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The Financials Pit Review

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For the week of June 23rd, 2008

Tue, Jun 24 2008, 06:30 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

The market has digested Friday’s news and it looks like this week will start little better. Merrill Lynch cut earnings estimates for several regional banks as well as the speculation their own earnings outlook may be in trouble. Citigroup has warned that more write offs in the 2nd quarter may be in store. In addition to that Moody’s downgraded its ratings on bond insurers MBIA and AMBAC. The markets will be heading lower with only a few bumps on the way down.

It appears bad news is in store for Fed chairman Ben Bernanke’s fight against inflation. Skyrocketing oil prices are raising costs to ship outside goods into America giving encouragement to consumers to buy more domestically made products in turn allowing producers of those goods to raise prices. Ahead of this week’s meeting, this news brings home the point that it will be hard to substitute cheaper foreign goods to keep cost of living down. It will be interesting to see how they approach the inflation issue and it is likely some traders are looking for an earlier rate increase while most expect rates to remain unchanged until August.

Currencies

This week will bring employment, earnings and a study of consumer prices reports from Statistics Canada which should keep traders of the Canadian dollar on their toes. As long as higher crude prices hold, the Canadian currency will likely maintain its current price. It will take an extremely negative report or a reversal in crude to move this market lower.

Weak German economic data and lower business and consumer confidence across the European Union will likely put a damper on the Euro this week. Bad news has definitely called the possibility of an interest rate hike by the European Central Bank into question. The risk to growth will have to be weighed against the issue of inflation.

High fuel prices are cited as the reason for a possible dip in Japanese business confidence levels. The soaring costs of each stage of fabrication from base goods to shipping costs will probably be on everyone’s mind as exports start to slip. Watch for the Yen to slide as well.

Published on  Tue, Jun 24 2008, 06:32 GMT