David Fry's Market Outlook for Friday

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 |  Includes: DBC, EWY, IEF, KIE, MDY, RSX, SPY, USO
by: David Fry

Speaking on Bloomberg TV shortly after the release of the Fed statement, former Governor Robert McTeer said something revealing. He was asked to comment on this portion of the statement: "...readings on core inflation have improved modestly in recent months, but that a sustained moderation in inflation pressures has yet to be convincingly demonstrated." His response: "That's code for acknowledging that the headline rate of inflation is still too high." That was followed by economist Irwin Kellner who also stated that the Fed is now looking at the headline rate. Well knock me down! Does that mean Fed officials don't believe in the validity of their own data? It sure sounds that way to me.

The absurdity of their obsession with the "core rate" is highlighted well by this recent article from the Economist.

We've noted for years the difference in the current calculation method versus the pre-Clinton era method so well documented by John William's Shadow Government Statistics.

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But we move on, since we've got portfolio managers needing, as best they can, to prop markets before the quarter- and month-end Friday. They want bonuses, and the Fed and Treasury are accommodating trading desks by pouring more liquidity in just as they did last week. Another $33 billion this week alone! This type of activity allows trading desks to squeeze shorts.

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The week ends with a load of data including: personal income, consumer spending, core PCE [personal consumption expenditure] index, Chicago PMI, consumer sentiment and construction spending. Results here will put "talking heads" in motion and should move markets one way or another.

Buried behind the Fed focus were subprime issues and oil prices that nudged briefly above $70 for the first time since last year.

The equity markets were pretty much status quo.

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Slipping the attention of most commentators was that crude oil briefly breached $70, but most products like natural gas and heating oil faded. Oil closing on the low of the day is the only satisfaction bears could take. Treasury Secretary Paulson last week stated that Americans will have to get used to higher interest rates. He forgot to include energy.

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Okay, let's take a lap around the ol' BRIC-K yard.

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A few other markets of interest.

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Friday could wind-up the month and quarter with more market-moving news than that delivered by the Fed today. Yet the Fed's statement and some intelligent [for a change] parsing of it regarding headline inflation will linger, and perhaps haunt investors going forward. We'll see about that.

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The "real deal" for stocks may come next month as earnings start to roll-out and more news about conditions [including subprime issues, oil prices, inflation and interest rates to name a few] come to the fore.

The "rules" say you're not supposed to engage in so-called "window dressing" and you're not supposed to jay-walk either. Let's leave it right there.

Have a good day and a pleasant weekend.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in: S&P 500 Index (NYSEARCA:SPY), MidCap SPDRs ETF (NYSEARCA:MDY), iShares Russell 2000 Index ETF (NYSEARCA:IWM), iShares Goldman Sachs Technology Index Fund (NYSEARCA:IGM), streetTRACKS KBW Bank (NYSEARCA:KBE), streetTRACKS KBW Insurance (NYSEARCA:KIE), United States Oil Fund ETF (NYSEARCA:USO), PowerShares DB Energy Fund (NYSEARCA:DBE), PowerShares DB Commodity Index Tracking Fund (NYSEARCA:DBC), iShares MSCI Brazil Index ETF (NYSEARCA:EWZ), iPath MSCI India ETN (NYSEARCA:INP), iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), iShares MSCI South Korea Index Fund ETF (NYSEARCA:EWY), iShares MSCI Australia Index Fund (NYSEARCA:EWA), iShares MSCI Canada Index ETF (NYSEARCA:EWC).