As we stroll delicately into the US fundamentals this week, we are to stumble upon prices that producers are burdening with the depreciating dollar and the surge seen in commodity prices, as all combined have offset the perception for the Feds to withhold their easing policy…
Producer Prices Index probably rose 0.4% from March after a 1.1% surge recorded while on the year expected at 6.6% also easing from the level seen the previous month at 6.9%, nevertheless on the core level excluding those volatile factors it's expected to remain unchanged from the previous months at 0.2% while rising on the year to 2.9% after 2.7%.
Profit margins for producers are slimming more and more as they aim to achieve the utmost balance among the diversity of downside pressures facing their businesses. Whether it was from sluggish demand, or from tight credit markets, or from the ghosts of slowing global growth, all combined are pressuring producers to expand their horizons and already are we witnessing the shaping of a new agricultural commodity driven boom!!!
Basically the dollar remains fragile and battered, though many want to believe that the worst have passed for the US economy and that the dollar is now among its longing days. Just seemingly too early to break into the Chicken Dance! The dollar lost grounds as jitters once more are surrounding the credit market conditions, after MR. Trichet commented that worst of the credit freeze is not over yet which was also in harmony with what the IMF said that the US housing slump that yet is to find a bottom may cripple further growth and deteriorate conditions and extend the financial turmoil.
The extent of damage upon economies is yet to be exactly seen though we are seeing the frontlines reserved for the UK so far which was once thought to be Japan the first to go, though still the new governor of the BoJ is holding upon Fukui's legacy as he continued to hold rates steady as they announced today withstanding the hawkish stance as the decade long of deflation is finally changed imposed by the pipeline pressures across the globe.
The scenario is as follows, as long as woes are back to surround the US economies capabilities of rising soon from their dooms and that the housing market and the credit crisis is to continue, then basic methodologies are to be locked in once more, which are if inflation on the producer side which is less of an impact like the seen CPI which was surprisingly SUBDUED then markets will actually resume to the conception that the Feds actually have room to take rates down below the current 2.0% to stimulate growth as they said they will act as needed to promote economic growth as long as inflation is not a threat to them, which with spare capacity and jittery businesses that are scared to scrap off sluggish demand from customers then now its early to worry about price stability…