2007 – The Year of America

OIL DROPS ANOTHER 6%; DOLLAR, STOCKS UP

Oil plunged 6% last week approaching $51 before rebounding to $52.99. The dollar surged to ¥120.37/$ against the yen and to $1.2919/€ against the euro as the ECB left the rates unchanged and the Bank of England surprised with a hike. The ECB hinted at a rise at the next meeting citing strong growth prospects in the 13-nation euro zone. Meanwhile world stocks are to a rocky start, while the U.S. market remains buoyant. The Dow reached a new record of 12,556.08. In addition to cheaper oil, whose significance  should not be underestimated for the U.S. economy, there is more good news. The 10-year Treasury yield moved up 12 bp to 4.771% increasing the prospect of reverting the yield curve by the end of the year, especially if we have a Fed cut. Don’t count on it too soon. Tax revenues in the U.S. remain incredibly strong, and the cheaper oil and stronger dollar could help sustain business investment and personal spending. High growth overseas continues and will help U.S. companies, despite protectionism and nationalizations. The Congress can mess things up, but not much. So far, the earmark transparency bill was good, the minimum wage one and the rest totally inconsequential. Good. The gloom over Iraq is overdone. Even if we lose, they go back to killing each other, and we go back to business. On HedgeStreet, oil, the pound and the euro dominated trading. Core CPI contracts expire this week.

ECONOMIC RELEASES THIS WEEK:
Wednesday: PPI at 0.7%, core at 0.1%, continuing lower year on year trends of 1.0% overall and 1.8% for the core, down from a 15-year high of 6.9% in Sep 2005. Expectations are timid so upward surprise would not be good. Industrial production at 0.1%, capacity utilization at 81.6%.
Thursday: CPI at 0.5%, core at 0.2%, first rise in 4 months. Core remains at 2.6% year on year (off the 2.9% high) on sticky housing, medical and tuition costs, while energy price drops help CPI overall. Housing starts at 1.575m, building permits 1.510m, as the downward adjustment continues.
Friday: Michigan Sentiment at 93.0.

BROWNE OUT AT BP  … BEND IT LIKE BECKHAM

Lord Browne will step down as chief of BP.  Upper class pedigree and eloquent talk of alternative fuels did not stop the refineries blowing and investments souring. Running an oil company takes more than talk. But what a dresser … Beckham is coming to LA Galaxy. He sat on the bench at Real. Now he’ll play for illegal aliens and couch potatoes on ESPN2. But for $250m … An Internet picture showed a U.S. tank in Iraq sporting a slogan “Today Baghdad, tomorrow Paris!”. Bush should have come up with that in the first place.