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The Financials Pit Review

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For the week of May 12th, 2008

Tue, May 13 2008, 09:14 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

The S&P 500 looks like it will rebound from the first weekly drop in a month. The stock market gained after a pullback in oil prices boosted consumer company shares and Europe’s largest bank set aside less money than analysts’ estimates for bad American loans. Interesting how our bad loans might end up pushing the market up at this point. The US Census Bureau reported exports were down $2.6 billion in March, to $148.5 billion while imports were down $6.1 billion to $206.7 billion. The bottom line was $58.2 billion of net imports which was below expectations. This is going to have some significance but with the dollar’s outlook finally changing this market is looking to break 1400. With the reports due out this week like Retail Sales, CPI, Industrial Production and Housing Starts the real test will be if we are above the 1400 mark by week’s close.

Currencies

The Canadian dollar showed a bit of promise while exports increased in Canada by 1.6% in March; imports were down .3% resulting in $5.5C billion of net exports making it the most since May of 2007. Statistics Canada reported a better than expected unemployment rate even though it increased from 6.0% to 6.5% in April, with a net gain of 19,000 jobs. Canada has added 348,000 new jobs to the economy over the past year. The 1.00 mark is in reach and unless there is a sell off in crude this could be a good week for the Canadian.

According to a survey of 31 economists at Bloomberg, the ECB will lower its 4% main refinancing rate to 3.75% by the end of September and 3.50% by year-end. If this estimate is correct it will continue the descent of the Euro. The anticipation and speculation about this will continue leading up to the announcement, but the Euro looks technically weak and I expect this market to be trading lower by weeks end.

The dollar looks to be turning the tide. Speculators for the first time in a while look to be pro greenback. With the expectation of stagnation instead of cuts, and the ECB expected to start cutting, it appears to finally be time to jump on board and ride the dollar up.

The Reserve Bank of Australia expects consumer prices to increase 4.5% by the end of 2008. The expectation is that this will be followed up by a decrease of 3.25% at some point in 2009.

Published on  Tue, May 13 2008, 09:17 GMT