Apr 1, 2005

Ready for the Jobs Report

Bill Cara summarized the odd strength in bonds in the face of some scary oil news. Also on oil I would point out the IEA recommendation to help panic consumers. Sounds like the rolling brown outs in California a few years back, but for cars. News like this has the potential to eventually undermine the anchoring of inflation expectations if and when it is affecting day-to-day living.

I first heard calls for $85 oil back in December, then again at the beginning of March. Then we had an OPEC meeting that basically indicated spot prices are now driven by estimated demand in Q4 and thereafter. With spot prices unhinged from the present details that market is ripe for speculators to push the price wherever they want. In judging the moves it is probably best to keep an eye on the far forward contracts rather than the front month.

Adding to the inflationary comeback yesterday, Merrill Lynch increased its price forecasts for copper, aluminum, nickel and zinc for the next three years. The industrial metals did not respond too dramatically but stocks like Phelps Dodge (PD) are now back wrestling with their breakdown point from Tuesday.

The dollar was steady to down and bonds rose on all this information. I don't think the jobs report will add to inflation pressures but instead will continue to be lackluster. This provides fuel for people like Roach who question whether the Fed will really fight inflation in the face of weak growth. That is a recipe for steepening.

Stocks look like they could stay strong no matter what the number but it kind of feels like the dollar wants to come back down a bit. We shall see.

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