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

To: RealMuLan who wrote (9644)	7/21/2004 11:25:15 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Greenspan set to repeat testimony Wednesday, July 21, 2004 1:46:32 PM WASHINGTON (AFX) -- Federal Reserve Chairman Alan Greenspan returns to Capitol Hill on Wednesday to deliver the second leg of his twice-yearly testimony on the state of the economy Greenspan will take questions from the House Financial Services Committee at 10 a.m. Eastern after repeating the testimony he gave Tuesday at the Senate Banking Committee. In referring to the recent slower economic data as merely a "short-lived" soft spot, Greenspan's testimony battered the bond market Tuesday with a more hawkish stance than traders had expected Greenspan emphasized the strength of the economic recovery and the benign inflationary environment that will most likely allow the Federal Open Market Committee to raise interest rates at a gradual pace. He said both borrowers and lenders were well prepared for a faster pace of tightening if that's necessary to maintain price stability The fixed income markets had been pricing an expectation that the FOMC would slow the pace of its rate hikes in the face of a slower economy. But after Greenspan spoke, the market was again pricing in rate hikes at each of the next four meetings this year. There are greater risks to the economy from the current low rate environment than from a transition to higher rates, Greenspan told the senators. He said the Fed believed that the recent pickup in inflation was largely due to transitory factors, but cautioned that the central bank was still worried that "there are not more deep-seated forces emerging" to boost inflation as a result of such low interest rates. "Accordingly, in assessing the appropriateness of the stance of policy, the Federal Reserve will pay close attention to incoming data, especially costs and prices," he said. The Fed decided on June 30 to raise short-term interest rates to 1.25 percent from 1 percent. That was the first tightening in four years. In the statement, the FOMC said that future rate hikes were needed at a measured pace. Greenspan laid out two paths for interest rates -- a measured pace or a "less gradual" approach. Greenspan said that if rate hikes can proceed at a measured pace, "a relatively smooth adjustment of businesses and households to a more typical level of interest rates seems likely." But the economy appears strong enough to handle a less-than-gradual monetary policy adjustment, he said. "Even if economic developments dictate that the stance of policy must be adjusted in a less gradual manner to ensure price stability, our economy appears to have prepared itself for a more dynamic adjustment of interest rates," Greenspan said. There are risks of higher interest rates, but these were outweighed by leaving rates low as the economy improves. "Some risks necessarily attend this transition (to higher rates) but they are outweighed in our judgment by those that would be associated with maintaining the existing degree of monetary policy accommodation in the current environment," Greenspan said. Some economists have expressed concern about the sharp decline in auto sales and overall retail sales in June. But Greenspan assured the Senate panel that "the expansion is self-sustaining." Higher oil prices "by eroding households' disposable income, have accounted for at least some of the observed softness in consumer spending of late, a softness which should prove short-lived," he said. "Despite the softness in recent retail sales, the combination of higher current and anticipated future income, strengthened balance sheets and still-low interest rates bodes well for consumer spending," he said. Some of the strength in the economy is contributing to a rise in inflation this year, Greenspan said. "But inflation also seems to have been boosted by transitory factors such as the surge in energy prices," he said. Overall, a "benign environment" remains on inflation. Unit labor costs are not threatening price stability and the economy is not operating at its productive capacity, which should contain cost pressures, he said.

To: RealMuLan who wrote (9644)	7/21/2004 11:31:39 AM
From: RealMuLan	Respond to of 116555

Car sales skid in China REUTERS[ WEDNESDAY, JULY 21, 2004 03:06:59 AM ] SHANGHAI: Car sales in China fell for the third straight month in June, an industry body said, as Beijing’s efforts to rein in the economy kept buyers at bay and forced manufacturers into price-cuts. Sales slipped 5.8% to 167,282 units in June from May, an official at the China Association of Automobile Manufacturers said, confirming earlier figures from industry sources. An industry source said that sedan sales dropped 7.1% in June from May. But, sedan sales are up 4.8% in June from the same month last year, reflecting the slowest growth in two years. Car sales rose 31.6% to 1.1m in the first six months of ’04 — well off last year’s pace. Analysts say car sales in ‘05 may grow just 10-20% on ’03, when sales almost doubled. Auto makers such as Volkswagen and GM have already cut prices in past months, and analysts expect more cuts to come. China has relied on measures like credit curbs since last year to cool pockets of the economy that many have feared may overheat on the back of alarmingly high investment levels. In a sign that these measures may be working, the State Statistical Bureau said last week that second-quarter growth was 9.6% higher than a year ago, lower than many estimates. MNCs such as GM, Volkswagen and Toyota Motors plan to spend some $13bn to triple capacity to 6m cars by the decade-end, stoking fears of a margin-sapping glut just down the road. ... economictimes.indiatimes.com ========================================= Average profit for car sale in the West is around 5-6%, while in China it was >30% before last year, and now even after 10-20% price cut, the average profit for car sale in China is still 25% or so. And who are making all these profit? In 2003, 3-4 million cars sold in China, and every single of them was Foreign car!