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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (7393)	7/5/2006 6:33:48 PM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Hawk, and it's very much an open question what type of productivity gains are forthcoming in Japan. It's not completely obvious to me how to quantify and measure some of these productivity and information derived advances that are being experienced these days. John

To: Hawkmoon who wrote (7393)	9/18/2006 4:40:46 PM
From: John Pitera	Respond to of 33421

ECB barrage sets stage for euro zone rates over 3.5 pct Monday, September 18, 2006 11:25:00 AM (GMT-06:00) Provided by: Reuters News By Stella Dawson, Chief ECB Correspondent FRANKFURT, Sept 18 (Reuters) - A barrage of hawkish comments from European Central Bank policymakers over the past three days are forcing investors to rethink how high interest rates are headed in the euro zone. Eight central bankers spoke of inflationary risks that are firmly on the upside after meetings with the world's top financial policymakers in Singapore this weekend. And for the first time, a clutch of euro-zone central bankers now are broaching the topic of the ECB pushing rates above the 3.5 percent level expected by December. Their preference is clear: they would like to see rates in the world's second largest economic bloc heading higher. Four euro-zone monetary sources told Reuters that the ECB expects to continue hikes into 2007, if its baseline scenario for trend GDP growth and inflation above target materialise. A similar view came from ECB Governing Council member Axel Weber in an interview with Bloomberg news agency. One well-placed, senior ECB monetary official also told Reuters rates could go to "at least 4 percent" by end 2007. "I expect we will carry on hiking beyond 3.5 percent. Under the base scenario, the output gap will close early in 2008. Before then, by the end of 2007, rates should be at least 4 percent," this monetary source said. "But we'll have to see if that's enough. They may need to go a bit higher," he said. The tough talk had investors on Monday pricing for ECB rates at 3.75 percent by mid 2007 versus minimal expectations last week of such a rise. Ken Wattret, economist at BNP Paribas, said the ECB seems to want to shake up markets. "These latest bout of comments make it absolutely clear they will carry on between now and year end withdrawing monetary accommodation, and they will if needed go further," he said. "The flat yield curve beyond December was unusual. They are trying to influence expectations that it is not all over." ECB TAKES VOTES One monetary source told Reuters that any suspicion among market players and economists that the ECB's consensus-style decision-making will delay its ability to act in a timely manner is misplaced. "They act according to the majority's position," the source said. The ECB has often been accused of being behind the curve on rate action. Despite ECB President Jean-Claude's Trichet emphasis on consensus, the ECB's rate-setting procedure actually does not differ in substance from the voting mechanism of other central banks like the Bank of England or the Federal Reserve. The 18 Governing Council members vote on the rate proposal and it is not true they wait until everyone is on board, the source said. "They have a first tour of the table to see how many are in favour of a course of action. If a minority is not in favour they are asked 'Would you like to join the consensus?' and very often they do. "If there are members of the council who are still not in favour after the second 'tour of the table,' then their dissent is simply recorded in the minutes and they act according to the majority's position." That has happened on several occasions. There was one occasion when they didn't change rates because there was a division either 9-9 or 10-8," the monetary source said. BLUSTER? Still, many ECB watchers doubt the ECB will tighten rates aggressively. They question whether the tough talk is more bluster, designed to squeeze inflationary expectations. "It takes my breathe away a little bit that there is a central banker talking of 4 percent by the end of 2007," said Julian Callow, chief European economist for Barclays Capital. He forecasts that a drop in oil prices means headline inflation will fall to 1.8 percent in September and October, comfortably within the ECB's target of just below 2 percent. Additionally, Barclays Callow and many other economists expect that growth next year will face considerable headwinds. The 1.75 percentage points in ECB tightening expected for 2006 will start to bite, a rising euro currency particularly against the yen could hurt exports, and budgetary restraint in Germany and Italy likely will restrain domestic demand and the global economy is cooling a bit. Against this uncertain backdrop, analysts said the ECB's recent frankness gives pause for thought. "It does suggest there is widespread unhappiness about the level of rates in the euro zone," said Callow. David Brown, chief European economist at Bearstearns, said: "If you look at the semantic barrage, you have to ask yourself are they readying markets for a half point in October."