB to take action to boost the recovery. That weakening of the euro is also likely to take the sting out of the tail of the Eurogroup's Group of Seven finance preparations. The issue of the overly strong euro was the main source of controversy at the last February meeting of the G-7 in Florida. The significant fall in the euro since then should make ministers much less vocal on the exchange rate issue. The Eurogroup will also discuss issues related to the enlargement of the eurozone. Among the ten countries of Eastern and Central Europe poised to join the EU, Estonia, Cyprus and Lithuania are the only candidates likely to join the Exchange Rate Mechanism from the earliest possible moment this summer, according to sources. The remaining countries are not expected to apply to the ERM II from the start. Those applying from the earliest possible moment could enter the ERM at the start of June following the required technical preparations. The ministers are also expected to discuss the still highly contested race for the managing directorship of the IMF. Signs are still that the Frenchman Jean Lemierre, the current head of the European Bank for Reconstruction and Development, is well placed after last week's big-country deal which sent a Spaniard to fill the latest vacancy on the ECB Executive Board. Many EU finance ministers are still pushing former Spanish Finance Minister Rodrigo Rato, who won virtual consensus support at the last meeting of the Ecofin as well as the backing of key Latin American states. But the fact is that even his supporters are now suggesting that they will back Lemierre if he falls by the way, and many officials now believe he will. EU Commission officials Thursday suggested that while the candidate would at least be discussed, they refused to say whether an actual decision would be reached at the ministers' lunch-time talks on the issue on Saturday. But, with non-Europeans getting restive about the way in which top jobs at the IMF and World Bank are always divvied up by the U.S. and the Europeans, a delay in appointing the EU nominee could throw the race open to a non-European. Saturday's session of the informal gathering will focus on financial market issues such as the direction of the EU's broad financial services action plan in the light of a report from the EU's committee on financial services. Ministers and bankers will also mull a draft from the Commission on a new proposal for a directive on EU clearing and settlement facilities. fxstreet.com