The Business News Source

The U.S. central bank raised its key federal funds rate by a quarter percentage point to a five-year high of 5.25 percent, as expected, on Thursday but dropped a phrase from its previous outlook statement that further policy firming may yet be needed. So it seems that the Fed may feel it’s done enough for a while.

The dust will settle and the markets will pour through the statement for the next few days trying to figure out every nuance and look for hints about potential further increases next month.

According to Reuters Anthony Chan, senior economist at JP Morgan Private Client Services in Columbus, Ohio said: The magnitude of the rally yesterday is weighing on futures this morning and that Stock trading may be lackluster.

However, the dollar continued to fall on Friday, adding to the sharp losses of the previous day prompted by expectations that US interest rates will soon be held in check after two years of steady increases.

In Europe the FT reported analysts at BNP Paribas that: The dollar will lose its interest-rate support and cyclical growth support here [Europe].

As we outlined in our previous article, the market has pretty much taken the increase in its stride, with lack lustre expectations this afternoon on the stock market. However, by Tuesday we think that the market will have forgotten about the rates rise and be bracing itself for indicators of which way the rates will go next month, if a week is a long time in politics, then a month is an age on the stock market. Although we didn’t expect it, we did feel that a 50 point rise would have rid the market of uncertainty and volatility until the end of the year at least.

With lighter trading expected over the summer months we predict it’ll be a roller coaster ride. Better strap yourself in.

Well, it was like waking up on Christmas day and finding all the presents you’d asked for downstairs. Nice but … well .. quite dull.

So Ben Bernanke and his crew at the Fed decided to raise rates by 25 points, not nice for borrowers, but no real surprise.

We expect that the market will blow a raspberry at this ‘expected’ increase and treat it with the respect it deserves -  ie ignore it. However, the real missed opportunity is that this could have been a great chance to nip everything in the bud. As it stands, we will now expect another painfully slow increase next month, and hence more prolonged uncertainty - and then another increase sometime in the next three months.

Had Bernanke increased it by 50 points then it would have sent a strong message to the market - and reduced the likelihood of further increases in the future - the markets would have tumbled a bit, but then quickly returned on trajectory, now we’ve got six months of… well… who knows. Surely Bernanke should have learnt from Greenspan’s failure to respond to the dot com bubble six years ago and reacted sooner rather than later as the Fed always seems to.

Bernanke still has to prove his spurs in our view – we give him 6/10 this time around.

Surely, please, the next announcement from Microsoft will be that finally, yes finally they’ve released something - anything  - on time. This afternoon Microsoft announced it was to delay yet another key product – Office 2007.

Microsoft said it will now aim for a launch of Office 2007 to business customers by the end of 2006 rather than an earlier target of October. Microsoft also said it would delay the general availability of the Office upgrade to early 2007 from its previous January target.

Somehow perversely, this seems OK, releasing Office 2007 in 2007 rather than 2006 seems to make sense, though let’s forget the title and realize that this is another product well behind schedule. What is Microsoft up to?

Office and its OS account for over 50% of Microsoft’s revenue, so another delay will obviously impact on the bottom line.

Sadly Microsoft has already ‘flat-lined’ over the last five years, actually returning a negative result for investors. So is the problem Gates or Ballmer, and is it time for a more radical overhaul.

We think that Microsoft needs to loose, rather than gain. Its company is now bloated and bureaucratic  - innovation, where it was, is now in a quagmire and dead. Microsoft needs to deliver something at least – it really needs to look a few hundred miles south towards Cupertino, it needs to figure out how Apple is beating it with less than a tenth of the R&D budget.

Mr. Gates – leave now or fix it – don’t leave Microsoft in quicksand for the next two years.
 

UK stocks were at their highest for six weeks on Thursday with Banking and mining stocks leading the way after an early rally on Wall street. The London market closed before the Fed’s interest rate announcement, the mood finished positively – but apprehensively.

According to Reuters some strategists are unconvinced by the upward move and have cautioned investors about reading too much into the market’s recent gains.

The article goes on to say that Anais Faraj, a global strategist at Nomura was not as optimistic. Farai said: We’re going into an earnings season and people are actually surprised at how strong the earnings numbers are looking and that’s triggering a lot of short-covering in the markets but I think, fundamentally, it’s not a clean break on the upside.

Farai further added that: ‘The charts don’t look that encouraging and most of the risk indicators we’re tracking are pointing to more misery. They’re still signalling pretty bearish outlooks.’

Faraj advised investors to sell sectors such as energy, materials stocks and commodities and instead buy into areas such as healthcare, food stocks and tobacco companies during periods of market weakness.

Whilst we’re still neutral on some areas, we certainly agree on his major areas of concern.
 

It’s a strange world - the world of writing for a newspaper or journal. First there’s your youthful enthusiasm for ‘the truth’, then there’s your editor banging on the table – or more likely your PC – demanding more column inches – NOW! So what’s a poor hack to do?

Well of course we cheat! As a breed we develop the skill of laziness very quickly. Fortunately, for us there’s a whole other industry that’s grown up to feed us big fat servings of news – of course I’m referring to the PR industry. Without PR and its vested interests we’d have to get off our comfy chairs and wear out the leather on our shoes and find the darn news.

However, here at The Business News Source we’ve adopted the, admittedly less than scientific, approach of ‘Headline Counting’ to look for trends in the news as they move from the inside pages slowly towards the front page. Ever wondered how you seem to have heard all the arguments before, well it was probably that page 6 two-inch column article two weeks back, fed by a PR Agency on a quite news day – innocuously, but slowly building momentum.

In most cases the headlines follow the same pattern as the markets, in times of great uncertainty the headline subject matters exhibit great volatility, with contradictions abounding from day to day. As soon as a consensus appears then its all good news (or bad news), until the new top (or bottom) of the headline market is found.

For this very reason (amongst the more obvious analytical ones) we are strengthened in our conviction of the impending correction in the housing market and further corrections in the stock market - headlines are creeping out of the inside pages, and everyone has an oppinion.

As a final footnote – we are looking for volunteers to help contribute to the ‘headline watching’ program – simply, we would like our volunteers to note down the article by subject/date and whether it’s a positive or negative headline for USA, UK and Australia - on the topics of interest rates, stock market and the housing market in your region.

We then intend to publish a bi-monthly summary of the headlines – no we won’t be calling it headlinedaq though!

Please email the the_editor@invbiznews.com to help