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Global Briefing: Monitoring U.S. Price Data

The Nikkei continues its mild pullback.

Participants are struggling to make sense of a host of developments: the political morass in Moscow, the departure of Robert Rubin from the helm of the U.S. Treasury, and evidence that despite a surfeit of funds, Japanese banks remain reluctant to lend. At the same time, many European financial centers are closed for the Ascension Day holiday and after a dearth of data this week, the U.S. reports April retail sales and producer prices today.

Outside the initial knee-jerk reaction to Rubin's resignation, something rumors had suggested was a long time in the making, the U.S. market took the news in stride. But the real test came in Japan earlier today. Since Rubin took over the reins from

Lloyd Bentsen

, the official party line was that a strong dollar was in U.S. interests. Japanese foreign-exchange participants voted with their money that

Lawrence Summers

is likely to continue that policy. The dollar rose nearly 3/4 yen to the upper end of its six-week trading range. The 122-yen level is the next hurdle for dollar bulls, and successful penetration could prompt another 2-yen advance. However, there continues to be talk that Japanese exporters have dollars to sell.

The Nikkei lost 0.6%.

It has now pulled back 2.6% since setting 18-month highs last week. Gains among brokerage issues helped minimize the losses. There is some concern that tomorrow's equity option expiry may be a source of greater volatility. The yield on the 10-year benchmark bond slipped 4 basis points to 1.30%. According to the Federation of Bankers Association, lending by the top 19 banks fell 0.7% in April and was off 1.3% compared to last April. The liquidity that the

Bank of Japan

has made available to the banking system appears to be recycled by purchasing government bonds rather than making fresh loans. The proverbial pushing on a string continues. The continued constipation of Japan's financial system is one of the reasons I continue to believe that a true economic recovery is still not at hand.

Other regional bourses were mixed. Of note, the Korean composite index (


) was off 4% to 742.37 amid continued profit-taking. It has now strung together its largest three-day loss since January. The risk is for a move over the next week or so toward 700.

The absence of full participation in Europe today has helped keep the capital markets there quiet.

The bond markets are little changed, while the equity markets that are open are showing a modest upside bias. Of note, the telecommunications industry is gaining ground on talk of more restructuring, and U.K. drug makers

Glaxo Wellcome

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SmithKline Beecham

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are gaining on positive news about new products.

Even if today weren't a holiday, many investors would likely be reluctant to take new risks. Even if

Boris Yeltsin

survives the attempt to impeach him, which I for one would not want to bet, the change in government is likely to make Russia's support for the terms of truce in


bombing of Yugoslavia less reliable. The constitutional crisis is also likely to jeopardize the new


assistance, which was tied to legislating more reform measures. As the impeachment debate in the Russian parliament began, Russian equities were off around 3% after plunging 20% yesterday. The Russian crisis is reflected in the foreign exchange market via the relative strength of the Swiss franc to the euro. This was the case last summer when Russia devalued and then defaulted.

Other news out of Europe is light.



downgraded the long-term credit rating of

Deutsche Bank

, Germany's largest, to Aa3 from Aa1 and downgraded its financial strength to B from B-plus. Moody's cited Deutsche's challenge in boosting profits on its home turf. It suggested the lower net interest margins and difficulty in building up fee and commission based income streams. The downgrade affects some $12 billion in debt instruments. The same conditions could lead to a downgrade of other German banks. Moody's, for example, has already placed


on review for a possible downgrade.

The euro is little changed as it hovers near the lower end of its six-day trading range.

The technical measuring objective from the double-top pattern traced out in the past two weeks comes in near the $1.06 level. Yesterday the euro tested the $1.0630 area, which seems close enough to satisfy the objective.

Uninspiring consolidation is the most likely scenario now over the near term. Sterling may be more interesting. It has retraced about 50% of its advance from the $1.5840 level in early April to the $1.6435 area last week and now appears ready to push higher again. Sterling, with the U.K.'s comparatively high yields, may be an attractive place to park money for the time being.

After a dearth of important economic releases since last Friday's jobs data, the U.S. will report April retail sales and producer prices.

We are all well aware of the rise in oil prices, so look for traders to quickly look past the headline PPI figure, which could be up around 0.5%, and focus on the core rate, which is likely to tick up 0.1% after being unchanged in February and March.

My sympathies for those of you who have the java monkey on your backs, as


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has raised prices by a around a dime on coffee drinks, the first increase since May 1997. But that is not what inflation is made of.



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have reportedly raised prices of new cars to distribute the scarcity caused by the strong sales figures, but this appears to be a change in relative prices, not in general prices. Technology prices continue to fall. Reports suggest that


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may cut the prices on its Pentium I and II chips by as much as a third as early as next week, for example.

April retail sales are likely to rise around 0.3%-0.4% after a 0.2% rise in March.

The market likely will be more interested in the figures excluding auto sales. On balance, with the quarterly refunding out of the way, I haven't given up on my view that the June bond can recover toward the 120 level in the near term.

Lastly, Brazil cut interest rates yesterday for the second time this week and the sixth time in seven weeks.

The overnight rate was cut 250 basis points to 27%. This rate peaked in early March near 45%. Further rate cuts are in the pipeline as price pressures are not nearly as great at the doomsday forecasts predicted. In fact, there are some, albeit tentative, signs of deflationary forces. The Brazilian real has held up quite well, maybe even too well in the face of the interest rates. Brazil's export performance has not been bolstered as much as expected, while the strength of the real has encouraged continued imports.

Marc Chandler is an independent global markets strategist who writes daily for At the time of publication, he held no positions in the stocks, currencies or instruments discussed in this column, although holdings can change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at