Crude prices lower as investors await Fed rate decision and its impact on the dollar.
By Kenneth Musante, CNNMoney.com staff writer
Last Updated: August 5, 2008: 1:08 PM EDT
NEW YORK (CNNMoney.com) -- Oil prices fell near $120 a barrel Tuesday, as investors anticipated further economic weakness in the United States, which could erode demand for crude products.
U.S. crude for September delivery fell $1.14 to $120.27 a barrel in electronic trading. It traded as low as $118 a barrel before rebounding.
Crude last reached $118 on May 5, when prices rose $3.65 to settle at $119.97 a barrel.
On Monday, oil settled down $3.69 to $121.41 a barrel.
Fed meeting: Investors are keeping an eye on the Federal Reserve's policy announcement, which is due at 2:15 p.m. ET.
The Federal Reserve is largely expected to leave its key rate unchanged at 2% as it tries to balance rising inflation and weak economic growth. But investors will be looking closely for any hints policymakers make about the future direction of rates.
Over the past several months, the Fed has either cut rates to inject liquidity into the market, or held them steady to ward off inflation. Some policymakers, such as Minneapolis Fed president Gary Stern, have called for rate increases to cope with rising inflation, according to reports.
"If the number of dissenting Fed directors increases, that would be bullish for the dollar," said James L. Williams, head of WTRG Economics in London, Ark.
The potential of a stronger dollar would send crude prices lower, since oil is traded in dollars and it would take fewer dollars to buy a barrel.
Falling demand: Weekly reports from the Department of Energy have indicated demand for crude products is well below what they were a year ago.
Meanwhile the market has been talking about falling demand from Europe and Japan, as well as developing nations such as China, according to Jim Ritterbusch, president of energy consulting firm Ritterbusch and Associates in Galena, Ill.
"We're still responding to both anecdotal evidence and statistical evidence that demand is falling," Ritterbusch said.
Expensive gasoline: High fuel prices have weighed heavily on consumers in the U.S., the world's largest oil consumer.
A daily survey from motorist group AAA showed Tuesday that while average gas prices have fallen for 19 straight days to $3.871 a gallon, they're still more than $1 higher than a year ago. Gasoline prices hit a record high of $4.114 at the pump on July 16.
A recent CNN/Opinion Research poll found that 75% of respondents said prices at the pump are a "financial hardship," up from 60% in April.
"People are just figuring out ways to drive a little bit less," said Brian Youngberg, senior energy analyst with Edward Jones in St. Louis. "They're not taking that extra trip down to the corner grocery store."
Election: Responding to public outcry on high oil prices, Democratic presidential candidate Barack Obama laid out an energy plan Monday that would include releasing 70 million barrels of crude from the Strategic Petroleum Reserve and accepting a "limited amount" of new offshore drilling in the U.S.
Republican opponent John McCain has supported new drilling for several weeks, and was scheduled to tour the Fermi 2 nuclear plant outside of Detroit on Tuesday. Both candidates have pushed for the development of non-fossil fuels.
Edouard: Concerns about supply disruptions in the Gulf of Mexico dissipated as Tropical Storm Edouard failed to reach hurricane strength as it struck the Texas coast, and just grazed vital off-shore oil facilities near Galveston, Texas, according to reports.
First Published: August 5, 2008: 7:12 AM EDT
Tuesday, August 5, 2008
Stocks Fall Despite Oil-Price Drop
Inflation fears diminished as energy and other commodity prices dropped, but trading was quiet ahead of Tuesday's Fed announcement
Major U.S. stock indexes finished lower Monday after a recovery attempt late in the day sparked by falling oil prices evaporated. But the plunge in oil prices on abating hurricane concerns and general weakness across the commodities complex did help diffuse some of the market pessimism caused by a rise in inflation.
Natural gas, platinum and copper prices all fell to six-month lows, while corn traded at its lowest levels in four months.
On Monday, the Dow Jones industrial average closed 42.17 points, or 0.37%, lower at 11,284.15. The broader S&P 500 ended down 11.30 points, or 0.90%, at 1,249.01. The tech-heavy Nasdaq composite index gave back 25.40 points, or 1.10%, to finish at 2,285.56.
On the New York Stock Exchange, 21 stocks were trading lower for every 10 that were gaining, while on the Nasdaq the ratio was 19-9 negative amid slow trading pre-Fed announcement. Energy and basic materials stocks were down, as were financials, but consumer staples and discretionary names were trading higher, S&P MarketScope said.
The market was initially spooked by a jump in an inflation gauge contained in the government’s personal income report for June, though those fears eased somewhat with the drop in commodity prices. The personal consumption expenditure (PCE) deflator surged 0.8% on the month and is up a hefty 4.1% over last year, well above the upwardly revised 3.5% year-over-year gain in May (from a 3.1% rise before). The core PCE deflator rose 0.3% in June and is up 2.3% from last June -- and above the 2.2% y/y pace seen since March.
The headline figure on the personal income report came in at a better than expected rise of 0.1% in June, beating expectations of a 0.3% decline due to adjustments in tax rebate assumptions in the revised data, Action Economics said. Income would have increased 0.3% in June and an estimated 0.3% in July, were it not for rebate distortions. Disposable income dropped 1.9% in June following a hefty 5.7% spike in May.
While the income and spending readings were a bit better than expected, thanks to the tax rebate checks, the big jump in inflation have worried markets ahead of the FOMC meeting, says S&P senior economist Beth Ann Bovino.
All eyes are on what the Federal Reserve policy committee's next move will be in steering the economy. The committee heads into its Aug. 5 meeting sharply divided over the appropriate direction of policy, with three of its 10 voting members having expressed their concern in recent weeks over future inflation. Economists are betting the majority, led by Chairman Ben Bernanke, will prevail in holding the Fed’s target rate steady at 2%.
Despite the higher inflation deflator figure, recent events auguring more tough times for the economy have diminished the inflation hawks' argument for a rate hike and might even put the possibility of a rate cut back on the table at some point during the second half of 2008. The troubles at the mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) have pushed up mortgage rates and created tighter credit conditions generally, whiles slower growth abroad, especially in Europe, will slow U.S. exports. Cheaper oil, if sustained, will also weaken concerns about a broader rise in inflation.
"The economy is too unstable for them to raise rates any time soon," says Doug Roberts, chief investment strategist for ChannelCapitalResearch.com, based in Shrewsbury, N.J. "We have the credit crisis, the housing crisis shows no signs of a bottom, and demand for oil, which is source of inflation, is a global thing [based on] demand driven by emerging markets."
Raising interest rates would hurt the U.S. economy more than it would the world economy, which is where a more pronounced slowdown is needed to rein in long-term trends in oil consumption, he says. Lately, oil prices have been cooperating, giving the Fed cover to hark back to its prior position on core inflation moderating over time, he adds.
"If they have a divided committee and as long as there are enough dissenters who are more hawkish, they can maintain credibility on inflation and it buys them more time to not do anything," he says.
HSBC Holdings (HBC) shares fell after the bank reported a pretax profit of $10.25 billion, down 28% from a year ago. HSBC's Tier 1 capital ratio was 8.8%. The latest results include loan impairment charges and credit risk provisions of $10.06 billion.
Citigroup (C) confirmed plans to close a $400 million convertible arbitrage fund that is the final piece of its TriBeCa hedge fund.
In other economic news Monday, U.S. factory orders surged 1.7% in June, well above the median estimate of a 0.9% gain, after rising a revised 0.9% in May. Excluding transports, orders were up 2.3% in June.
Oil prices dropped sharply as weather-related concerns faded after Tropical Storm Edouard wasn't upgraded to a hurricane. A report that Iran's chief nuclear negotiator Saeed Jalili and the European Union's foreign policy chief, Javier Solana, had called on Monday for a "positive air" over Iran's nuclear issue and would continue to keep communication open was also weighing on oil prices.
September WTI crude oil futures fell more than $4 a barrel before bouncing from the lows to settle $3.69 lower at $121.41 a barrel on Monday.
David Joy, chief market strategist at RiverSource Investments in Boston, sees the drop in oil prices as only a correction, "not a fundamental breakdown in the overall uptrend" since demand will be sustained by the industrialization efforts in emerging economies, especially in Asia.
But he thinks the price could drop as far as $90 to $100 a barrel, which is where supply-and-demand analyses suggest it should be trading now, he says.
The Reuters/CRB index, the most widely followed commodity index, fell below 402.0 on Monday, within striking distance of the 400.0 psychological area, the lowest point since the index broke that level back on May 1. That's a big drop from session highs above 416 and keeps the downtrend intact from record highs near 474 set back on July 3, Action Economics said. Energy prices came down as on reduced fears about the likely path Tropical Storm Edouard will cut on the Gulf Coast and on Barack Obama's comments about releasing oil from the U.S. Strategic Petroleum Reserve, but natural gas prices were down even more sharply.
Agricultural prices are all substantially lower, too, as are copper prices after an inventory build. Precious metals have taken a cue from energy as well, with gold probing below $900 per ounce for the second time in a week. A decisive technical break and close below $117 per barrel on NYMEX crude would prompt a re-test of the low of 377.45 on the CRB reached on Mar. 20, Action Economics said.
The drop across the commodities complex, while showing that the runup in prices was probably overdone in part by the speculation element, factor, suggests widening anticipation of weaker economic conditions worldwide ahead, says Joy.
Among other stocks in the news on Monday, shares of Charlotte Russe Holding (CHIC) tumbled after the mail-based specialty fashion retailer said that Patti Johnson had resigned as chief financial officer. Len Mogil, currently interim CEO, will assume the additional position of interim CFO. Roth Capital downgraded the stock to sell from hold.
InterContinentalExchange (ICE) shares fell after the company posted a second-quarter profit of $1.19 a share, vs. 75 cents a share a year ago, on a 44% gain in revenue. Quarterly trading volume exceeded 126 million futures and over-the-counter contracts were up 44%. The exchange set a $500 million stock buyback. S&P maintained its buy rating.
Nicor Inc. (GAS) shares rose after the company posted 64 cents a share in second-quarter earnings vs. a 40-cent preliminary forecast on a 26% rise in revenue. The company affirmed its 2008 earnings outlook of $2.20 to $2.40 a share. Standard & Poor's maintained its buy rating on the stock.
Freightcar America (RAIL) shares plunged after the company reported a second-quarter loss of eight cents a share, vs. earnings of 93 cents a year ago, on a 28% drop in sales. The manufacturer, repairer and leaser of freight cars noted that a combination of a sharp increase in input costs, specifically steel and aluminum, and pricing pressures had reduced margins. Due to increases in raw material costs on certain fixed price railcar contracts in backlog, the company's current estimated cost to complete some contracts is expected to exceed contractual sales price.
Major European indexes were trading lower Monday. In London, the FTSE 100 index slid 0.64% to 5,320.20. In Paris, the CAC 40 fell 0.78% to 4,280.63, while Germany's DAX index dropped 0.73% to 6,349.81.
In Asia, Japan's Nikkei 225 shed 1.23% to close at 12,933.18, while Hong Kong's Hang Seng index fell 1.52% to 22,514.92.
Treasury market
Treasuries reversed course to trade lower as commodity prices came off, undercutting inflation fears. The 10-year note moved down to 99-08/32 for a yield of 3.96% and the 30-year bond was down 14/32 at 96-17/32 for a yield of 4.59%.
Major U.S. stock indexes finished lower Monday after a recovery attempt late in the day sparked by falling oil prices evaporated. But the plunge in oil prices on abating hurricane concerns and general weakness across the commodities complex did help diffuse some of the market pessimism caused by a rise in inflation.
Natural gas, platinum and copper prices all fell to six-month lows, while corn traded at its lowest levels in four months.
On Monday, the Dow Jones industrial average closed 42.17 points, or 0.37%, lower at 11,284.15. The broader S&P 500 ended down 11.30 points, or 0.90%, at 1,249.01. The tech-heavy Nasdaq composite index gave back 25.40 points, or 1.10%, to finish at 2,285.56.
On the New York Stock Exchange, 21 stocks were trading lower for every 10 that were gaining, while on the Nasdaq the ratio was 19-9 negative amid slow trading pre-Fed announcement. Energy and basic materials stocks were down, as were financials, but consumer staples and discretionary names were trading higher, S&P MarketScope said.
The market was initially spooked by a jump in an inflation gauge contained in the government’s personal income report for June, though those fears eased somewhat with the drop in commodity prices. The personal consumption expenditure (PCE) deflator surged 0.8% on the month and is up a hefty 4.1% over last year, well above the upwardly revised 3.5% year-over-year gain in May (from a 3.1% rise before). The core PCE deflator rose 0.3% in June and is up 2.3% from last June -- and above the 2.2% y/y pace seen since March.
The headline figure on the personal income report came in at a better than expected rise of 0.1% in June, beating expectations of a 0.3% decline due to adjustments in tax rebate assumptions in the revised data, Action Economics said. Income would have increased 0.3% in June and an estimated 0.3% in July, were it not for rebate distortions. Disposable income dropped 1.9% in June following a hefty 5.7% spike in May.
While the income and spending readings were a bit better than expected, thanks to the tax rebate checks, the big jump in inflation have worried markets ahead of the FOMC meeting, says S&P senior economist Beth Ann Bovino.
All eyes are on what the Federal Reserve policy committee's next move will be in steering the economy. The committee heads into its Aug. 5 meeting sharply divided over the appropriate direction of policy, with three of its 10 voting members having expressed their concern in recent weeks over future inflation. Economists are betting the majority, led by Chairman Ben Bernanke, will prevail in holding the Fed’s target rate steady at 2%.
Despite the higher inflation deflator figure, recent events auguring more tough times for the economy have diminished the inflation hawks' argument for a rate hike and might even put the possibility of a rate cut back on the table at some point during the second half of 2008. The troubles at the mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) have pushed up mortgage rates and created tighter credit conditions generally, whiles slower growth abroad, especially in Europe, will slow U.S. exports. Cheaper oil, if sustained, will also weaken concerns about a broader rise in inflation.
"The economy is too unstable for them to raise rates any time soon," says Doug Roberts, chief investment strategist for ChannelCapitalResearch.com, based in Shrewsbury, N.J. "We have the credit crisis, the housing crisis shows no signs of a bottom, and demand for oil, which is source of inflation, is a global thing [based on] demand driven by emerging markets."
Raising interest rates would hurt the U.S. economy more than it would the world economy, which is where a more pronounced slowdown is needed to rein in long-term trends in oil consumption, he says. Lately, oil prices have been cooperating, giving the Fed cover to hark back to its prior position on core inflation moderating over time, he adds.
"If they have a divided committee and as long as there are enough dissenters who are more hawkish, they can maintain credibility on inflation and it buys them more time to not do anything," he says.
HSBC Holdings (HBC) shares fell after the bank reported a pretax profit of $10.25 billion, down 28% from a year ago. HSBC's Tier 1 capital ratio was 8.8%. The latest results include loan impairment charges and credit risk provisions of $10.06 billion.
Citigroup (C) confirmed plans to close a $400 million convertible arbitrage fund that is the final piece of its TriBeCa hedge fund.
In other economic news Monday, U.S. factory orders surged 1.7% in June, well above the median estimate of a 0.9% gain, after rising a revised 0.9% in May. Excluding transports, orders were up 2.3% in June.
Oil prices dropped sharply as weather-related concerns faded after Tropical Storm Edouard wasn't upgraded to a hurricane. A report that Iran's chief nuclear negotiator Saeed Jalili and the European Union's foreign policy chief, Javier Solana, had called on Monday for a "positive air" over Iran's nuclear issue and would continue to keep communication open was also weighing on oil prices.
September WTI crude oil futures fell more than $4 a barrel before bouncing from the lows to settle $3.69 lower at $121.41 a barrel on Monday.
David Joy, chief market strategist at RiverSource Investments in Boston, sees the drop in oil prices as only a correction, "not a fundamental breakdown in the overall uptrend" since demand will be sustained by the industrialization efforts in emerging economies, especially in Asia.
But he thinks the price could drop as far as $90 to $100 a barrel, which is where supply-and-demand analyses suggest it should be trading now, he says.
The Reuters/CRB index, the most widely followed commodity index, fell below 402.0 on Monday, within striking distance of the 400.0 psychological area, the lowest point since the index broke that level back on May 1. That's a big drop from session highs above 416 and keeps the downtrend intact from record highs near 474 set back on July 3, Action Economics said. Energy prices came down as on reduced fears about the likely path Tropical Storm Edouard will cut on the Gulf Coast and on Barack Obama's comments about releasing oil from the U.S. Strategic Petroleum Reserve, but natural gas prices were down even more sharply.
Agricultural prices are all substantially lower, too, as are copper prices after an inventory build. Precious metals have taken a cue from energy as well, with gold probing below $900 per ounce for the second time in a week. A decisive technical break and close below $117 per barrel on NYMEX crude would prompt a re-test of the low of 377.45 on the CRB reached on Mar. 20, Action Economics said.
The drop across the commodities complex, while showing that the runup in prices was probably overdone in part by the speculation element, factor, suggests widening anticipation of weaker economic conditions worldwide ahead, says Joy.
Among other stocks in the news on Monday, shares of Charlotte Russe Holding (CHIC) tumbled after the mail-based specialty fashion retailer said that Patti Johnson had resigned as chief financial officer. Len Mogil, currently interim CEO, will assume the additional position of interim CFO. Roth Capital downgraded the stock to sell from hold.
InterContinentalExchange (ICE) shares fell after the company posted a second-quarter profit of $1.19 a share, vs. 75 cents a share a year ago, on a 44% gain in revenue. Quarterly trading volume exceeded 126 million futures and over-the-counter contracts were up 44%. The exchange set a $500 million stock buyback. S&P maintained its buy rating.
Nicor Inc. (GAS) shares rose after the company posted 64 cents a share in second-quarter earnings vs. a 40-cent preliminary forecast on a 26% rise in revenue. The company affirmed its 2008 earnings outlook of $2.20 to $2.40 a share. Standard & Poor's maintained its buy rating on the stock.
Freightcar America (RAIL) shares plunged after the company reported a second-quarter loss of eight cents a share, vs. earnings of 93 cents a year ago, on a 28% drop in sales. The manufacturer, repairer and leaser of freight cars noted that a combination of a sharp increase in input costs, specifically steel and aluminum, and pricing pressures had reduced margins. Due to increases in raw material costs on certain fixed price railcar contracts in backlog, the company's current estimated cost to complete some contracts is expected to exceed contractual sales price.
Major European indexes were trading lower Monday. In London, the FTSE 100 index slid 0.64% to 5,320.20. In Paris, the CAC 40 fell 0.78% to 4,280.63, while Germany's DAX index dropped 0.73% to 6,349.81.
In Asia, Japan's Nikkei 225 shed 1.23% to close at 12,933.18, while Hong Kong's Hang Seng index fell 1.52% to 22,514.92.
Treasury market
Treasuries reversed course to trade lower as commodity prices came off, undercutting inflation fears. The 10-year note moved down to 99-08/32 for a yield of 3.96% and the 30-year bond was down 14/32 at 96-17/32 for a yield of 4.59%.
Stocks Rally Ahead of Fed Decision
Traders were awaiting the 2:15 p.m. ET announcement from Bernanke & Co. Oil prices continued to fall
http://businessweek.feedroom.com/?fr_chl=273e4cf956cc61c79bf6963949abebd5f8d0aaff&rf=ev&hl=true&skin=twoclip
Major U.S. stock indexes rallied late Tuesday morning ahead of the Federal Reserve's decision on interest rates, expected at 2:15 pm ET. An increase in a closely watched gauge of service-sector activity helped lift sentiment. Oil and gold futures skidded amid speculation the commodities bubble may be bursting, according to Standard & Poor's MarketScope.
Bonds were trading lower ahead of a Treasury refunding program scheduled to start Wednesday amid indications the government will have to issue more debt. The dollar index was higher.
On Tuesday, the Dow Jones industrial average gained 190.52 points, or 1.69%, to 11,474.67. The broader S&P 500 index added 19.05 points, or 1.53%, to 1,268.06. The tech-heavy Nasdaq composite index rose 33.34 points, or 1.46%, to 2,318.90.
Activity in the broader market was positive. On the News York stock exchanges, 21 stocks rose in price for every seven that declined. The ratio on the Nasdaq was 16-8 positive. Trading was moderate, with financial, consumer discretionary, and industrial issues higher.
"On a short term basis, the burden of proof is probably on the bulls that they can generate enough buying interest to sustain something more than a 1-2 day rally," according to Richard Dickson and Tracy Knudsen of Lowry's Reports in North Palm Beach, Fla.
The Fed is expected to leave the Fed funds rate target unchanged at 2.0% although some board members might call for a rate hike. There is some uncertain what the FOMC will say about the economic outlook in light of recent mixed data, as the Fed contends with inflation, slow growth, and the ongoing credit crunch. Fed chairman Ben Bernanke could talk tougher on inflation to head off dissent from potentially widening to three FOMC members, according to a Bloomberg article.
"Any such shift would not come without risks, such as spooking investors if the Fed came off too hawkish relative to increasingly fragile economic conditions -- especially after he widened those goal posts in recent monetary policy testimony," wrote Action Economics analysts in a website posting.
In economic news Tuesday, the U.S. ISM services composite index improved to 49.5 in July after falling over 3 points to 48.2 in June. The general activity index was little changed at 49.6 from 49.9. The employment component rose to 47.1 after hitting a record low at 43.8 in June. New orders index slipped to 47.9 from 48.6. New export orders slid to 47.9 from 52.0, back below 50 for the first time since February. Prices paid fell to 80.8 from the record 84.5 in June.
Though the headline index was a little better than the market expected, mix of data won't have much market impact ahead of the FOMC meeting, reports Action Economics, but the softness in some of the key components will add to concerns on the Street over a slowdown in growth.
“Although quantitatively the nonmanufacturing ISM index was somewhat less weak than expected, qualitatively the story for the economy is unchanged,” wrote economist John Ryding of RDQ Economics in an Aug. 5 note. “In our judgment, the dominant theme remains stagflation and, with the Fed more focused on growth and financial stability, the risk is that inflation moves higher in 2009.”
Oil futures were falling amid reports Tropical Storm Edouard went through the heart of the Gulf of Mexico's oil belt without causing major damage, and was heading for landfall along the Texas/Louisiana border. September West Texas Intermediate crude oil futures were off $1.60 to $119.81 per barrel.
August gold futures were lower at $888.50 per ounce.
Among Tuesday's stocks in the news, Procter & Gamble (PG) reported fourth quarter earnings per share of 92 cents, vs. 67 cents one year earlier, on a 10% revenue rise. The company sees fiscal 2009 EPS of $4.18-$4.25 (GAAP basis), which includes an estimated 50-cent gain from the sale of its Folgers coffee business and a 12-cent investment in incremental restructuring.
Bankrate (RATE) posted second quarter adjusted operating EPS of 39 cents, vs. 35 cents one year earlier, on a 73% revenue rise. As previously announced on July 7, the company lowered its 2008 annual guidance as a result of softness in display advertising. The company expects annual revenue to be between $164-$169 million and adjusted EBITDA of $54-$58 million. Jefferies cut its price target on the shares to $35 from $54. The firm also cut its estimates on Bankrate and reiterated its hold recommendation.
Molson Coors Brewing (TAP) reported second-quarter non-GAAP EPS (underlying after-tax income) of 93 cents, vs. 97 cents one year earlier, as higher special charges, increased energy and commodity inflation in all markets, and a higher effective tax rate for the second quarter offset a 4.8% sales rise.
Marvel Entertainment (MVL) posted second-quarter EPS of 59 cents, vs. 34 cents one year earlier, on a 55% sales rise. The company sees $1.55-$1.75 2008 EPS on revenue of $450-$480 million. Marvel’s guidance now includes results from its Film Production unit.
Archer-Daniels-Midland (ADM) posted lower-than-expected fourth-quarter EPS of 58 cents, vs. $1.47 one year earlier, on a 78% revenue rise. Wall Street was looking for a profit of 67 cents. The company notes results in the prior-year period include after-tax gains on asset sales of 95 cents per share.
Tenet Healthcare (THC) posted a second-quarter loss of 3 cents per share vs. a loss of6 cents one year earlier on a 6.3% revenue rise.
Allied Capital (ALD) posted a second-quarter loss of 59 cents per share vs. 57 cents EPS one year earlier as a net change in unrealized appreciation or depreciation offset a 14% rise in total interest and related portfolio income.
CNBC reports Lehman Brothers Holdings (LEH) is considering selling its entire investment management business, including private equity and hedge fund stakes, rather than just its Neuberger Berman business, as the bank looks to raise capital.
UBS reportedly initiates coverage on Apple Inc. (AAPL) with a buy rating.
UBS also reportedly upgraded American International Group (AIG) to buy from neutral.
Major European indexes were trading higher Tuesday. In London, the FTSE 100 index climbed 2.14% to 5,434.20. In Paris, the CAC 40 index rose 2.42% to 4,384.40. Germany’s DAX index gained 2.69% to 6,520.53.
Major Asian equity indexes lost ground Tuesday. Japan’s Nikkei 225 index fell 0.14% to 12,914.66. In Hong Kong, the Hang Seng index tumbled 2.51% to 21,949.75.
Treasury market
Treasuries were mixed ahead of the FOMC meeting. The 10-year note was lower in price at 99-05/32 for a yield of 3.983%, while the 30-year bond was lower at 96-13/32 for a yield of 4.598%. The U.S. government will sell $17 billion of 10-year notes on Wednesday and $10 billion of 30-year bonds on Thursday.
http://businessweek.feedroom.com/?fr_chl=273e4cf956cc61c79bf6963949abebd5f8d0aaff&rf=ev&hl=true&skin=twoclip
Major U.S. stock indexes rallied late Tuesday morning ahead of the Federal Reserve's decision on interest rates, expected at 2:15 pm ET. An increase in a closely watched gauge of service-sector activity helped lift sentiment. Oil and gold futures skidded amid speculation the commodities bubble may be bursting, according to Standard & Poor's MarketScope.
Bonds were trading lower ahead of a Treasury refunding program scheduled to start Wednesday amid indications the government will have to issue more debt. The dollar index was higher.
On Tuesday, the Dow Jones industrial average gained 190.52 points, or 1.69%, to 11,474.67. The broader S&P 500 index added 19.05 points, or 1.53%, to 1,268.06. The tech-heavy Nasdaq composite index rose 33.34 points, or 1.46%, to 2,318.90.
Activity in the broader market was positive. On the News York stock exchanges, 21 stocks rose in price for every seven that declined. The ratio on the Nasdaq was 16-8 positive. Trading was moderate, with financial, consumer discretionary, and industrial issues higher.
"On a short term basis, the burden of proof is probably on the bulls that they can generate enough buying interest to sustain something more than a 1-2 day rally," according to Richard Dickson and Tracy Knudsen of Lowry's Reports in North Palm Beach, Fla.
The Fed is expected to leave the Fed funds rate target unchanged at 2.0% although some board members might call for a rate hike. There is some uncertain what the FOMC will say about the economic outlook in light of recent mixed data, as the Fed contends with inflation, slow growth, and the ongoing credit crunch. Fed chairman Ben Bernanke could talk tougher on inflation to head off dissent from potentially widening to three FOMC members, according to a Bloomberg article.
"Any such shift would not come without risks, such as spooking investors if the Fed came off too hawkish relative to increasingly fragile economic conditions -- especially after he widened those goal posts in recent monetary policy testimony," wrote Action Economics analysts in a website posting.
In economic news Tuesday, the U.S. ISM services composite index improved to 49.5 in July after falling over 3 points to 48.2 in June. The general activity index was little changed at 49.6 from 49.9. The employment component rose to 47.1 after hitting a record low at 43.8 in June. New orders index slipped to 47.9 from 48.6. New export orders slid to 47.9 from 52.0, back below 50 for the first time since February. Prices paid fell to 80.8 from the record 84.5 in June.
Though the headline index was a little better than the market expected, mix of data won't have much market impact ahead of the FOMC meeting, reports Action Economics, but the softness in some of the key components will add to concerns on the Street over a slowdown in growth.
“Although quantitatively the nonmanufacturing ISM index was somewhat less weak than expected, qualitatively the story for the economy is unchanged,” wrote economist John Ryding of RDQ Economics in an Aug. 5 note. “In our judgment, the dominant theme remains stagflation and, with the Fed more focused on growth and financial stability, the risk is that inflation moves higher in 2009.”
Oil futures were falling amid reports Tropical Storm Edouard went through the heart of the Gulf of Mexico's oil belt without causing major damage, and was heading for landfall along the Texas/Louisiana border. September West Texas Intermediate crude oil futures were off $1.60 to $119.81 per barrel.
August gold futures were lower at $888.50 per ounce.
Among Tuesday's stocks in the news, Procter & Gamble (PG) reported fourth quarter earnings per share of 92 cents, vs. 67 cents one year earlier, on a 10% revenue rise. The company sees fiscal 2009 EPS of $4.18-$4.25 (GAAP basis), which includes an estimated 50-cent gain from the sale of its Folgers coffee business and a 12-cent investment in incremental restructuring.
Bankrate (RATE) posted second quarter adjusted operating EPS of 39 cents, vs. 35 cents one year earlier, on a 73% revenue rise. As previously announced on July 7, the company lowered its 2008 annual guidance as a result of softness in display advertising. The company expects annual revenue to be between $164-$169 million and adjusted EBITDA of $54-$58 million. Jefferies cut its price target on the shares to $35 from $54. The firm also cut its estimates on Bankrate and reiterated its hold recommendation.
Molson Coors Brewing (TAP) reported second-quarter non-GAAP EPS (underlying after-tax income) of 93 cents, vs. 97 cents one year earlier, as higher special charges, increased energy and commodity inflation in all markets, and a higher effective tax rate for the second quarter offset a 4.8% sales rise.
Marvel Entertainment (MVL) posted second-quarter EPS of 59 cents, vs. 34 cents one year earlier, on a 55% sales rise. The company sees $1.55-$1.75 2008 EPS on revenue of $450-$480 million. Marvel’s guidance now includes results from its Film Production unit.
Archer-Daniels-Midland (ADM) posted lower-than-expected fourth-quarter EPS of 58 cents, vs. $1.47 one year earlier, on a 78% revenue rise. Wall Street was looking for a profit of 67 cents. The company notes results in the prior-year period include after-tax gains on asset sales of 95 cents per share.
Tenet Healthcare (THC) posted a second-quarter loss of 3 cents per share vs. a loss of6 cents one year earlier on a 6.3% revenue rise.
Allied Capital (ALD) posted a second-quarter loss of 59 cents per share vs. 57 cents EPS one year earlier as a net change in unrealized appreciation or depreciation offset a 14% rise in total interest and related portfolio income.
CNBC reports Lehman Brothers Holdings (LEH) is considering selling its entire investment management business, including private equity and hedge fund stakes, rather than just its Neuberger Berman business, as the bank looks to raise capital.
UBS reportedly initiates coverage on Apple Inc. (AAPL) with a buy rating.
UBS also reportedly upgraded American International Group (AIG) to buy from neutral.
Major European indexes were trading higher Tuesday. In London, the FTSE 100 index climbed 2.14% to 5,434.20. In Paris, the CAC 40 index rose 2.42% to 4,384.40. Germany’s DAX index gained 2.69% to 6,520.53.
Major Asian equity indexes lost ground Tuesday. Japan’s Nikkei 225 index fell 0.14% to 12,914.66. In Hong Kong, the Hang Seng index tumbled 2.51% to 21,949.75.
Treasury market
Treasuries were mixed ahead of the FOMC meeting. The 10-year note was lower in price at 99-05/32 for a yield of 3.983%, while the 30-year bond was lower at 96-13/32 for a yield of 4.598%. The U.S. government will sell $17 billion of 10-year notes on Wednesday and $10 billion of 30-year bonds on Thursday.
No change expected in Fed interest rates
Tuesday August 5, 12:14 pm ET By Martin Crutsinger, AP Economics Writer
Federal Reserve expected to leave interest rates alone as powerful forces buffet the economy
WASHINGTON (AP) -- The Federal Reserve, caught between mounting job losses and rising inflation, is likely to sit tight and hope that the interest rate cuts it has already provided will be enough to heal a sick economy.
The central bank started Tuesday's meeting with a new member. Elizabeth Duke, formerly an officer at a Virginia-based community bank, was sworn in by Fed Chairman Ben Bernanke before the closed-door deliberations got under way.
Private economists believe that when the central bank will decide during the discussions Tuesday to leave its target for the federal funds rate, the interest that banks charge each other, at 2 percent.
Bernanke and his colleagues are being forced to navigate treacherous waters, trying to keep the economy from plunging into a deep recession while worrying about keeping interest rates so low that they could trigger a dangerous inflation spiral.
"The Fed is really locked in right now. They can't go forward or backward," said Sung Won Sohn, an economics professor at the Smith School of Business at California State University Channel Islands.
Many economists believe the funds rate will remain at 2 percent not only in August but for the rest of this year. That would mean that commercial banks' prime lending rate, the benchmark for millions of consumer and business loans, will remain at 5 percent, its lowest level since late 2004.
The Fed board, which normally has seven members, has been forced to operate with vacancies during the current economic turbulence. Democrats, who control the Senate, have been reluctant to give Bush the opportunity to fill seats that could be occupied next year by a Democrat if Barack Obama wins the presidency.
The Senate approved Duke's nomination. But it has deferred acting on banker Larry Klane, who Bush nominated along with Duke more than a year ago.
Fed Governor Randall Kroszner's nomination by Bush for a full 14-year term is still pending. Fed Governor Frederic Mishkin has announced that he will leave the Fed at the end of August to return to teaching at Columbia University, creating another vacancy on the board.
Responding to a severe credit crisis, the Fed last September launched an aggressive effort to cut interest rates. It reduced the funds rate seven times, lowering it from 5.25 percent, where it had been for more than a year, down to 2 percent in April.
At the Fed's last meeting on June 24-25, Fed officials passed up the chance to cut rates again. Instead, they signaled growing concerns about inflation pressures that have been made worse this year by surging oil prices, which hit a record high at $147.27 per barrel on July 11.
The inflation pressures have come while the economy has been staggered by a prolonged housing slump that has pushed home prices down by record amounts and a severe credit crisis that has seen banks tighten lending standards sharply after billions of dollars of losses on bad mortgage loans.
The combination of a weak economy and rising inflation has raised fears of stagflation, the malady that last beset the country during the oil price shocks of the 1970s.
The Fed's problem is that its main policy tool, interest rates, can only address one problem at a time. The central bank cuts rates to spur economic activity and raises rates when it wants to battle inflation.
Bernanke acknowledged the opposing forces when he delivered the Fed's midyear economic outlook to Congress last month. He said that the risks to the inflation outlook "have intensified" while the threats from the prolonged housing slump and credit crunch "represent significant downside risks" to growth.
Some Fed officials have said that even with unemployment rising and financial markets still turbulent, the central bank may need to move to combat inflation. Rising price pressures are difficult to contain once they gain momentum in the economy.
Janet Yellen, head of the Fed's regional bank in San Francisco, said in a July speech that "we cannot and will not allow a wage-price spiral to develop." Charles Plosser, head of the Philadelphia regional Fed bank, said the Fed will probably need to boost interest rates "sooner rather than later" to battle inflation even if employment and financial conditions have not fully revived.
Even with those hard-line comments, many private economists are betting that Fed officials are not close to raising interest rates, hoping instead that their tough-talk against inflation will do enough to keep inflation expectations under control without having to resort to actual rate hikes.
Unemployment jumped last month to a four-year high of 5.7 percent.
The government also reported last week that the overall economy, as measured by the gross domestic product, rose at annual rate of 1.9 percent in the April-June quarter. That's more than double the first quarter pace and significantly higher than the decline of 0.2 percent in GDP in the final three months of last year, the first outright drop since the last recession in 2001.
David Wyss, chief economist at Standard & Poor's in New York, said he believed the rebound in GDP growth, while it may only be temporary, will take pressure off the Fed to cut rates again while recent declines in oil prices will help ease inflation worries.
"I don't see the Fed changing policy until next spring when I expect to see them start to raise rates," he said.
Federal Reserve expected to leave interest rates alone as powerful forces buffet the economy
WASHINGTON (AP) -- The Federal Reserve, caught between mounting job losses and rising inflation, is likely to sit tight and hope that the interest rate cuts it has already provided will be enough to heal a sick economy.
The central bank started Tuesday's meeting with a new member. Elizabeth Duke, formerly an officer at a Virginia-based community bank, was sworn in by Fed Chairman Ben Bernanke before the closed-door deliberations got under way.
Private economists believe that when the central bank will decide during the discussions Tuesday to leave its target for the federal funds rate, the interest that banks charge each other, at 2 percent.
Bernanke and his colleagues are being forced to navigate treacherous waters, trying to keep the economy from plunging into a deep recession while worrying about keeping interest rates so low that they could trigger a dangerous inflation spiral.
"The Fed is really locked in right now. They can't go forward or backward," said Sung Won Sohn, an economics professor at the Smith School of Business at California State University Channel Islands.
Many economists believe the funds rate will remain at 2 percent not only in August but for the rest of this year. That would mean that commercial banks' prime lending rate, the benchmark for millions of consumer and business loans, will remain at 5 percent, its lowest level since late 2004.
The Fed board, which normally has seven members, has been forced to operate with vacancies during the current economic turbulence. Democrats, who control the Senate, have been reluctant to give Bush the opportunity to fill seats that could be occupied next year by a Democrat if Barack Obama wins the presidency.
The Senate approved Duke's nomination. But it has deferred acting on banker Larry Klane, who Bush nominated along with Duke more than a year ago.
Fed Governor Randall Kroszner's nomination by Bush for a full 14-year term is still pending. Fed Governor Frederic Mishkin has announced that he will leave the Fed at the end of August to return to teaching at Columbia University, creating another vacancy on the board.
Responding to a severe credit crisis, the Fed last September launched an aggressive effort to cut interest rates. It reduced the funds rate seven times, lowering it from 5.25 percent, where it had been for more than a year, down to 2 percent in April.
At the Fed's last meeting on June 24-25, Fed officials passed up the chance to cut rates again. Instead, they signaled growing concerns about inflation pressures that have been made worse this year by surging oil prices, which hit a record high at $147.27 per barrel on July 11.
The inflation pressures have come while the economy has been staggered by a prolonged housing slump that has pushed home prices down by record amounts and a severe credit crisis that has seen banks tighten lending standards sharply after billions of dollars of losses on bad mortgage loans.
The combination of a weak economy and rising inflation has raised fears of stagflation, the malady that last beset the country during the oil price shocks of the 1970s.
The Fed's problem is that its main policy tool, interest rates, can only address one problem at a time. The central bank cuts rates to spur economic activity and raises rates when it wants to battle inflation.
Bernanke acknowledged the opposing forces when he delivered the Fed's midyear economic outlook to Congress last month. He said that the risks to the inflation outlook "have intensified" while the threats from the prolonged housing slump and credit crunch "represent significant downside risks" to growth.
Some Fed officials have said that even with unemployment rising and financial markets still turbulent, the central bank may need to move to combat inflation. Rising price pressures are difficult to contain once they gain momentum in the economy.
Janet Yellen, head of the Fed's regional bank in San Francisco, said in a July speech that "we cannot and will not allow a wage-price spiral to develop." Charles Plosser, head of the Philadelphia regional Fed bank, said the Fed will probably need to boost interest rates "sooner rather than later" to battle inflation even if employment and financial conditions have not fully revived.
Even with those hard-line comments, many private economists are betting that Fed officials are not close to raising interest rates, hoping instead that their tough-talk against inflation will do enough to keep inflation expectations under control without having to resort to actual rate hikes.
Unemployment jumped last month to a four-year high of 5.7 percent.
The government also reported last week that the overall economy, as measured by the gross domestic product, rose at annual rate of 1.9 percent in the April-June quarter. That's more than double the first quarter pace and significantly higher than the decline of 0.2 percent in GDP in the final three months of last year, the first outright drop since the last recession in 2001.
David Wyss, chief economist at Standard & Poor's in New York, said he believed the rebound in GDP growth, while it may only be temporary, will take pressure off the Fed to cut rates again while recent declines in oil prices will help ease inflation worries.
"I don't see the Fed changing policy until next spring when I expect to see them start to raise rates," he said.
Oil falls as low as $118 on demand concerns
Tuesday August 5, 11:43 am ET By Stevenson Jacobs, AP Busines Writer
Oil prices decline as low as $118 on concerns that US slowdown is hurting fuel demand
NEW YORK (AP) -- Oil prices kept falling Tuesday, sinking as low as $118 a barrel on growing concerns that a U.S. economic slowdown and high energy costs are curbing consumer demand for gasoline and other petroleum products.
Crude's decline is giving Americans more relief at the pump. A gallon of regular gasoline on average fell another penny overnight to $3.871, according to auto club AAA, the Oil Price Information Service and Wright Express. Gas prices have fallen four straight weeks for the first time in December; prices are off 5.9 percent from their July high as U.S. motorists cut back on their driving to save money.
A day after plunging as much as $5 a barrel in a dramatic sell-off, crude continued its downward trend Tuesday as traders sold oil contracts on the belief that prices are still too high in relation to demand and have further room to fall.
Light, sweet crude for September delivery lost $1.86 to trade at $119.55 a barrel on the New York Mercantile Exchange, after earlier falling to $118, the lowest level since May 5.
Crude has now fallen more than $25 since reaching a trading high of $147.27 on July 11.
"The market psychology has finally shifted," said Stephen Schork, an analyst and trader in Villanova, Pa., adding that "$4-a-gallon gasoline has clearly killed demand."
On Monday, the Commerce Department said consumer spending after adjusting for inflation fell 0.2 percent in June -- the biggest drop since February -- as shoppers dealt with higher prices for gasoline, food and other items. Oil prices also fell after Tropical Storm Edouard did not severely disrupt oil and natural gas output in the Gulf of Mexico.
The dollar's gains against the euro also contributed to oil's decline Tuesday. The euro fell to $1.5467 from the $1.5587 it bought late in New York trading Monday, making oil and other commodities less attractive to investors seeking a hedge against inflation and dollar weakness.
Meanwhile, investors ignored continued tension over Iran's nuclear program. Representatives of the five permanent members of the U.N. Security Council and Germany agreed Monday to seek new sanctions against Iran after the country failed to meet a weekend deadline to respond to an offer intended to defuse the dispute, State Department spokesman Gonzalo Gallegos said.
Also Monday, Iran announced that it has tested a new weapon capable of sinking ships nearly 200 miles away, and Tehran reiterated threats to close a strategic waterway at the mouth of the Gulf if attacked. Up to 40 percent of the world's oil passes through the Strait of Hormuz, a narrow passage along Iran's southern coast, and any move by Iran to close it to tanker traffic would send oil prices skyrocketing.
In other Nymex trading, heating oil futures fell 3.55 cents to $3.3146 a gallon, while gasoline prices dropped 4.67 cents to $2.9535 a gallon. In London, September Brent crude was down $2.48 to $118.20 a barrel on the ICE Futures exchange.
Natural gas futures rose 9.9 cents to $8.825 per 1,000 cubic feet. On Monday, natural gas plunged 66.3 cents, or 7 percent, to $8.726 per 1,000 cubic feet, its lowest level in nearly six months. Prices have closed lower in eight of the last 11 sessions and have dropped 36 percent from the contract's all-time trading high of $13.752, reached July 2.
The pullback is double the size of crude's recent slide. That has fed speculation on Wall Street that a large hedge fund or something like it may be near collapse and has dumped a vast amount of natural gas contracts to free up cash. Last month, SemGroup LP, based in Tulsa, Okla., folded after losing $2.4 billion in bad bets on oil futures. SemGroup's collapse came amid a massive sell off in the oil market.
"Anytime you get that kind of violent price action in a short amount of time, it reeks of someone big being in trouble," Schork said.
Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.
Oil prices decline as low as $118 on concerns that US slowdown is hurting fuel demand
NEW YORK (AP) -- Oil prices kept falling Tuesday, sinking as low as $118 a barrel on growing concerns that a U.S. economic slowdown and high energy costs are curbing consumer demand for gasoline and other petroleum products.
Crude's decline is giving Americans more relief at the pump. A gallon of regular gasoline on average fell another penny overnight to $3.871, according to auto club AAA, the Oil Price Information Service and Wright Express. Gas prices have fallen four straight weeks for the first time in December; prices are off 5.9 percent from their July high as U.S. motorists cut back on their driving to save money.
A day after plunging as much as $5 a barrel in a dramatic sell-off, crude continued its downward trend Tuesday as traders sold oil contracts on the belief that prices are still too high in relation to demand and have further room to fall.
Light, sweet crude for September delivery lost $1.86 to trade at $119.55 a barrel on the New York Mercantile Exchange, after earlier falling to $118, the lowest level since May 5.
Crude has now fallen more than $25 since reaching a trading high of $147.27 on July 11.
"The market psychology has finally shifted," said Stephen Schork, an analyst and trader in Villanova, Pa., adding that "$4-a-gallon gasoline has clearly killed demand."
On Monday, the Commerce Department said consumer spending after adjusting for inflation fell 0.2 percent in June -- the biggest drop since February -- as shoppers dealt with higher prices for gasoline, food and other items. Oil prices also fell after Tropical Storm Edouard did not severely disrupt oil and natural gas output in the Gulf of Mexico.
The dollar's gains against the euro also contributed to oil's decline Tuesday. The euro fell to $1.5467 from the $1.5587 it bought late in New York trading Monday, making oil and other commodities less attractive to investors seeking a hedge against inflation and dollar weakness.
Meanwhile, investors ignored continued tension over Iran's nuclear program. Representatives of the five permanent members of the U.N. Security Council and Germany agreed Monday to seek new sanctions against Iran after the country failed to meet a weekend deadline to respond to an offer intended to defuse the dispute, State Department spokesman Gonzalo Gallegos said.
Also Monday, Iran announced that it has tested a new weapon capable of sinking ships nearly 200 miles away, and Tehran reiterated threats to close a strategic waterway at the mouth of the Gulf if attacked. Up to 40 percent of the world's oil passes through the Strait of Hormuz, a narrow passage along Iran's southern coast, and any move by Iran to close it to tanker traffic would send oil prices skyrocketing.
In other Nymex trading, heating oil futures fell 3.55 cents to $3.3146 a gallon, while gasoline prices dropped 4.67 cents to $2.9535 a gallon. In London, September Brent crude was down $2.48 to $118.20 a barrel on the ICE Futures exchange.
Natural gas futures rose 9.9 cents to $8.825 per 1,000 cubic feet. On Monday, natural gas plunged 66.3 cents, or 7 percent, to $8.726 per 1,000 cubic feet, its lowest level in nearly six months. Prices have closed lower in eight of the last 11 sessions and have dropped 36 percent from the contract's all-time trading high of $13.752, reached July 2.
The pullback is double the size of crude's recent slide. That has fed speculation on Wall Street that a large hedge fund or something like it may be near collapse and has dumped a vast amount of natural gas contracts to free up cash. Last month, SemGroup LP, based in Tulsa, Okla., folded after losing $2.4 billion in bad bets on oil futures. SemGroup's collapse came amid a massive sell off in the oil market.
"Anytime you get that kind of violent price action in a short amount of time, it reeks of someone big being in trouble," Schork said.
Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.
Wall Street spikes higher after ISM data
Tuesday August 5, 11:29 am ET By Joe Bel Bruno, AP Business Writer
Wall Street moves higher ahead on strong ISM data, ahead of Fed meeting
NEW YORK (AP) -- Wall Street shot higher Tuesday as investors got some heartening economic news: a report that activity in the services sector fell less than expected last month, and another drop in the price of oil. The upbeat developments, which lifted the Dow Jones industrials nearly 200 points, came as the market awaited the outcome of a Federal Reserve meeting on interest rates.
The Institute for Supply Management, the trade group of corporate purchasing executives, said its services sector index rose to 49.5 from 48.2 in June. Analysts surveyed by Thomson Financial/IFR predicted it would rise to 49.0.
Any reading below 50 signals contraction. The report is based on a survey of the institute's members and covers such indicators as new orders, employment, inventories, prices and exports and imports.
The notion that the sector might be in better shape than many investors feared gave Wall Street reason for optimism. Moreover, the trade group's gauge for prices paid by non-manufacturers fell to 80.8 from June's 84.5, which was the highest on record. That indicated an easing of inflation, which has been a growing concern on the Street.
Oil prices slid further Tuesday, dropping to as low as $118 a barrel on widening expectations that the slumping U.S. economy will keep eroding consumer demand for gasoline and other petroleum products. Crude's retreat has eased some of Wall Street's concerns about the impact of higher prices on consumer spending, which accounts for more than two-thirds of the nation's economy.
Investors will get a better idea about how the Fed is feeling about the economy when it releases its policy statement at 2:15 p.m. EDT. The central bank, seeking to support an anemic U.S. economy and also contain inflation, is expected to keep its benchmark federal funds rate steady at 2 percent. As always, investors will be keen to see in the Fed's statement what its bias is toward future rate moves.
"Oil and the ISM service manufacturing index are sparking a nice rally, and then there's anticipation of the Fed meeting this afternoon," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners. "There's also light volume, and that might be the reason we're seeing the averages take a bigger leap."
In late morning trading, the Dow rose 190.27 or 1.69 percent, to 11,474.42. Earlier, the Dow was up just over 200.
Broader indexes also rose. The Standard & Poor's 500 index added 19.18, or 1.54 percent, to 1,268.19, and the Nasdaq composite index rose 33.84, or 1.48 percent, to 2,319.40.
Bonds were lower ahead of the Fed meeting. The yield on the benchmark 10-year Treasury note, which moves opposite its prices, rose to 3.98 percent from 3.97 percent late Monday.
The dollar traded mostly higher against other major currencies, while gold prices fell.
Light, sweet crude fell $1.93 to $119.48 on the New York Mercantile Exchange. Crude has closed lower in six of the last nine sessions and is 18 percent off its all-time high above $147 reached July 11.
In corporate news, Procter & Gamble Co., maker of Tide detergent and Gillette razors, said its fiscal fourth-quarter profit jumped 33 percent, boosted by price increases, overseas sales and tax benefits. Shares rose $1.98, or 2.9 percent, to $67.78.
Archer Daniels Midland Co. reported a 61 percent plunge in fourth-quarter profit, but said revenues soared amid higher prices for commodities like wheat and corn. The stock fell $1.44, or 5.2 percent, at $25.96.
D.R. Horton Inc., the nation's largest homebuilder, posted a narrower fiscal third-quarter loss as charges to write down the value of property declined. Shares fell 53 cents, or 4.7 percent, to $10.70.
Advancing issues led decliners by a 3 to 1 basis on the New York Stock Exchange, where volume came to 343.3 million shares.
The Russell 2000 index of smaller companies rose 9.43, or 1.34 percent, at 713.57.
Overseas, Japan's Nikkei stock average fell 18.52, or 0.14 percent, to 12,914.66. Britain's FTSE 100 rose 1.98 percent, Germany's DAX index rose 2.51 percent, and France's CAC-40 rose 1.97 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Wall Street moves higher ahead on strong ISM data, ahead of Fed meeting
NEW YORK (AP) -- Wall Street shot higher Tuesday as investors got some heartening economic news: a report that activity in the services sector fell less than expected last month, and another drop in the price of oil. The upbeat developments, which lifted the Dow Jones industrials nearly 200 points, came as the market awaited the outcome of a Federal Reserve meeting on interest rates.
The Institute for Supply Management, the trade group of corporate purchasing executives, said its services sector index rose to 49.5 from 48.2 in June. Analysts surveyed by Thomson Financial/IFR predicted it would rise to 49.0.
Any reading below 50 signals contraction. The report is based on a survey of the institute's members and covers such indicators as new orders, employment, inventories, prices and exports and imports.
The notion that the sector might be in better shape than many investors feared gave Wall Street reason for optimism. Moreover, the trade group's gauge for prices paid by non-manufacturers fell to 80.8 from June's 84.5, which was the highest on record. That indicated an easing of inflation, which has been a growing concern on the Street.
Oil prices slid further Tuesday, dropping to as low as $118 a barrel on widening expectations that the slumping U.S. economy will keep eroding consumer demand for gasoline and other petroleum products. Crude's retreat has eased some of Wall Street's concerns about the impact of higher prices on consumer spending, which accounts for more than two-thirds of the nation's economy.
Investors will get a better idea about how the Fed is feeling about the economy when it releases its policy statement at 2:15 p.m. EDT. The central bank, seeking to support an anemic U.S. economy and also contain inflation, is expected to keep its benchmark federal funds rate steady at 2 percent. As always, investors will be keen to see in the Fed's statement what its bias is toward future rate moves.
"Oil and the ISM service manufacturing index are sparking a nice rally, and then there's anticipation of the Fed meeting this afternoon," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners. "There's also light volume, and that might be the reason we're seeing the averages take a bigger leap."
In late morning trading, the Dow rose 190.27 or 1.69 percent, to 11,474.42. Earlier, the Dow was up just over 200.
Broader indexes also rose. The Standard & Poor's 500 index added 19.18, or 1.54 percent, to 1,268.19, and the Nasdaq composite index rose 33.84, or 1.48 percent, to 2,319.40.
Bonds were lower ahead of the Fed meeting. The yield on the benchmark 10-year Treasury note, which moves opposite its prices, rose to 3.98 percent from 3.97 percent late Monday.
The dollar traded mostly higher against other major currencies, while gold prices fell.
Light, sweet crude fell $1.93 to $119.48 on the New York Mercantile Exchange. Crude has closed lower in six of the last nine sessions and is 18 percent off its all-time high above $147 reached July 11.
In corporate news, Procter & Gamble Co., maker of Tide detergent and Gillette razors, said its fiscal fourth-quarter profit jumped 33 percent, boosted by price increases, overseas sales and tax benefits. Shares rose $1.98, or 2.9 percent, to $67.78.
Archer Daniels Midland Co. reported a 61 percent plunge in fourth-quarter profit, but said revenues soared amid higher prices for commodities like wheat and corn. The stock fell $1.44, or 5.2 percent, at $25.96.
D.R. Horton Inc., the nation's largest homebuilder, posted a narrower fiscal third-quarter loss as charges to write down the value of property declined. Shares fell 53 cents, or 4.7 percent, to $10.70.
Advancing issues led decliners by a 3 to 1 basis on the New York Stock Exchange, where volume came to 343.3 million shares.
The Russell 2000 index of smaller companies rose 9.43, or 1.34 percent, at 713.57.
Overseas, Japan's Nikkei stock average fell 18.52, or 0.14 percent, to 12,914.66. Britain's FTSE 100 rose 1.98 percent, Germany's DAX index rose 2.51 percent, and France's CAC-40 rose 1.97 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Oil Falls to $118 as Global Economy Slows, Storm Danger Abates
Aug. 5 (Bloomberg) -- Crude oil fell to $118 a barrel amid signs demand may be curtailed by slowdowns in the U.S. and European economies.
Oil dropped as much as 2.8 percent as the services sectors in the U.S. and U.K. contracted in July, and European retail sales declined by the most in at least 13 years in June. Tropical Storm Edouard made landfall today on the Texas coast. Early estimates showed it left oil rigs and refineries undamaged.
``Demand numbers have been weak here for quite a period of time,'' said Roger Read, an analyst at Natixis Bleichroeder Inc. in Houston. Today's numbers ``may confirm expectations, but they're not a shock to the system.''
Crude oil for September delivery fell $2.37, or 2 percent, to $119.04 a barrel at 11:22 a.m. on the New York Mercantile Exchange.
Oil has lost $27 since touching a record of $147.27 a barrel in New York on July 11 as unprecedented fuel costs prompted U.S. consumers to limit spending. Yesterday, the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 3.5 percent, its biggest loss since March.
U.S. fuel demand averaged 20.2 million barrels a day during the past four weeks, down 2.4 percent from a year earlier, the Energy Department said July 30.
Service industries in the U.S. shrank in July for a second straight month, signaling the slowdown in growth broadened. U.K. services from banks to airlines also contracted in July, and factory production unexpectedly dropped for a fourth month in June, evidence the economy may be shrinking.
European Data
European retail sales dropped by the most in at least 13 years in June as a surge in oil and food costs left consumers with less money to spend on other goods.
``We were down big overnight, and it really started on the European soft market data on manufacturing,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Retail sales were pretty lousy, leading everyone to surmise that the European economy isn't immune to the slowdown here in the U.S.''
The dollar rose to a six-week high against the euro before a Federal Reserve meeting today at which policy makers may leave interest rates on hold and highlight concern about inflation. The dollar traded at $1.5487 per euro, and touched $1.5463 the strongest since June 18.
Gold, platinum and wheat dropped on speculation slower growth will curb demand and as a stronger dollar dulled the appeal of commodities as an inflation hedge.
Oil dropped to its lowest level since May 5 as Edouard's wind speeds remained below hurricane strength when it struck the Texas coast. Edouard was blowing toward Galveston, Texas, with winds as fast as 65 miles (100 kilometers) per hour, prompting the evacuation of some oil and gas rigs.
Idled Output
U.S. producers idled less than 1 percent of oil output and 7.2 percent of natural gas production in the Gulf of Mexico because of Edouard, the U.S. Minerals Management Service said yesterday.
``Very little oil production seems to have been shut in by Edouard,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``Gasoline stocks are high enough to limit any crisis from refinery shutdowns, so the market's returning its attention to the weak demand picture.''
Hurricane forecasters from Colorado State University today raised the number of Atlantic storms they expect this year to 17, including nine hurricanes, five of them major. The hurricane season, which runs through Nov. 30, should be ``much more active'' than those between 1950 and 200, the report said.
Gasoline Stockpiles
U.S. gasoline stockpiles are 3 percent above their five-year seasonal norm at 213.6 million barrels, according to the Energy Department. The department will probably say gasoline supplies fell 1.75 million barrels last week in its weekly report tomorrow, a Bloomberg survey predicted.
Gasoline for September delivery lost 2.98 cents, or 1 percent, to $2.9704 a gallon on the Nymex after touching $2.9242 a gallon, the lowest since May 2. Futures fell 13 percent last month, the biggest drop since September 2006, as a slowing economy cut demand for the motor fuel.
Regular gasoline at the pump, averaged nationwide, fell 1 cent to $3.871 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17, as higher prices curbed demand.
Brent crude for September settlement fell $2.10, or 1.7 percent, to $118.58 a barrel on London's ICE Futures Europe exchange. Earlier, it touched $116.91 a barrel.
Kuwait ``isn't worried'' about the recent price decline and doesn't expect the Organization of Petroleum Exporting Countries to reduce production quotas when it meets next month, Oil Minister Mohammed al-Olaim said in an interview today.
Oil dropped as much as 2.8 percent as the services sectors in the U.S. and U.K. contracted in July, and European retail sales declined by the most in at least 13 years in June. Tropical Storm Edouard made landfall today on the Texas coast. Early estimates showed it left oil rigs and refineries undamaged.
``Demand numbers have been weak here for quite a period of time,'' said Roger Read, an analyst at Natixis Bleichroeder Inc. in Houston. Today's numbers ``may confirm expectations, but they're not a shock to the system.''
Crude oil for September delivery fell $2.37, or 2 percent, to $119.04 a barrel at 11:22 a.m. on the New York Mercantile Exchange.
Oil has lost $27 since touching a record of $147.27 a barrel in New York on July 11 as unprecedented fuel costs prompted U.S. consumers to limit spending. Yesterday, the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 3.5 percent, its biggest loss since March.
U.S. fuel demand averaged 20.2 million barrels a day during the past four weeks, down 2.4 percent from a year earlier, the Energy Department said July 30.
Service industries in the U.S. shrank in July for a second straight month, signaling the slowdown in growth broadened. U.K. services from banks to airlines also contracted in July, and factory production unexpectedly dropped for a fourth month in June, evidence the economy may be shrinking.
European Data
European retail sales dropped by the most in at least 13 years in June as a surge in oil and food costs left consumers with less money to spend on other goods.
``We were down big overnight, and it really started on the European soft market data on manufacturing,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Retail sales were pretty lousy, leading everyone to surmise that the European economy isn't immune to the slowdown here in the U.S.''
The dollar rose to a six-week high against the euro before a Federal Reserve meeting today at which policy makers may leave interest rates on hold and highlight concern about inflation. The dollar traded at $1.5487 per euro, and touched $1.5463 the strongest since June 18.
Gold, platinum and wheat dropped on speculation slower growth will curb demand and as a stronger dollar dulled the appeal of commodities as an inflation hedge.
Oil dropped to its lowest level since May 5 as Edouard's wind speeds remained below hurricane strength when it struck the Texas coast. Edouard was blowing toward Galveston, Texas, with winds as fast as 65 miles (100 kilometers) per hour, prompting the evacuation of some oil and gas rigs.
Idled Output
U.S. producers idled less than 1 percent of oil output and 7.2 percent of natural gas production in the Gulf of Mexico because of Edouard, the U.S. Minerals Management Service said yesterday.
``Very little oil production seems to have been shut in by Edouard,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``Gasoline stocks are high enough to limit any crisis from refinery shutdowns, so the market's returning its attention to the weak demand picture.''
Hurricane forecasters from Colorado State University today raised the number of Atlantic storms they expect this year to 17, including nine hurricanes, five of them major. The hurricane season, which runs through Nov. 30, should be ``much more active'' than those between 1950 and 200, the report said.
Gasoline Stockpiles
U.S. gasoline stockpiles are 3 percent above their five-year seasonal norm at 213.6 million barrels, according to the Energy Department. The department will probably say gasoline supplies fell 1.75 million barrels last week in its weekly report tomorrow, a Bloomberg survey predicted.
Gasoline for September delivery lost 2.98 cents, or 1 percent, to $2.9704 a gallon on the Nymex after touching $2.9242 a gallon, the lowest since May 2. Futures fell 13 percent last month, the biggest drop since September 2006, as a slowing economy cut demand for the motor fuel.
Regular gasoline at the pump, averaged nationwide, fell 1 cent to $3.871 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17, as higher prices curbed demand.
Brent crude for September settlement fell $2.10, or 1.7 percent, to $118.58 a barrel on London's ICE Futures Europe exchange. Earlier, it touched $116.91 a barrel.
Kuwait ``isn't worried'' about the recent price decline and doesn't expect the Organization of Petroleum Exporting Countries to reduce production quotas when it meets next month, Oil Minister Mohammed al-Olaim said in an interview today.
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