Friday, 23 June 2006

Economic data soft but rates expected to rise

Yesterday's economic data from the US and Europe were mostly negative. From Reuters:

A key private forecasting gauge for the U.S. economy fell by a larger-than-expected 0.6 percent in May, suggesting that growth may be slower during the summer months and more vulnerable to punishing hurricanes.

The sharp fall in the Conference Board's Composite Index of Leading Economic Indicators outpaced expectations for a 0.4 percent fall in May and was the biggest drop since a 0.8 percent plunge in September 2005 after Hurricane Katrina smashed the U.S. Gulf Coast...

For the week ended June 17, first-time claims for state unemployment insurance benefits rose to a seasonally adjusted 308,000 from an upwardly revised 297,000 claims the previous week, the Labor Department said...

The Chicago Fed said its National Activity Index slipped to minus 0.16 in May from a downwardly revised 0.26 in April as both production and employment indicators faltered.

And on the UK economy:

The Confederation of British Industry said its monthly manufacturing orders books balance held steady at -12 in June, as expected by economists.

Firms' expectations for future output rose to +14 in June from +10 in May, the brightest since February 2005. However, the CBI's export orders books balance fell to -3 in June from 0 in May.

AFX/Forbes reports eurozone industrial orders:

EU statistics agency Eurostat reported a fall of 0.2 pct in April from March and a rise of 4.4 pct year on year...

Excluding the volatile [heavy transport equipment] component, orders rose 2.3 pct from March.

But the softness in the data is not stopping some analysts from forecasting a 6-percent fed funds rate.

On Thursday, Barclays became the first primary dealer bank to predict 6 per cent rates before the year end. "We have become less convinced that the FOMC will be comfortable keeping rates at 5.5 per cent in August as growth remains strong and core inflation continues to move higher," the bank's economists said...

Last week, economists at Lehman Brothers raised their Fed funds forecast to 5.75 per cent. Others with a 6 per cent peak include JPMorgan and Credit Suisse, although both expect that rate some time next year.

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