There is an imbalance in terms of the demand and supply of energy which continues to be satisfied, or is increasingly satisfied, by external sources of energy products. Now we have a situation that has been every more complicated because of a domestic supply shock.
We are expecting to see some pressure on inflation. Companies are going to take advantage of strong demand to at least cover their cost increases.
New auctions will satisfy an unusual coincidence of needs on the supply and demand side of the fixed-income debt markets.
There are reports of solid underlying demand for 30-year bonds from pension funds and insurance companies.
Demand is strong enough for companies to raise prices. This will keep the Fed's bias toward higher rates intact through the second quarter of 2006.
Demand for capital goods in overseas markets is expected to remain firm in the months ahead as cyclical recoveries in Europe and Japan are gaining momentum.
This is in line with our expectation that demand for new housing would 'cool off' towards the end of 2005 and in early 2006 as higher short-term interest rates, driven by the Fed, would ultimately translate into higher long-term borrowing rates.