Seven To Ten

Oil hit another record high but has since pulled back. The dollar showed some strength and corporate earnings were pretty good.

Boeing blew away earnings estimates. Ford posted a surprise profit. And even though investors were disappointed by Microsoft’s quarterly forecast, they issued a healthy outlook for its next fiscal year. The worst of the credit crunch may finally be behind us. No more major bombshells from financial institutions, a sign that the Fed’s six rate cuts since last September and massive injections of liquidity into the banking system may be working.

In fact, Merrill Lynch indicated yesterday that it would pay its dividend this quarter, relieving investors who were anticipating a cut. There seems to be cause for optimism about the markets. The Dow is active again and the bond market is not acting as if it is in recession anymore.

Bonds have fallen in recent weeks, raising the yields. Bond prices and yields move in opposite directions and lower yields are usually associated as a sign of economic weakness. And for consumers, even though it’s still a painful time because of rising food and gas prices, the first of the government’s tax rebate has hit mailboxes.

Of course, it still is a rough economic environment. The surging price of food threatens to disrupt U.S. consumer spending patterns and the global economy. That’s where the Federal Reserve will hopefully step in. Many fear that more rate cuts could lead to a further weakening of the dollar, which in turn, could fuel more speculation in the commodities markets and drive food and gas prices even higher.

So higher interest rates, not more cuts, might be exactly what this market and economy needs. Hopefully, the Fed will send a strong signal to investors Wednesday that it is getting ready to sit tight.

Even budget carriers are finding it tough to operate in this inflated but depressed economy. Long-haul budget carrier, Oasis Hong Kong Airlines, has gone into liquidation, leaving hundreds of travellers stranded. After 18 months in operation, flights were cancelled with immediate effect. Its collapse comes amid a time of spiraling fuel costs.

Oasis launched in October 2006, flying daily from Gatwick to Hong Kong, and then added flights from Hong Kong to Vancouver. Under its mantra: “making frequent long-haul travel accessible to all” Oasis had been offering fares to Hong Kong for as low as £65.

According to local newspaper reports Oasis accumulated losses of HK$1 billion during that time. Industry analysts have suggested Oasis’s business model was optimistic in what is a highly competitive sector.

Cathay Pacific has stepped in to help stranded passengers. A special one-way economy class fare of £160 is being offered to Oasis passengers who have confirmed bookings on the airline over the next two weeks on the London to Hong Kong route. Travelmood, a longhaul operator, was working with 17 affected passengers on Wednesday to find alternative flights.

Most Americans think times are tough because they are feeling the pinch from rising prices. A survey showed that 65% are “very concerned” about inflation, while 26% are “somewhat concerned.”

Unemployment is also a major concern. The Department of Labor reveals that America has has already lost 85,000 jobs so far this year, with February’s net job report showing the worst loss in nearly five years.

To balance the threat of recession against rising inflation, the Federal Reserve announced a 3/4 percentage point cut of its key interest rate. The purpose for the central bank rate cuts is to boost the economy and stave off a recession. But lower interest rates can also weaken the dollar, sending inflation higher.

The Fed acknowledged that “uncertainty about the inflation outlook has increased.” Inflation hurts consumers and many people will be cutting back on their spending habits. Are you feeling the pinch already?