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The Financials Pit Review

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For the week of June 16th, 2008

Thu, Jun 19 2008, 11:53 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

On Friday, the US Labor Department reported that consumer prices were up .6% in May. That’s a 4.2% increase from a year ago - right in line with expectations. It is clear that higher fuel costs made up most of the gain. If you remove energy and food, prices were only up .2%. The University of Michigan’s index of consumer sentiment dropped from 59.8 to 56.7 which was weaker than expected. Today the stock index futures fell after JP Morgan Chase and Company cut their recommendation of GE due to the concern rising fuel costs will cut into earnings. This week be alert to the PPI report as well as housing starts and permits on Tuesday. Even though the expectations are not very high at this point even bad numbers that exceed the expectations will help the current market conditions.

Currencies

The Canadian dollar fell on Friday to the lowest close in two months. Statistics Canada reported a stronger than expected increase of 2.0% in manufacturing sales. The Canadian appears to have hit a bottom and I will be long from this point.

The Bank of Japan decided to keep the interest rate unchanged at .50% as expected. The yen continues to climb today and I expect more gains throughout the week.

Speculation that the dollar rally is just getting started as the Federal Reserve’s turn to fighting inflation makes is more probable that they will raise interest rates more aggressively than the European Central Bank. The consumer price numbers report all but solidifies expectations the Fed will soon look to raise the interest rate from its current 2%. Despite this foregone conclusion, the euro increased against the dollar for the first time in three days after the Group of Eight nation summit stopped short of calling for a strong U.S. currency and European inflation accelerated to a 16 year high. There appears to still be some room for the euro to appreciate short term but the long term outlook is bearish.

Published on  Thu, Jun 19 2008, 11:58 GMT