Dados da semana nos EUA: Bulls have Ben on the brain

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Bulls have Ben on the brain

Investors to eye reads on inflation and housing, as they gear up for Fed chair Bernanke's first Fed meeting.

By Alexandra Twin, CNNMoney.com senior writer
March 20, 2006: 5:57 AM EST


NEW YORK (CNNMoney.com) - After coming off one of the best weeks for the market this year, investors return to work Monday with visions of Ben Bernanke dancing in their heads.

Well, maybe not. But starting with his speech at the Economic Club of New York Monday night through the conclusion of the two-day FOMC meeting the following week, Wall Street does get its own version of March madness, and it involves the new Fed chief.



 

Bernanke speaks at the economic club Monday night on the yield curve and monetary policy.

Following that speech, the market will look to reads on leading economic indicators, producer prices, weekly jobless claims, existing and new home sales and durable goods orders. (See chart at right).

Of the reports due next week, the February home sales and the durable goods orders will be particularly relevant, said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.

"With durable goods orders, you should get a bounce back after January's weak number, but it's important to look beyond the headline number to the details in the report," Shapiro said.

The Producer Price index (PPI) would normally be the economic highlight of the week. Yet, it may be less relevant than usual, Shapiro said, since last week's Consumer Price Index (CPI) already showed that inflation pressures remain modest.

Investors will also be keeping an eye on the bond market in the week ahead. Bonds rallied last week, sending corresponding yields lower, and seeming to signal to the stock market that an end of rate hikes is near.

That helped fuel last week's stock run, which left the Dow and S&P 500 not far below 5-year highs. What the bond market signals next week will again be closely watched by stock investors.

However, the broader trend of all these events next week is what they imply about interest rates and what they indicate about next week's Fed policy meeting.

Looking to next week's Fed meeting
One of the most interesting factors for stock and bond markets in the short term will be the Fed statement after next week's meeting, said John Davidson, president and CEO at PartnerRe Asset Management.

That's because the stock market is already confident that Federal Reserve policymakers will boost short-term interest rates at that meeting. But what they are not clear on is for how much longer the central bank will continue to lift rates.

The fed funds rate, a key overnight bank lending rate, currently stands at 4.5 percent after having been lifted a quarter-percentage point at a time, 14 times in a row, since June 2004.

Fed funds futures show traders expect the central bank to vote to lift rates by another quarter-percentage point to 4.75 percent at the conclusion of the March 28-29 meeting. The futures also show traders think the Fed will probably lift rates again, by another quarter-percentage point, at the May 10 meeting.

Beyond the May meeting, there are questions, and those questions are what's going to make it hard for the stock market to move beyond recent levels, said Ken Tower, chief market strategist at CyberTrader.

There may also be questions about the new Fed chairman, who will preside over his first FOMC meeting since Alan Greenspan, a veteran of more than 18 years, stepped down in January. Also, the FOMC has several new governors, adding to the possibility of a change in tone for the bank.

However, no big surprises are likely, as Bernanke's recent testimony before Congress made clear.

The new FOMC is expected to continue the old FOMC's policy of "transparency," so as not to throw bond and stock markets for a loop regarding rate changes.

Yet, at the very least, Bernanke will "adapt his own style," Tower said. "The question is whether it will be easily adapted or received by investors, or will it be different enough to make people nervous?"