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Five Things You Need to Know: FOMC, Treasury Report, Chinese Inflation, Copper, ECB Inflation


What you need to know (and what it means).


Minyanville's five things you need to know to stay ahead of the pack on Wall Street:


The following takes place between 2 p.m. and 2:15 p.m.

  • Today the Federal Open Market Committee meets to take a stab at what is widely expected to be another 25 basis point rate hike to 5%.
  • Any change in the language to signify a "softening stance" toward inflation could be interpreted by equities as "nice."
  • Look for the FOMC to most likely pull out the OED (Oxford English Dictionary) and formulate a clever, if out of popular usage, euphemism for "data-dependent."
  • We at Minyanville wonder what exactly does "data-dependent" mean? Well, according to both Fed Chairman Ben Bernanke and San Francisco Fed President Janet Yellen, it likely means that the Fed is concerned about over-tightening given what Yellen described in a speech last month as the "well-known long and variable lags in monetary policy."
  • Most worrisome for the Fed is the Commerce Dept. data last week showing a surge in mortgage interest payments, up 4.3% in the first quarter and nearly 16% year-over-year!
  • Well, at least the Fed can count on wage growth to keep pace with higher interest rates and, consequently, higher mortgage interest payments.
  • D'oh!!! According to the Commerce Department, wage growth is rising at a mere 2.7% year-over-year and the Employment Cost Index rate of growth is actually slowing!
  • In our minds, the key component of this week's FOMC statement will be any mention of concern over a housing slowdown.
  • This Fed does NOT want to find itself walking a data minefield with increasing CPI and inflation data with stagnant wages and increasing mortgage payments, effectively raising rates into a housing slowdown.
  • Chloe, we need you to override the logistic tracking signal and patch us through to the Fed break room.

2. The Treasury Forex Report

The following takes place between 3:59 p.m. and 4:oo p.m.

  • Coming in slightly under the radar given the focus on the FOMC, today at 4 p.m. the Treasury releases its forex report.
  • The report details the currency practices of U.S. key trading partners.
  • Currency market is most nervous about the possibility the Treasury report may label China a currency manipulator.
  • The Treasury has been pressuring China verbally to allow the yuan to strengthen against the dollar quicker.
  • China says it will do so, but at its own gradual (read: imperceptible) pace.
  • What do we think? The hard truth is that the U.S. Treasury is caught between a rock and a hard place.
  • We don't think Treasury has the guts to label China currency manipulator.
  • Instead, the report will highlight "improvements" in yuan flexibility along with some tough talk on how they better get moving soon, leaving tough talk on tariffs and import protection to Senators and Congressmen.
  • Chloe, we're going to need you to break into the Treasury com-soc-pac system, manually override the digital frequency retro gear and translate the currency grid in Arabic. Hurry!

3. Chinese Inflation? Guess what, there isn't any.

The following took place between 7:45 a.m. and 7:49 a.m.

  • China's consumer price inflation is expected to rise by less than 1 percent in the second quarter.
  • China's CPI reportedly rose by 1.2 percent in the first quarter, according to the country's economic planning agency.
  • Meanwhile, even as China CPI remains mysteriously low, everywhere else costs are rising.
  • Manufacturers reported that output prices in April rose for the first time in 11 months, as more firms were able to pass through costs to customers.
  • China's official purchasing managers index also showed increases in the prices paid, according to the China Logistics and Purchasing Association.
  • Chloe, it's us. We don't have time to explain. We need you to circumvent the DoD ComSat data feed and download the nearest White Castle locations to our pda's.

4. Copper, Strike Three

The following takes place between 8:21 a.m. and 8:29 a.m.

  • Grupo Mexico closed its San Martin copper and zinc mine after failing to end a strike that has halted production since March.
  • The company refuses to recognize Napoleon Gomez as leader of the 250,000-member union.
  • The company says the local government has refused to help end the strike.
  • Employees walked out at Grupo Mexico's La Caridad copper mine on March 24 and at its San Martin zinc mine on April 5.
  • Grupo Mexico produces about 640,000 tons of copper per year and is the third largest copper producer in the world.'
  • Copper this morning is above $8,000 a ton, or $3.75 a pound.
  • Chloe, we're getting the White Castle feed to our pda now, but we need you to also double cross navigate the backfeed from the satellite scanning system and look for a place that sells Mickey's Big Mouths within 3 minutes of our current location. Now Chloe!

5. ECB fires up the Weber. We prefer our briquettes with no starter fluid.

The following takes place between 8:26 a.m. and 8: 43 a.m.

  • European Central Bank council member Axel Weber says interest... Wait, did you say Axel? Ok, just checking, go on. Sorry.... says interest rates need to be increased by at least a quarter point to dampen inflation in the eurozone.
  • Weber says the ECB hasn't decided whether to accelerate the course of rate hikes, perhaps moving to 50 basis point hikes.
  • Futures traders are pricing in a 25 basis point hike at the next meeting, June 8, taking the key financing rate to 2.75%, and expect a move to at least 3.25% by the end of the year.
  • Why do we care about this? Well, when we're running on the fumes of liquidity... ok, IF we're running on the fumes of liquidity, and the U.S. Federal Reserve, the European Central Bank and the Bank of Japan are each tightening access to credit, then might one not expect an increase in the equity risk premium?
  • The ECB expects consumer prices to rise about 2.2 percent this year.
  • Chloe, we got the case of Mickey's Big Mouths, thank you. Now, we're going to need you to reconfigure the overhaul drive on the mainframe central planning Deepak Chopra server. Don't ask why! Also, we need you to download to our pda a good dry cleaner, one that specializes in onion ring grease, the directions to the nearest adult novelty store and a realtor's license. Do it now Chloe!


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Copyright 2006 Minyanville Publishing and Multimedia, LLC. All Rights Reserved.

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The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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