Sunday, March 18, 2007

The Week Ahead - Dueling Central Bank Meetings

Both the Bank of Japan and the Federal Reserve will be holding policy making meeting this week. The BOJ is expected to keep its benchmark lending rate at .5% after raising it to that level February 21st. The Yen has rallied more than 3% since that rate increase sparking the start of the unwinding of the so called 'carry trade'.

The Federal Reserve announces Wednesday and is also expected to leave rates where they are (5,25% Fed Funds) with the likelihood of continued tough talk for the need to watch for potential inflationary pressure, especially after last week's larger than expected rises in CPI and PPI . Never-the-less, Fed watchers will be pouring through the statement on Tuesday afternoon for any morsel of a hint that the Fed might be warming to the idea of a future rate cut by perhaps slightly toning down the tough inflation talk or by slightly ratcheting up the tone of concern about housing. As I've said in the past, there is zero chance for a rate increase this year given the real estate market carnage.

Could you imagine the short covering rally we'd have if more than an hint of a rate cut emerged in the statement? Be prepared for anything in the coming week.

Traders who play options on interest rate futures are already betting on 3 THREE rate cuts this year.

Eco Data: Tuesday features the release of Feb housing starts and building permits. Annual rates of 1.45 and 1.56 mln respectively are expected. Thuresday jobless claims are on the docket along with the leading indicators. Then on Friday, existing home sales for Feb are expected to show a decline to an annual rate of 6.35 mln.

Earnings Calendar: is fairly quiet, with Williams-Sonoma and Perry Ellis scheduled for Tuesday; KB Homes and Herman Miller on Wednesday. Thursday is busier with some bigger names: Nike, FedEx, Borders, Barnes and Noble and Bombay.

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