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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (41171)	5/8/2004 3:53:00 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69795

Betting on four By TERRY WEBER Globe and Mail Update UPDATED AT 4:33 PM EDT Friday, May. 7, 2004 Advertisement Caught unawares by the pace of U.S. job growth in April, many investors are now scrambling to get ahead of the Federal Reserve and betting that an interest-rate hike in June will be only the first of four this year, according to Merrill Lynch chief North American economist David Rosenberg. “I've never seen in my professional life, the entire tightening cycle priced in before the onset of the actual cycle,” he said during the brokerage's monthly economics conference call. A decade ago, the Fed delivered eight rate hikes between February, 1994 and February, 1995. But a replay of that period probably isn't going to happen, he said. Economists and investors have been divided on how quickly the Fed would start hiking, with many suggesting a late summer move as the most likely. But, Friday's much better-than-expected April employment numbers suggest that a move by the Fed's policy-setting Federal Open Market Committee meeting on June 30 is a distinct possibility. In a report that coincided with the conference call, Mr. Rosenberg said the Fed, under chairman Alan Greenspan, has tended to start tightening in the past when job creation hits the one-million mark over four months. In April, the economy created 288,000 new jobs, bringing the three-month total to 708,000 positions. If May's figure also offers a positive surprise, then the Fed may pull the trigger, he said. But, even if the Fed moves in June, Mr. Rosenberg also said he expects to see the central bank deliver its promised “measured” approach to tightening. That would mean a quarter percentage point hike in both June and August, but a pass in September and November while the U.S. presidential election plays itself out. Another quarter-point increase is possible in December, he added. In total, that would put the Fed's key target for the federal funds rate at 1.75 per cent by the end of the year, compared with the 2-per-cent rate now expected by the markets. The benchmark rate currently stands at 1 per cent, its lowest in more than four decades. “I still doubt that the Fed is going to have to move aggressively, but add the caveat that if we get a core CPI number in mid-May that surprises on the high side — I don't think that's going to happen — then certainly the market is going to be talking about the need for a 50-basis-point scenario,” he said. A basis point is 1/100th of a percentage point. The April U.S. inflation numbers are due Friday. Economists polled by Briefing.com are expecting a monthly increase of 0.2 per cent, tempering the March increase of 0.4 per cent. Mr. Rosenberg said a core increase of 0.2 per cent is also in his forecast, although a number near 0.1 per cent isn't out of the question, depending on how incentives affect pricing in the auto sector. “I think going forward now that we have established what the employment numbers are doing, I think the next few numbers on the core CPI (consumer price index) are going to be critical,” he said, adding that he still expects inflation to remain below market expectations for the next 12 months.