The Financials Pit Review: By PitGuru Kalvin O’Brian

U.S. Economy

European and American markets are starting the week on a positive note as the government steps in to banish uncertainty over the fate of Citigroup. The financial giant was looking at a breakup or fire sale before it received $306 billion of U.S. government guarantees to help stabilize the bank after a 60% decline in the stock price last week.  The song remains the same - bad mortgages and tarnished assets are once again the root of this problem.  If you recall last month the Treasury Department added $25 billion to Citigroup under the Troubled Asset Relief Program. Now to add to the deal this week Citigroup will also receive a $20 billion cash injection from the Treasury Department.  It is not all for nothing the government will be given $27 billion of preferred shares paying an 8 percent dividend. 

Traders will also be watching for more news about the president-elect’s economic team following Friday’s stock-moving news that Timothy Geithner is a likely pick for the Treasury Secretary. Although the effects of new appointments and plans won’t be felt in the immediate economic situation, they will likely continue to move the futures markets. Look for retreats from highs on Wednesday as more than one of the reports due out on that day is probably going to be worse than forecast. Due to the Thanksgiving holiday, most earnings and economic reports will come in the first three days of the week and volatility and choppy trade will likely persist.

Currencies

The Citigroup rescue could have the additional effect of increasing investor risk appetite and reducing the draw to the Japanese Yen and the US dollar. This will open the door for continued gains in the Euro and the Pound as well as the Canadian Dollar.

The Bank of Japan met and kept the interest rate at .3%.  In the meeting they also said in order to help improve liquidity they will consider adding funds to the economy.  The concern of Japan’s Finance Minister is a possible intervention to help bring the yen to more desirable levels. 

News from Statistics Canada shows consumer prices increasing 2.6% this October compared to the same month last year. This was less than expectations, down from a 3.4% annual gain in September.  If crude and gold continue to increase in price the Canadian could be set for another large rally. It may be a while before this currency makes another run at par, but 8500 is not out of the question this week.

*Chart Courtesy of Gecko Software’s Track n’ Trade Pro

The Softs Pit Review: By PitGuru Jamie Fink

Concerns about demand slowdown in cocoa due to recessionary status for several countries were trumped last week over supply concerns from Ivory Coast. As usual, the culprits are a combination of poor bean quality due to mold issues and pest concerns. While deliveries to port have been dwindling, stockpiles of cocoa have risen for the first time since September which heralds a drop in prices going into this week.

Coffee, on the other hand, appears to have been snagged by a downtrend in prices, despite the likelihood that consumption will at least moderate but more than likely increase. The harvest potential has not been outstanding with rain hampering Vietnamese robusta bean harvest less than two weeks ago. India is also forecasting a lower bean harvest due to damage from monsoon rains.