The week ahead

Next week, Monday and Friday are dead or almost! But that is about it. We have PPI/CPI numbers on Tuesay and Wednesday. These numbers will be important as we will see if inflation continues to dampen or not. In that line of thinking, there has been much talking about food inflation and Chinese inflation. Lots of people say that China does not says thruth about their inflation. If both of the preceding assumptions turns out to be true (higher food and Chinese inflation) we could see the market tumble by a fair amount.

But lets not fret about such rubbish for now, because all this is dwarfed by tueday's FOMC rate decision. A cut is more than widely accepted but much talking and hagglingis going on about the size of the cut. 25 or 50 bps . Right now, market probabilities are slightly in favor of the 50 bps cut (46.4% against 45.7%). Another interesting possibility would be a 25bps cut in the overnight rate but a 50 bps cut in the discount rate. This might be a very effective way to lower the Libor without lowering the overnight rate by too much.