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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (51393)	7/5/2004 10:04:39 AM
From: elmatador	Respond to of 74559

<<danger is that US businesses overestimate the sustainability of the recovery and start building up inventories just as the level of demand is starting to decline.>> False down Jay. Sold my Sterling for a profit today. Wating for Yen to reach 107. It appears it reach a floor at that level and don't go down. The Short View: Global growth slowdown By Philip Coggan, Investment Editor Published: July 5 2004 14:29 \| Last Updated: July 5 2004 14:29 Sentiment in global markets seems to have changed once again. A set of weaker-than-expected data has raised concerns that the impetus of the economic recovery may be fading. The impact is most obvious in the bond markets. Benchmark US Treasury yields plunged by around 20 basis points (one fifth of a percentage point) last week. The number that grabbed the headlines was the June non-farm payroll rise of just 112,000, compared with market expectations of a 250,000 increase. The jobs numbers followed some disappointing US durable goods orders and a downward revision to first quarter GDP growth. Just to show that Europe is not immune from the trend, there was a fall in the eurozone services sector survey on Monday, following a decline in the manufacturing sector survey last week. Economic statistics tend to be erratic and one must always beware of putting too much emphasis on one month's figures. What could be happening, however, is that several factors are combining to slow global growth; higher oil prices, the efforts of Chinese authorities to prevent their economy from overheating, the fading impact of the Bush administration's tax cuts and the effect of higher bond yields. Individually, none of these factors are enough to send the world into recession. Even collectively, they may have only caused the economy to slow from a rapid, to a respectable, growth rate. But David Bowers of Merrill Lynch is concerned about a key economic indicator, the US inventory-to-sales ratio. Over the past 12 months, this has fallen at its fastest rate in the last 20 years, thanks to a big surge in shipments. Shipment patterns tend to lead changes in inventories by about six months. As a result, Bowers expects to see a significant pick-up in inventory levels. The danger is that US businesses overestimate the sustainability of the recovery and start building up inventories just as the level of demand is starting to decline. Bowers says that periods when the inventory-sales ratio is rising tend to be associated with major turning points in the bond market. Bond yields fall because rising inventory levels are associated with weakening pricing power. If he is right, the recent bond market rally may just be the start.