July 3, 2008

Morning Call: Trichet Day

In the eve of the 4th of July, all eyes will be turned to the European continent.

Trichet will, almost for sure, increase the european bank benchmark rate, to 4.25%. But most important will be the speech. will he leave the door open to more taxes increases these year? I really think he will.

Then, markets will probably fall further... euro will approach all time highs face to the US dolar, and thereafter we will face new oil prices... But this may be the last run of these markets in the same direction of the trend.

Very quickly, markets will perceive that even Bernanke will need to follow the same strategy, resulting in a stronger dollar. Then, the three main reasons to support the oil strength will beacome weaker:
- USD will appreciate, and because Oil prices (as others commodities) should be valued in fewer dollars.
- Subsidies given by some asian governs to the consuption of oil products, recently reduced, will impact the demand of oil, balancing it with supply;
- The strong world economic growth observed during the last couple of years will at least refrain, and thus the demand for oil will also decrease.

But for now, there is at least one run in the direcction of the current trends: oil up, equity markets down, eur/usd up...

Global Trader Indicator mantains all the yesterdays views. Bearish in all the geographies, bullish in the european healthcare and media sectors.

Markets today will be watching also S&P to see if it remains above it year lows, after it closed yesterday belows this years lowest close. I think that the break of the low acchieved on 17th March is a question of time...

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