Crude Oil Rises to Record $105.97 in New York on Dollar Decline
Global Market
The dollar is tanking. Oil and other commodity prices are at record highs. Economists blame the Federal Reserve's aggressive interest-rate cuts for the problem.
The Fed is cutting rates to boost the economy and keep the credit crunch from getting worse. But in the process, the central bank is creating other problems--including the potential for higher inflation. A weak dollar tends to boost oil and other commodity prices and makes imports more expensive for Americans.
At this point, should the Fed stop cutting interest rates?
The Fed probably underestimated the impact of lower interest rates on the dollar, crude oil and gold. They believe there is chance the central bank will try to reverse market trends by keeping interest rates on hold when it meets again in two weeks. Even so, the Fed might decide to refrain from further rate cuts after that.
The dollar was already slumping and crude and gold prices were on the rise when the Fed began trimming interest rates last August. But trading momentum accelerated significantly after the central bank slashed its target federal funds rate by one and a quarter points in late January, to 3 percent.
As usual, what people think the Fed should do and what it actually does are two different issues. Nevertheless, both supporters and critics of the Ben Bernanke Fed are in agreement over both the Fed’s next policy move as well as the quandary it is in.
Analyst has been worried for the inflationary risks of the Fed’s aggressive rate cutting. But Fed policymakers are wedded to battling the recession-credit crunch combination and aren't about to take on another fight at this point.
In other words, a chain reaction would be triggered and the economy could spin into uncharted territory.
Analysts expects the Fed to cut rates March 18 and might even continue to do so until it sees that the “economy has stabilized.” They thinks the Fed will and should cut rates another half a percent at the next meeting, because the financial sector continues to worsen. But they thinks the easing should stop there, because the risk of an outbreak in inflation.
In the other hand, the Fed may have been somewhat surprised by the dollar-oil moves. Such moves may have been hard to predict so attention must be paid to them because it is a dangerous momentum trades.
Stock Market
Citigroup Inc., JPMorgan Chase & Co. and Merrill Lynch & Co. led financial shares to the lowest level since May 2003 on speculation the defaults will add to declines in mortgage-backed securities. Retailers J.C. Penney Co. and Gap Inc. fell on February sales that trailed estimates. European shares extended their retreat after the European Central Bank kept interest rates at a six-year high to curb inflation. Asian stocks rose.
The Standard & Poor's 500 Index slid 23.31 points to 1,310.39. The Dow Jones Industrial Average lost 171.61 to 12,083.38. The Nasdaq Composite Index decreased 41.48 to 2,231.33.
Financial stocks fell again after reports showed foreclosures surged at and late payments rose. Yield spreads climbed to 22-year highs today, signaling home loans will be more expensive for borrowers. The collapse in subprime mortgages has caused at least $181 billion of writedowns and credit losses worldwide, prompting banks to restrain lending.
Citigroup fell 79 cents to $21.36, JPMorgan dropped $1.17 to $37.57, Merrill Lynch declined $3.12 to $46.20. They had their profit estimates cut by analyst for the second time in less than a month.
Goldman Sachs Group Inc. lost $5.72 to $159.25. Bear Stearns Cos. retreated $5.11 to $70.67. Lehman Brothers Holdings Inc. fell $2.13 to $45.93. Morgan Stanley dropped $1.68 to $39.79.
Thornburg Mortgage lost $1.63 to $1.77. JPMorgan sent a default notice after Thornburg failed to meet a $28 million margin call. That triggered defaults on other financing agreements and the amounts involved are material, it sound that bankruptcy is now a more likely outcome for Thornburg.
J.C. Penney tumbled $4.68 to $43.43. Their sales last month dropped 6.7 percent, worse than the average estimate. Gap lost 93 cents to $19.59. Sales fell 6 percent.
Nordstrom Inc. dropped $2.31 to $35.03 after posting sales that trailed estimates.
The S&P 500 Retailing Index declined 3.3 percent. The drop in employment and higher gasoline prices are causing Americans cut back on spending. Gas prices climbed today and crude oil rose to a record $105.97 a barrel.
The Labor Department may report tomorrow that the
Intel Corp. retreated 24 cents to $19.96. They said it expects flash-memory prices to fall fast this quarter, prompting the company to consider slowing expansion into the market.
New foreclosures jumped to 0.83 percent of all home loans. The share of all home loans with payments more than 30 days late rose to 5.82 percent.
Wal-Mart Stores Inc. gained 81 cents to $50.36 for the only gain in the Dow average. Their sales increased 2.6 percent after price cuts spurred demand for groceries and medicines.
Oracle Corp. climbed 72 cents to $19.52. Analysts advised clients to buy the shares, writing in a research note that the company likely had a ``strong'' fiscal third quarter and its acquisition of software maker BEA Systems Inc. will boost earnings next year.
H&R Block Inc. gained 71 cents to $17.95. Their loss narrowed on higher revenue from tax filings and fees collected in rose by 13 percent.
The central bank may need to keep interest rates low for a while if financial markets remain under stress and threaten economic growth.
Currencies
The euro rose to a record against the dollar after European Central Bank President Jean-Claude Trichet said there is ``strong upward pressure on inflation,'' signaling he's in no hurry to cut interest rates.
Euro also reached an all-time high versus the
The euro climbed to $1.5378 before trading at $1.5369.
The euro set a record for the seventh trading day in the past eight. The euro began to rally after Fed Vice Chairman Donald Kohn said that credit-market turmoil and slower growth pose a ``greater threat'' than inflation. The comments drove the euro above $1.50 for the first time.
Goldman Sachs Group Inc. advised clients to buy the pound with an ``initial'' target of $2.06. The pound rose to $2.0087 from $1.9920 yesterday.
The dollar weakened on speculation that Fed will lower rates further. The central bank may need to keep rates low ``for some time'' if financial markets remain under stress.
The
Oil set another closing record above $105, after hitting a high near $106, driven by a weak dollar, a decrease in U.S. oil supplies and OPEC's decision to keep output unchanged.
Crude oil rose to a record $105.97 a barrel in New York as the U.S. dollar fell to its lowest ever against the euro.
Crude oil for April delivery rose 95 cents to settle at $105.47 a barrel. Brent crude for April settlement rose 97 cents to $102.61 a barrel.
OPEC decided to leave its output unchanged, dismissing a call from the
OPEC ministers have said the drop in the dollar against currencies such as the euro and yen justifies higher oil prices.
Venezuela
Colombian Vice-President Francisco Santos said on Thursday he saw no risk of war with
Gold futures fell on sales following the precious metal's surge to a record yesterday.
Gold yesterday reached $995.20 an ounce, as record energy costs and demand for the metal as an inflation hedge.
Gold futures for April delivery dropped $11.40 to $977.10 an ounce. The price earlier touched $966.50.
Silver futures for May delivery tumbled 56 cents to $20.225 an ounce.
Still, a decline in the price may spur renewed demand for a hedge against inflation. Crude-oil futures reached a record $105.97 a barrel today, and the euro touched $1.5378, the highest ever.
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