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by
The Nikko Securities Co.
International, Inc.
Has
The Dollar Seen Its Best Days?Issing: Not
Wishing
Bundesbank chief economist Otmar Issing is breathing
a sigh of relief as the Bundesbank is no longer very worried about
the Duetschemark. “There was a time...that it caused us
concern...but (that) has been corrected,” Issing said. Better
domestic inflation figures may have helped spawn that feeling of
relief as well. But Bundesbank officials need no longer simply wish
for a stronger mark: they have one. Talk has now turned to improved
prospects for a variable repo rate. Such a move would give the
Bundesbank flexibility to put pressure on the short-term rates in
a more immediate and smoother way, if it so chose. This focus
underlines the notion that the mark may be out of the woods, but
that the Bundesbank wants to stay there. Bundesbank policy is not
complacent and not relaxed, but it is not conducted in as worried
an environment as before. With this stance, and with the dollar
having been turned away form the DM1.90 level, can the day be far
off when currency traders set their sight on lower, rather than
higher, dollar targets?
Sakakibara And Tietmeyer
Earlier
this week we were reminded of another important G-7 lesson.
Sometimes the communique is not really the communique. Two key
international figures made this point by telling us what the
communique really meant. Japan's vice-finance minister, Sakakibara,
elaborated that the communique was a strong statement on the yen.
Bundesbank president Tietmeyer declared that the Bundesbank would
do...“everything”...to keep the mark strong and
...“not depreciate (it) against the big world
currencies.” With such strong views lurking at the conference,
why was the communique itself such a puddle of much? It seems the
G-7 is playing cute. It realizes the impact a clear and bold
communique can have. The U.S. undoubtedly does not want a falling
dollar (which could cause U.S. interest rates to rise). It
certainly wants a firm dollar. How strong a dollar (strong = high-
valued) the administration wants, we can only guess. Yet, the U.S.
does not want Japan to pull itself up by the bootstraps of export-
led growth (too-weak a yen or too-strong a dollar is not in the
cards). Clearly, the FOREX dance is well underway. But policy
makers, even in large economies, do not call the forex tune like
one calls a square dance. Concerns about the growing Japanese
surplus and the likely widening U.S. current account deficit could
turn the dollar lower faster than the administration wants. Sure
Japanese interest rates are really low. But at some point, the
currency risk of dollar assets will surpass the interest
differentials on those assets–and that's when the fun will
begin. Things change. Just look at sterling.
Sterling Comes
Out Of The Closet
UK politicians have done their best to
disguise which way sterling would go. But an article in the
Financial Times of London has spilled the beans on the outcome;
sterling was bushwhacked in the markets as its intentions were made
clear. “It is now clear we must indicate our willingness to be
in there,” so goes the quote the FT attributes to a minister.
Senior members of the cabinet are said to be openly canvassing the
prospect of sterling's participation in EMU around the turn of the
century. Although sterling was hit on this news, Prime Minister
Blair quickly was counter-quoted in the press as saying that the
story on the shift in stance is speculation. And so it is. And so
it always will be, until a true policy is announced. But intentions
and leanings are being made clear. That political hang-ups exist is
no surprise. But the former mostly no-leaning policy seems to have
been mothballed in favor of more pressing concerns: being left
out.
Outlook For The Next Week Ended October 3
Monday,
Personal Income and Spending (Aug.) are projected to rise by 0.4%
and 0.5%, respectively. Tuesday, the APICS index (Sept.) should
rise to 48.0%. The Chicago Purchasing Index (Sept.) is expected to
soften to 62.0%. Consumer Confidence (Sept.) will likely hold
steady at 129.0. New Home Sales (Aug.) are projected to rise by
1.0%. Wednesday, the NAPM Index (Sept.) will likely slip to 56%.
Construction Spending (Aug.) is expected to rise by 0.2%. Car and
truck sales will hold near 7.0 million and 6.6 million,
respectively. Thursday, Factory Orders (Aug.) should rise by 1.4%.
Friday, Nonfarm Payrolls (Sept.) are projected to swell by 340,000.
The Unemployment Rate may fall by two-thirds to 4.7%. Average
Hourly Earnings are expected to rise by 0.4%. The FOMC meets on
Tuesday, no policy change is expected.
Robert A. Brusca,
Chief Economist The Nikko Securities Co. International,
Inc. One World Financial Center, Tower A 200 Liberty Street,
New York, New York
Copyright 1997, by Consensus Inc. All American and Pan American
rights Reserved. editor@consensus-inc.com
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