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

To: RealMuLan who wrote (14001)	10/25/2004 1:40:50 PM
From: Haim R. Branisteanu	Respond to of 116555

Euro has further to rise Over the summer, major currencies proved relatively stable but, come the autumn, the renewed uncertainty about the size of the US current account deficit and the desire of the Asian countries, Japan in particular, to continue financing it have weakened the dollar, a situation not helped by the disappointing payroll numbers. Thus, rather than rallying to USD1.15 vs. the euro as we had predicted, it now seems likely that it will continue to weaken in the coming months to around USD 1.30. However, thereafter, the better US job story, helped by a gradual fall in oil prices should permit a very modest dollar rally to USD1.25 during the remainder of the year. Our view on the yen has not changed. The broadening of the recovery should enable a clear appreciation of the Japanese currency to 0.95 by end 2005. Indeed that holds perhaps the biggest risk for the dollar. When Japanese investors are convinced of the durability of Japanese growth they will repatriate investment flows and there is the risk of a sudden fall in the dollar at that time. Bond markets reflect their scepticism on jobs but Fed will still tighten It is obvious that the bond markets have reacted significantly to the continuing US job uncertainty. The US 10-year has slipped back towards 4% as a result. The Fed will continue to tighten at a measured pace as the job numbers improve gradually, though, which will lead to some increase in bond yields in due course. We expect the Fed to raise rates at each of the two remaining meetings this year (so 2.25% at year end) and then to end 2005 at 3.75%. This is an unchanged forecast. We see a gradual rise in yields as the employment story becomes more convincing and the Fed maintains it intention to take rates up closer to a neutral level. Ten-year US Treasuries should reach 4.3% by end 2004 and then 5% by the end of the following year. The ECB will delay tightening The European Central Bank is well aware that, for many eurozone countries, its current stance is expansionary, placing increasing emphasis on the impact of these easy credit conditions on property markets in particular. However, it will not act yet to curb what in some cases is excessive property market strength. Why? As well as the significant impact of the higher oil price, there is now the added problem of renewed strength in the euro vs. the dollar and the pound. eurozone exports are very sensitive to changes in the value of the exchange rate and this latest rise will put pressure on profit margins which companies will try to relieve through labour shedding. This could dampen consumption growth. In such circumstances, even with the Fed gently raising rates, the ECB will not follow suit this year with a 25bp by year end, as we had previously expected. However, assuming our view on the return to stronger job growth is correct, it will start to tighten gently in the second half of 2005 to 2.5% by the end of the year, a 25bp downward revision. This will lead to eurozone yields rising more slowly than US yields to reach only 4% by end 2004 and 4.6% by the end of 2005. globalmarkets.sgcib.com

To: RealMuLan who wrote (14001)	10/25/2004 2:03:27 PM
From: RealMuLan	Respond to of 116555

The China Syndrome 10/25/04 08:40 By Kaiser Kuo, DTN Beijing Correspondent BEIJING (DTN) -- China passed an important watershed in August when Beijing authorities quietly conceded that in the first half of 2004 the nation had become, for the first time in its recorded history, a net food importer. Five straight years of declining grain harvests have forced the world's most populous nation to import $14.4 billion in agricultural goods in the first half of 2004 -- an increase of 62.5 percent over the same period in 2003. China's first-ever trade deficit in agricultural goods has sparked lively debate among the country's economists, agronomists and policy-makers over what China needs to do to restore its long-prized self-sufficiency in agriculture with some questioning whether that goal is even attainable or worth pursuing. China has, after all, long depended on imports for key crops, most notably soybeans, and has recently become import-dependent for other strategic commodities. Half of the six million barrels of oil China consumes each day are now imported and from regions far more volatile than the U.S., Canada and Australia, where most of China's grain imports originate. For the overwhelming majority of ruling-party elites, however, that self-sufficiency is desirable is simply an article of faith. Shoring up agricultural output has become a matter of considerable urgency. Per-capita grain reserves are at their lowest point since 1982, according to the China Daily, the mainland's official English-language newspaper. ilfb.aghost.net ================= due to the new pro-farmer policy in China, this autumn should see some increase in its grain production