U.S. Weekly Wrap-Up

Equity markets saw some profit taking this week, but managed to stay fairly firm in the face of more negative news, including rising inflation and more signs the credit market turmoil continues. For the week, the DJIA fell 2.4%, the S&P 500 fell 1.8%, and the Nasdaq composite slipped 1.3%.

Retail sales rebounded in April after a dismal showing in March, led by impressive results from discount chains and warehouse retailers like BJ's and Costco, where SSS jumped 17% and 8% year over year, respectively. Still these results were largely discounted due to the additional sales attributed to the timing of the Easter holiday.

Treasury prices remained under some pressure in the first part of the week on hopes that the worst of the credit crisis may be over. Former Fed Chairman Greenspan and JPM CEO James Dimon hinted as much in separate addresses to investors. By Mid week the 10-year note yield looked poised to break above the Feb highs of 3.96%. But bond markets were unable to ignore the steady rise in commodity prices, led by energy. The 10-year yield finished the week some 20 basis points from those mid-week highs helped by continued hawkish rhetoric from European and IMF officials.

After months of continued weakness, the dollar held on to last week's gains, ending the week at $1.548 against the euro. An improving trade balance, dollar “decoupling” from oil and other commodities, and selling of Euros by Eastern European names were all cited as reasons for dollar strength. There was also speculation mid-week that the new Russian government of Dmitri Medvedev would permit a stronger ruble, with the Russian Central Bank possibly revaluing the currency after the new government took control. However, a deputy Russian central banker squashed this speculation after saying that revaluation chatter had originated among "irrational investors."

Growing global consumption pushed commodities higher this week, even though the dollar held on to recent gains against the euro. Crude seems to have disconnected as an inverse play to the dollar, spurred on this week by a Goldman Sachs analyst note predicting a possible “super spike” in crude, to as high as $200/barrel within the next two years. Crude futures continued their relentless rise this week, hitting record highs five days in a row, and topping the $126 mark on Friday, despite a larger than expected build in US crude and gasoline inventories this week, and the end of the force majeure on oil deliveries from Exxon's Nigerian operations. Natural gas ended the week at its highest levels since the aftermath of hurricane Katrina, and heating oil - a proxy for diesel - tacked on another 14% this week.

The strength in energy complex helped the oil and gas sector come through the week as one of the few winners among equities. Financial stocks, on the other hand, were among the biggest losers as the credit crunch and housing market slump look to continue at least through the end of 2008. AIG reported a very bad Q1 on Thursday, notching a loss of $1.41 a share - the first time that it has ever lost money in two consecutive quarters. The insurance giant joined the ranks of other financial institutions that have suffered huge losses from the liquidity crunch, prompting fears that the crisis is spreading into the overall insurance industry. AIG ended the week near a 52-week low.

Citigroup was also among the financial sector disappointments, as it announced a restructuring plan that was not as aggressive as some had hoped it would be. FannieMae also reported earnings this week and announced it would raise $6B in fresh capital to offset losses from the subprime mortgage crisis and a potential mandate from Congress to back failing mortgages under a proposed bailout for borrowers.

Trade The News Staff
Trade The News, Inc.

Legal disclaimer and risk disclosure