In This Issue

Fed holds rates steady, dials up inflation worry, Profits seen off more than 10 percent, House prices, consumer confidence dive

Top 50 Futures Trading Rules

Economic Reports and Expiration Notices

June 25th, 2008 — Issue #434

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We recommend the following articles as they provide an overview of the current economic climate.

Fed holds rates steady, dials up inflation worry

By Mark Felsenthal
Wed Jun 25, 7:08 PM ET

WASHINGTON (Reuters) - The Federal Reserve held interest rates steady on Wednesday and voiced greater concern about inflation, taking a small step down a road toward higher borrowing costs.

The decision by the U.S. central bank, announced at the end of a two-day meeting, leaves the benchmark federal funds rate at 2 percent.

"Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased," the Fed said.

U.S. stock prices rose, while prices for U.S. government bonds fell after the announcement, which gave investors mixed signals on how quickly the central bank might raise borrowing costs.

"The Fed made a moderately hawkish statement, signaling that the Fed may actually go ahead and raise interest rates later this year," said Joe Manimbo, currency trader at Ruesch International in Washington.

In its statement, the Fed said "overall economic activity continues to expand." After its last policy meeting on April 30, it described economy activity as "weak."

It was the first time the Fed has held rates steady at a policy-setting session since embarking on a series of rate reductions in September to put a floor under an economy hit hard by a housing downturn and credit crisis.

Policy-makers at the central bank are at a difficult juncture. A deepening housing decline looks like it will be a drag on economic growth for months to come, even as higher oil and commodities prices threaten to ignite a broader inflation.

Senior Fed officials in recent weeks have said that risks of a serious recession had receded after a period of turmoil marked by surging mortgage delinquencies and the near-bankruptcy of investment bank Bear Stearns, and they have begun to turn their sights on the need to contain inflation.

While the Fed focuses on so-called core prices that strip out volatile food and energy costs as the best gauge of inflation trends, policy-makers have expressed concern that record-high oil prices could trigger a wider range of price increases.

Top Fed officials have said they would be particularly vigilant to ensure expectations of higher inflation do not build, warning that could set off a harmful upward spiral of rising prices and wages.

Oil prices have moderated after reaching a record just shy of $140 a barrel earlier this month. But other recent developments, such as an announcement from Dow Chemical Co, the largest U.S. chemical maker, that it would raise prices by as much as 25 percent, have kept alive the specter of inflation.

At the same time, however, the economy has yet to show any clear signs of vigor.

The Commerce Department said on Wednesday that new single-family home sales fell 2.5 percent in May to bring them 40 percent below their year-ago level.

Reports released earlier in the week showed another leg down for house prices in April and a drop in consumer sentiment this month to a 16-year low.

(Additional reporting by David Lawder; Editing by Tim Ahmann and Jan Paschal)

http://news.yahoo.com/s/nm/20080625/bs_nm/usa_fed_rates_dc

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Profits seen off more than 10 percent

Tue Jun 24, 1:04 PM ET

NEW YORK (Reuters) - The U.S. corporate profit outlook is deteriorating rapidly, with S&P 500 earnings for the second quarter now seen falling at a double-digit pace from a year earlier, according to Thomson Reuters Proprietary Research released on Tuesday.

Second quarter profits are expected to fall at a rate of 10.2 percent, compared with the Monday estimate for a drop of 9.6 percent. At the end of May, analysts expected a 7.3 percent drop.

A worsening outlook for consumer discretionary and financials was behind the bleaker earnings view.

Soaring gasoline prices and a limping economy have hampered the outlook for consumer discretionary companies such as General Motors (GM.N) and electronics retailer Circuit City an Stores (CC.N). Among the most recent of major victims reporting impact from soaring crude oil, United Parcel Service Inc(UPS.N), the world's largest package-delivery company cut its second-quarter profit outlook citing high fuel costs and a slack U.S. economy.

At the same time, the credit crisis brought on by subprime mortgage failures has left the banking sector searching for new ways to create revenues now that several of their most profitable businesses have been all but shutdown.

The financial sector was hit by heavy selling most recently as Goldman Sachs & Co strategists told investors it had changed its previously positive view to "underweight" for U.S. financial, while also giving a negative outlook for consumer shares, saying weakening consumer demand and deterioration in the credit markets will weigh on profitability.

UPS's announcement came just a week after main rival Memphis-based FedEx Corp (FDX.N) posted a quarterly loss and gave a weak profit outlook for its fiscal 2009. The two companies are seen as bellwethers of the U.S. economy due to the large volume of commercial and consumer goods they transport.

http://news.yahoo.com/s/nm/20080624/bs_nm/usa_earnings_dc

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House prices, consumer confidence dive

By Lynn Adler
Tue Jun 24, 1:24 PM ET

NEW YORK (Reuters) - Consumer sentiment slid to a 16-year low in June while house prices suffered record annual drops in April, according to data Tuesday that suggested a retrenchment in spending that will keep squelching economic growth.

The Conference Board's monthly survey of consumers showed the overall index of consumers' mood fell to 50.4 in June, the lowest since 47.3 in February 1992.

The index has now dropped by more than half since 111.90 last July, before the housing market troubles triggered the most severe credit crisis in at least a decade.

"To put it in perspective, that's a bigger decline than what we saw after the September 11 attack and Hurricane Katrina," said Dana Saporta, economist at Dresdner Kleinwort Securities.

"It sends out the signal that the consumers are not about to ramp up their spending," she said. "We worry about the contraction in the economy once the tax rebates dissipate."

In addition, the survey showed an index measuring consumer expectations for the future sank to a record low as inflation forecasts matched an all-time high this month.

The inflation threat has been highlighted in the past 24 hours by massive price increases announced by some of the world's largest basic materials conglomerates.

First, mining titan Rio Tinto (RIO.L) (RIO.AX) secured an agreement with China's largest steel maker to nearly double the price Rio gets for iron ore, and rival producer BHP Billiton (BHP.AX) (BHT.L) is expected to follow through with similar price hikes.

Then early Tuesday, Dow Chemical Co. (DOW.N) said it would raise prices up to 25 percent, just weeks after the largest U.S. chemicals maker implemented a 20 percent across-the-board price increase.

U.S. home prices in April, meantime, extended their record annual slump in April although the pace of decline subsided a bit in the month, according to Standard & Poor's/Case-Shiller data.

S&P's 20-city index for April posted a smaller-than-expected 1.4 percent drop from March, but it also slumped by a record 15.3 percent annually and by 17.8 percent since hitting its peak in July 2006.

By another measure, the Office of Federal Housing Enterprise Oversight, which gauges prices based on relatively low risk loans purchased by Fannie Mae and Freddie Mac, said its home price index fell 0.8 percent in April from March for a 4.6 percent annual downturn.

Both housing reports suggest consumers will be less in the mood to ramp up spending any time soon.

However, U.S. Treasury Secretary Henry Paulson said on Tuesday he thought that most of the slump in U.S. housing prices would be over by year end and that growth should be stronger by then.

In an interview on Mexican television, Paulson said the global economy was being strained by costly energy but said U.S. economic fundamentals were sound.

"I feel moderately optimistic that at the end of the year we will have signs of an economic recovery," Paulson said. "Hopefully the biggest part of the housing decline will be over by the end of the year."

(Additional reporting by Richard Leong and Burton Frierson in New York and Glenn Somerville and Jason Lange in Cancun, Editing by Chizu Nomiyama)

http://news.yahoo.com/s/nm/20080624/bs_nm/usa_economy_dc

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Top 50 Futures Trading Rules

A review of 50 very basic, often violated futures trading rules

A survey of more than 500 experienced futures brokers asked what, in their experience, caused most futures traders to lose money. These account executives represent the trading experience of more than 10,000 futures traders. In addition, most of these Account Executives (AEs) have also traded or are cur rently trading for themselves. Their answers are not summarized because different traders make (and lose) money for different reasons. Perhaps you may recognize some of your strengths and weaknesses. Yet many of the reasons given are very similar from broker to broker. The repetitions stand to demonstrate that alas, many futures traders lose money for many of the same reasons. Perhaps these statements from experienced brokers can make a contribution to you, and make this sometimes fickle, often intricate, always interesting market place of futures trading possible.

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Economic Reports and Expiration Notices

Source: Moore Research Center, Inc.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!