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Hold onto your hats
by Tony Butcher
Issue 14
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So far this year stocks and commodities have been as strong as an Olympic power lifter, cruising to multi year highs on the back of some major buying by Hedge Funds and Pension Companies. The current price has leapt passed fair value and entered the stratosphere of speculative pricing.

I read an article which said that if copper and nickel increase in value another 20% then it will be financially beneficial for Americans to melt down some of their coins for their base metal values. This really shows how far we have come since the beginning of the year.

I talked about a stock market correction back in late January, but the markets do not seem interested in retracing their gains from the first four months of the year yet. All major markets have been supported by good buying from Hedge Funds and 'Black Box' programmes. These are pre-programmed computer systems which automatically fulfil buy or sell orders given the current market trend.

The Acquisition and Merger activity/speculation is certainly helping keep the European and United States equities on a firm footing, especially from the expected takeover of the London Stock Exchange by the American firm Nasdaq.

Just keep an eye on the Stock Market's reaction to the continuing gains in the Oil market. Crude cruised to around $75 a barrel late in April and this could provide the dampening effect which I still feel is well overdue. Continuing with the data there are still some big earnings reports to come from the United States and the First Quarter US GDP growth figures too. Whether the markets ignore any weaker data and continue their relentless rally will be very interesting to watch.

Ben Bernanke, the Federal Reserve Chairman, will testify before the Joint Economic Committee before the start of May and the stock market will be keeping a watch on his language. After the latest Federal Reserve minutes, the rhetoric from the Fed was suggesting they are very close to ending their current cycle of raising interest rates. Confirmation from Mr. Bernanke would easily have the power to lift the Stocks in the United States to record highs; so hold onto your hats for an eventful May.

European Bond Markets got a swift, sharp shock from the European Central Bank leader Jean Claude Trichet, when he told reporters at the April monthly post-rate decision news conference, the futures markets had not priced in the ECB's rate predictions correctly.

Expectations of several faster 25 basis point moves has been changed to a more gradual approach of one 25 basis point move in each quarter of the year. This would bring interest rates in the Euro Zone to around 3-3.5% by the first quarter of 2007. The ECB's next move in rates is likely be at the June meeting and the markets will listen closely to what Mr. Trichet has to say at his news conference.
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