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Saturday, June 11, 2005

Just in case the weekend was looking too clear and sunny, Merrill Lynch & Co. decided to provide a few grey clouds.

In a note to clients yesterday, Merrill Lynch chief North American economist David Rosenberg said he sees several signs that global economic growth is slowing. However, he said sluggish growth may persuade the U.S. Federal Reserve Board to soon call a halt to its interest rate hikes.

Mr. Rosenberg said several economic indicators show signs of a slowdown, including the Baltic Dry Index -- a measure of the cost of shipping raw materials on various routes -- which is down 2.5 per cent in the past year.

"Something is happening here," Mr. Rosenberg said, "and it's called global cooling."

The index is considered an important indicator of growth and production. The Commodity Research Bureau Index -- a gauge of commodity price trends -- is also dropping.

Mr. Rosenberg said that "for the first time in a long time," he is also concerned about the bond market outlook. "We remain fundamentally bullish on bonds but are concerned that there is too much priced in the near term," he said. When growth and inflation expectations both recede, however, the outcome is usually bond friendly, he added.

"What the bond market is trying to tell the Fed and investors alike is that deflation, not inflation, remains the primary longer-term economic risk," Mr. Rosenberg said.

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