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The Financials Pit Review

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For the week of March 31st, 2008

Tue, Apr 1 2008, 14:57 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

Last week, the U.S. Commerce Department announced that consumer spending was up .1% as expected and personal incomes were up .5% in February. The University of Michigan’s consumer sentiment index fell from 70.8 to 69.5 in March which was weaker than expected. During a time of the biggest housing plunge in over 20 years, continued job losses and the general expectation for America to slump into recession there is an obvious watch for a slowdown in consumer spending. In a continuing effort to help banks stay liquid, the Fed announced that it will offer $50 billion on the 7th and 21st of April. This week, Fed Chairman Ben Bernanke will testify before Congress after his attempts to calm the financial markets by lowering rates and extending credit to non-banks. It is expected that the jobless rate rose and payrolls shrank by between 50,000 and 63,000 according to some estimates. There is heavy intervention to try and breathe life into the market. I expect after Bernanke’s testimony the market will get a spark but there is still room to move to the downside. Continuing conversations calling to revamp financial industry policy will unfold in the weeks to come, but anything that gives the market jitters will also bring in selling pressure amid uncertainty.

Currencies

The unemployment rate in Japan increased from 3.8% to 3.9% in February. It was also announced that consumer prices were down .2% in February, but up 1.0% from a year ago. Japan has also cut production for the second straight month in February. The cut is due to the countries biggest exports market the United States verging on a recession. This is the first back to back decline in production in nine months. This is a true indicator that companies are concerned word demand is decreasing as the U.S. economy slows. I would not be surprised to see some intervention coming soon and I am looking for the yen to trade lower this week.

Across the pond the U.K.’s Office for National Statistics announced real GDP was up .6% in the fourth quarter of 2007 and up 2.8% from a year ago, slightly less then expected. The confidence level in the British nation for property has slipped, reflected in the six straight month of lower prices for homes. Consumer confidence is at a 13 year low and the UK slowdown is causing “credit crisis” talk and forecasts for credit market unrest for at least the rest of the year. Although I expect the pound to find support around 197, I think it will be a long time before we surpass the 200 mark again.

Published on  Tue, Apr 1 2008, 15:00 GMT