Forex Trader Top 3: ECB Inflation Admission, FED’s Busy Schedule, Merrill Lynch
Mark Whistler is the founder of www.WallStreetRockStar.com and is the author of multiple books on trading. Mark’s newest book, The Swing Trader’s Bible – co-authored with CNBC/Fox News regular guest Matt McCall – will be on shelves in late summer, 2008. In addition, Mark also writes regularly for TraderDaily.com and Investopedia.com.
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1. ECB Concedes it is Not the Master of Inflation
The News:
Looking back into the Jean-Claude Trichet’s post-ECB interest rate meeting Q&A with the press, there are a few interesting tidbits, which have not made it to headlines. One of such is where Trichet concedes, ” So, we have a lot of prices that we fix, but others that we do not. And the protracted period of high inflation which we are in, is, as I said, due very much to those phenomena of oil, energy, commodities – let us not forget commodities other than oil, because we have also had very protracted prices increases in this domain – and food.”
The Breakdown
To be fair, it is important to give you the entire Question and Answer for the above quote. On April 10, Trichet gave an introductory statement, with a press Q&A. About three quarters of the way through, you will find:
Question: When you talk about price stability still being the main target and the medium to long term, you mentioned already that the 2% goal was reached last autumn or so. When will we next see 2% inflation?
Trichet: It is a good question. As you know, what we do ourselves is we publish projections of our own staff. And those projections incorporate a large element of range, because we consider that we are in a universe which remains uncertain. Nobody is, of course, the master of the price of oil, or the master of the price of commodities, or the masters of the price of agro-food products. We are the master of other prices: Economic agents, price-setters are the masters of domestic prices. Governments are the masters of a lot of prices: administrative prices, indirect taxation – which has a direct impact on inflation; they are also the masters, as social partners in their turn, of the wages and salaries in the public sector and the civil service. So, we have a lot of prices that we fix, but others that we do not. And the protracted period of high inflation which we are in, is, as I said, due very much to those phenomena of oil, energy, commodities – let us not forget commodities other than oil, because we have also had very protracted price increases in this domain – and food.
The Bottom Line:
I’m probably going to start sounding like a broken record in this column, but here it is again: Until global governments begin reviewing and dismantling protective trade policies packed with elevated food and commodity tariffs, prices will not likely abate anytime soon. Case in point, if the United States were to lift its $0.54/gallon tax on Brazilian sugarcane ethanol, the price of corn (even with bio-fuels demand) would drop. Almost every country in the world has protectionist trade tariffs in place and it’s not helping consumers whatsoever. Trichet may not set trade policy, but he does have swagger. Obviously his statement, “So, we have a lot of prices that we fix, but others that we do not.” is an old-fashioned runaround.
2. Busy Day for the Federal Reserve
The News
Three speeches, one Treasury auction and a late day data-release.
The Breakdown
Thursday is Jam packed with Fed Head excitement! In the morning the market will receive some action from Vice Chairman Kohn, followed up with Dallas President Fisher and then Richmond’s President Lacker.
Also on Thursday, the Federal Reserve will auction $25 billion in Treasuries, releasing the results shortly after. Hope (pray) demand is strong – though it should be.
The Philly Fed Survey released this morning should show manufacturing activity contracted in March, over February. However, the result (expected at -15) should be inline with estimates and really provides no fresh insights to the economy, unless of course, something drastic changes within the report.
The Bottom Line
Look for blips from the Fed speeches today, as catalysts that could drive the dollar in the near-term. Traders should have their ear to the tracks for Fed speakers to mention interest rate policy, credit squeeze news and any mention of the strong euro. If you catch something you think is particularly interesting, email me: markwhistler@hotmail.com
3. Merrill Runs the Gauntlet Too
The News:
On Thursday Merrill Lynch
(
MER |
Quote |
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News |
PowerRating) announced the company is writing down $6 billion, while cutting 4,000 jobs.
The Breakdown
Merrill’s newest subprime-related write down caused the company to suffer a first quarter loss of $2.14 billion, or $2.19 a share, post dividend. The loss exceeds expectations. One of the larger issues within the report, was the 40% decline in investment banking fees, triggering revenue to decline almost 70% year over year.
The Bottom Line:
Thursday is going to prove one of two things to the market: savvy money is buying bad news, or it’s time to pull the plug. In technical analysis, there’s a thing called a ‘gap and trap’, it’s where a stock gaps down, sucking in bears who are expecting the stock to fall through the floor. But it doesn’t, as it slowly starts to ascend, a short squeeze ensues. By the end of the day, the stock has made back all of the losses, and usually a little more. Take the recent gap down in the EUR/USD on Monday for example. After the G7 meeting, the EUR/USD gapped down almost 100-PIPS on Monday, but has since posted highs.
One way to tell if the selling from the morning gap is for real, is something that we used to call “the half-hour rule” on the trading floor. If the stock is not able to post a new low within the first 1/2 hour of trading, there’s a buyer out there. However, if the stock is not able to recover even a little ground in the first 1/2 hour, bears are likely for real.