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The Financials Pit Review

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For the week of May 19th, 2008

Tue, May 20 2008, 14:14 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

The S&P 500 continues to look strong. This strength has come from about 2/3 of its companies posting first-quarter profits that beat estimates. However, with the new buzz signaling stagnation in the world's largest economy unfortunately there could be a two step forward one step back situation. Protect any long positions with close stops as enthusiasm can quickly turn when nervousness sets in as people realize we have not seen these prices since January.

The U.S. Census Bureau reported that housing starts were much stronger than anticipated up 8.2% from March's pace. This is really the first and only good news coming out of the housing industry in while but it is a little deceiving. The higher housing starts were in mutli-family homes rather than the single family homes, which are at their lowest level in years. The economy is continuing to be plagued by high fuel costs and even higher food costs. According to the University of Michigan its consumer sentiment index fell from 62.6 to 59.5n May, which was weaker than expected. The retailers will be looking to make up ground this Memorial Day weekend. Heavy discounts are expected more so than in previous years. With some stimulus checks still on the way it will be interesting to see how much Americans will spend and if it will be enough to chase away investor fears.

Currencies

Statistics Canada reported that retail sales among large retailers totaled C$8.33 billion in March, up 9.4%. The Canadian has cracked the 1.00 mark and with crude prices continuing higher there could be more room to go. However, with the volatility crude oil has seen there is a definite possibility any day it could sell off hard and if that's the case the Canadian will be right behind it. Keep close stops.

The Australian dollar reached a new contract high of 95.02, supported by a 7.25% interest rate compared to our 2.00%. Inflation remains a concern for most developed nations and traders need to be watchful for any economic policy changes. Japans Cabinet Office reported that real GDP was stronger than expected up .8% in the January to March quarter. Real GDP for the 2007 – 2008 fiscal year, which ends on March 31st, increased by 1.5% and that left people believing that even if there is a slowdown in the US, Japanese exports will not suffer too badly and should remain resilient which will bring much needed support to the yen.

Published on  Tue, May 20 2008, 14:17 GMT