David Fry's Market Outlook for Friday

David Fry's Market Outlook for Friday



posted on: September 07, 2007




It’s enough to drive you nuts, as interpreting news is particularly
tough for investors. Bad economic news cheers investors wanting rate
cuts, while good economic news Thursday was, well, good news. And the
good news from better than expected retail sales and ISM data trumped
for the moment further increases in foreclosures and higher oil and
gold prices.

Taken together it might mean the all-important employment data
tomorrow may be better than expected. If so, those hoping for rate cuts
may be very disappointed.

The bottom line is that volume is still relatively light as many
investors await employment data. Then we should see whether bulls or
bears can seize control of the tape.

Just a few charts that matter from today--tomorrow will be a different deal.











The Fed was active, conducting $31.25 billion in repurchase
agreements. They conduct these operations when the Fed Funds rate gets
out of whack from where it should be. As we noted Wednesday with the
Libor rate [the short-term rate at which banks lend to each other]
rising to nearly 5.70%, the credit crunch continues. It follows then
that the Fed would enter the market to defend short-term interest rates.

There wasn’t any great news. The Fed is in a box with gold, oil and
food prices rising. Remember it was only in June that the Fed hinted
that market participants should pay attention to the “headline”
inflation rate and not just the “core” rate. The news over the past few
weeks means an interest rate cut would surely send the dollar sharply
lower [inflationary] and gold higher.

I expect Bernanke & Co. to cut interest rates but talk a tough inflation fighting game at the same time. We’ll see.