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The Financials Pit Review

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For the week of July 7th, 2008

Tue, Jul 8 2008, 07:07 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

With the holiday now behind us the market appears to be trying to push up thanks to an early $4.00 sell off in crude and an uncharacteristic dollar spike. Last week the US Labor Department announced that the unemployment rate was unchanged at 5.5% in June with non farm payrolls declining to 62,000 which came in line with expectations. This was seen favorably by the market. May non farm payrolls were revised from a decline of 49,000 to 62,000. There is concern among traders that we have not hit a bottom and unless crude oil continues to drop like a rock this market does not have buyers flying into it. Add to that the unofficial start to earning season which begins Tuesday and the expectation that the S&P 500 companies’ earnings will be down 10% for the second quarter and I see traders continuing to tread lightly in these markets and be quick to pull out on bad news.

Currencies

The Canadian dollar has not had a lot of strength lately. Crude oil is the big story for our neighbor to the north; Alberta's oil sands hold the largest crude deposits outside the Middle East. Canada’s unshakable job market appears to be changing. June’s jobs report is expected to reflect at minimum a portion of the recently announced layoffs. This should be accompanied by weakness in the financial services and real estate sectors as well. I would expect the national unemployment rate to increase 1/10th of a percent from 6.1% the current level to 6.2%. Poor jobs number and weakness in crude oil will bring this market down.

The US dollar appears to have been inspired by the 4th of July. The ECB did shake things up temporarily with their ¼ point increase. This was a seen as a surprise because the consensus was that the rate would remain unchanged through to the end of summer, however the increase was made due to ongoing concerns about inflation according to the ECB. With a rally in the US dollar coming off of the double bottom set on July 3rd this market could continue to have strength despite the problems facing the US markets. This market has been down and out long enough.

Published on  Tue, Jul 8 2008, 12:43 GMT