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The Two Most Important Economic Events I Am Watching Right Now
Wednesday, March 2, 2011, by Stathis
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Right now I'm focusing on two central bank decisions remaining for this week. The first and most important in my view is that from Brazil. Last week, discussions centered around a 75bp hike. Recall that Brazil raised rates by 50bp just a few weeks ago. You might recall my discussion of this, as well as the implications.

Currently, bankers are leaning towards a 50bp hike, although nothing is certain.

There are some important ramifications of Brazil's expected rate hike. First, it would appear that a 75bp is likely to be seen as a relative positive because it would get the brunt of the hikes for 2011 out of the way. However, without additional measures to counter the flood of foreign capital into Brazil's bond market, this is going to put further upward pressure on the real, which will adversely affect the very important Brazilian export trade.

As well, higher rates will increase the longer-term risk of capital withdraw at some point, which could cause significant stumbling blocks for the Brazilian economy. There is really no way out of this mess for Brazil. The persistence of low rates offered by advanced nations continues to pose a threat to emerging economies, especially Brazil. The decision from the central bank is due out later today.

The next economic event I am focusing on is that from the European Central Bank. Bankers appear to be more concerned with inflation than their peers in the U.S., and rightly so, as the EU does not enjoy the tremendous advantages of the currency linked to commodities prices. The ECB will announce the results from this meeting tomorrow morning.

Normally, I would not be so focused on these two events. However, their impact has been magnified due to the problems in the Middle East, soaring commodities, and several other events/announcements in the works over the next two weeks (EU stress test criteria to be released today, plans for deleveraging EU bank debt, March 11, protest scheduled in Saudi Arabia, etc.).

Despite the fairly good economic data and earnings that continue to be reported, these other events could cumulatively take command of market sentiment.

I will continue with this discussion and analysis in the March issue of the Intelligent Investor and market Forecaster, scheduled for release on March 7 and 8, respectively.

 

 

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