Fed Can Do Little to Stem Budget Deficit

123jump.com Staff
18 Sep, 2005
New York City

Fed may or may not pause, but when it comes to spending, Congress and White House show no restraint. War on terror, rebuilding of Gulf of Mexico states, tax breaks for few and growing pension liabilities due to airline bankruptcy, and higher energy import bill are all adding to the woes to the budget deficit and the U.S. dollar. German election analysis. Euro to rise this morning, after indecisive German election.

Financial markets will direct their focus on what Fed will do with interest rates this Tuesday. Raging debate suggests that cost of rebuilding in the aftermath of Hurricane Katrina and high energy costs are already fueling the forces of inflation and Fed may take a rare pause in its campaign on interest rate hike.

Gold market certainly believes that inflation in here to stay. Gold price reached seventeen year-high and several traders predict the price to reach $500 per ounce in the coming months.

Federal government shows no signs of financial restraints when it comes to spending on Iraq war, rebuilding of states in Gulf of Mexico, and favored tax cuts for few. The current spending levels, if not curtailed are only going to fuel inflation fires in the coming months.

Reported inflation in the month of August was at 0.5% and core inflation was at 0.1%, but when one adds the cost of rise in services, housing costs, and energy and food costs the inflation picture looks dramatically different.

Housing starts and building permits for August are scheduled to be reported on Tuesday before Fed decides on the fate of interest rate. Market watchers are expecting housing data to show decline in August.

On Thursday Index of Leading Indicators is expected to show a decline in August of 0.3% after gaining 0.1% in July.

International markets are likely to rise, especially in markets in Japan, India and Taiwan. In Japan, three-day week is likely to test Nikkei average of 13,000 last seen in June 2001. India continues to attract elevated level of foreign fund flows and is likely to cross the last year’s flow of $8.5 billion in the coming weeks. Averages in Australia are likely to rise in the coming days as investors watch earnings from Airport Authority, brewing company and largest retailing company Coles Myer.

German election results are due this afternoon. In an election that is too close to call, a possibility of Grand coalition between two bitter rival leading factions is sure to unnerve financial markets in Europe. Read a detailed analysis on the election and German economy by clicking this link.

Several U.S. companies are scheduled to release earnings this week. Few notables are listed below.


Apollo Group Inc., higher education programs provider, is expected to report a profit of 67 cents a share for the current quarter, up vs. 52 cents a share for the same period a year ago on revenue of 610.55 million. The company stock has declined 7% over the last three months.

Nike Inc., footwear, apparel, and equipment producer, is expected to post a quarterly profit of $1.42 a share, up from $1.21 a share for the year-ago period on revenue of 3.81 billion. The company stock has declined 12% over the last three months.

Carnival Corp., cruise company operator, is expected to report a quarterly profit of $1.35 cents a share, up from 1.23 cents a share for the same period last year on revenue of 3.59billion. The company share has lost 11% over the last three months.

Steelcase Inc., office furniture manufacturer, is expected to report a quarterly profit of 14 cents a share, up vs. 6 cents a share for the same time a year ago on revenue of 731.96 million. The company stock has gained 3 % over the last three months.

FactSet Research Systems Inc., financial and economic information provider, is expected to report a profit of 36 cents a share for the current quarter, up vs. a profit of 30 cents a share for the year-earlier period on revenue of 81.07 million. The company stock has declined 2% over the last three months.

Christopher & Banks Corp., retail specialty stores operator, is expected to post a net profit for the current quarter of 17 cents a share, up vs. 15 cents a share for the comparable period last year on revenue of 114.84 million. The company stock has declined 16% over the last three months.

CKE Restaurants Inc., franchising of quick-service and fast-casual restaurants operator, is expected to post a net profit for the current quarter of 19 cents a share, up vs. 17 cents a share for the comparable period last year on revenue of 360.27 million. The company stock has declined 32 % over the last three months.

Goldman Sachs Group Inc., investment banking, securities, and investment management company , is expected to post a net profit for the current quarter of $2.29 a share, up vs. $1.74 a share for the comparable period last year on revenue of 5.61 billion. The company stock has gained 13 % over the last three months.

AutoZone Inc., specialty retailer of automotive parts operator, is expected to post a quarterly profit of $2.84 a share, up from $2.53 a share for the year-ago period on revenue of 1.89 billion. The company stock has declined 2% over the last three months.

AG Edwards Inc., financial services holding company, is expected to post a net profit for the current quarter of 65 cents a share, up vs. 52 cents a share for the comparable period last year on revenue of 649.39 million. The company stock has gained 13 % over the last three months.