Oil Rises Again to 108
Global Market
Bond investors have never been so sure that the Federal Reserve will lose control of inflation. They're so convinced that they're giving up yields just to buy debt securities that protect against rising consumer prices.
The yield on the five-year Treasury Inflation-Protected Security due in 2012 has been negative and traded today at minus 0.17 percent. The notes have never before traded below zero. Even so, several big U.S. mutual fund companies said TIPS are a bargain.
For the first time in a generation, money managers must come to grips with a central bank that's more intent on spurring the economy than restraining price increases. With oil above $100 a barrel, gold approaching $1,000 an ounce and the dollar at a record low against the euro, TIPS show investors aren't convinced Fed will be able to tame inflation once Fed stop cutting interest rates.
Because TIPS pay a principal amount that rises in tandem with the consumer price index, buyers accept lower yields in a bet the inflation adjustment will make up the difference.
Investors typically determine what they are willing to receive in interest by deducting the rate of inflation expected over the life of the securities from the rate on a comparable Treasury. Investors can still earn money from TIPS with sub-zero rates because the principal rises with the CPI.
TIPS have returned 6.2 percent this year, compared with 3.7 percent from regular Treasuries.
Record-low TIPS yields also reflect bets on surging commodities. Crude oil futures rose to $106.54 last week.
Lehman Brothers Holdings Inc. is eliminating 5 percent of its workforce as credit markets remain frozen and the U.S. economy slows. The cuts will affect all divisions and regions.
A Lehman spokeswoman declined to comment on the latest round of firings. The company fell $2.45 to $43.91.
Credit-default swaps on Lehman rose 60 basis points to 395. The swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline indicates improvement in the perception of credit quality; an increase, the opposite.
Wall Street firms have eliminated more than 30,000 employees in the last seven months as the U.S. housing market contracted and the price of mortgage-related assets declined.
Banks and brokers have written down more than $188 billion of subprime-related assets since the beginning of 2007.
The Federal Reserve said last week that it increased the amount of funds to be auctioned to banks this month to $100 billion from $60 billion. The Fed also said that it would make $100 billion available through weekly 28-day repurchase agreements, where the central bank will lend cash in return for assets including mortgage-backed bonds.
Stock Market
U.S. stocks fell for a third day, led by a plunge in financial shares, on speculation earnings estimates will prove to be too high as the economy slows and credit losses spread.
The decline in banks steepened on concern Bear Stearns Cos. was facing financial difficulties. Fannie Mae and Freddie Mac, both fell 13 percent on expectations they face increasing losses as the housing slump deepens.
The Standard & Poor's 500 Index declined 15.29 points to 1,278.08. The Dow Jones Industrial Average lost 113.65 to 11,780.04. The Nasdaq Composite Index decreased 30.46 to 2,182.03.
The S&P 500 dropped to the lowest on growing concern that the economy will slip into a recession after banks wrote down $188 billion in subprime-related securities losses and analysts forecast earnings for members of the index will decline this quarter and next. The benchmark for U.S. equities is approaching a so-called bear market, marked by a decline of at least 20 percent from a peak.
Financial shares in the S&P 500 slumped 2.1 percent as a group today and contributed the most to the overall index's retreat. Producers of raw materials retreated 2.8 percent and telephone companies dropped 1.6 percent as a group.
Citigroup Inc. slipped 80 cents to $20.12. Bank of America Corp. declined $1.10 to $35.64. Citigroup and other U.S. banks had their combined earnings estimates cut by $8.8 billion at Morgan Stanley, which cited slower equity capital markets and a ``severe'' deterioration in credit conditions this year.
Bear Stearns fell $5.72 to $64.36. There's a rumor and concerns on liquidity .
Blackstone Group LP slumped 55 cents to $14.03. They said fourth-quarter profit decreased 89 percent on lower takeover fees and the writedown of its holdings in bond insurer Financial Guaranty Insurance Co.
Countrywide Financial Corp. dropped 62 cents to $4.45. They are under investigation by FBI for possible securities fraud.
Fannie Mae fell $3.01 to $19.76 after Barron's said solvency may be tested at the largest source of financing for U.S. home loans. Freddie Mac slid $2.52 to $17.13.
Financial companies have dropped 19 percent, dragged down by the collapse of the subprime-mortgage market.
Freeport-McMoRan Copper & Gold Inc. lost $3.69 to $96.19. Copper fell on speculation a U.S. slowdown will exacerbate slowing demand from China. Aluminum, zinc and tin also declined.
Concern that the U.S. has tipped into a recession grew last week after the Labor Department reported a drop of 63,000 jobs last month and home foreclosures climbed to a record.
Medco Health Solutions Inc. gained $1.31 to $43.15.
McDonald's Corp. climbed the most, gaining $1.64 to $53.91. They said Europe and Asia spurred the sales increase. U.S. same-store sales rose 8.3 percent.
Currencies
The yen strengthened as widening losses in credit markets prompted investors to reduce holdings of high-yielding assets funded by loans in Japan.
The yen approached an eight-year high compared with the dollar and extended gains against major currencies. The dollar rose from close to a record low against the euro after European Central Bank said the central bank is concerned about excessive exchange-rate moves.
Japan's currency advanced to 101.85 per dollar. The dollar traded at $1.5341 per euro.
The yen's advance gained momentum as losses in U.S. stocks deepened.
The dollar got some support against the euro as the ECB is ``concerned about excessive exchange-rate moves in the present circumstances. ECB comment will hold the euro bulls back in the near-term, but it won't change the more dominant dynamic in the market to sell the dollar against major currencies.
The yen advanced 1.9 percent against the Australian dollar as traders exited carry-trade bets.
Currency volatility rose, increasing the risk of the carry- trade strategy. One-month volatility on dollar-yen options was about 15 percent, up from about 10.5 percent two weeks ago. Currency swings can erase profits earned from rate differentials.
The dollar set a record low against the euro in eight of the past nine trading days as investors bet the Federal Reserve will lower interest rates to 2.25 percent at its March 18 policy meeting.
The Dollar Index traded on ICE Futures in New York touched a record low of 72.46 on March 7. It was at 72.99 today.
The euro's 14-day relative strength index held above 70 for a ninth straight day, signaling the euro may be poised to decline.
Commodities
Oil
Crude oil rose above $108 a barrel in New York to a record as investors purchased futures because the returns have outpaced those of financial markets.
Oil in New York surged 80 percent over the past year. China increased crude-oil imports by 18 percent last month and halted overseas shipments to meet rising demand.
Crude oil for April delivery rose $2.77 to $107.92 a barrel. Futures surged to $108.21 a barrel today.
Brent crude for April settlement climbed $1.78 to $104.16 a barrel. Futures reached a record $104.42 a barrel.
Bets that May crude oil will fall below $90 a barrel were the most-actively traded options contracts on the Nymex today. The put contracts fell 16 cents to 55 cents, or $550 per contract. One options contract is for 1,000 barrels of oil.
Hedge-fund managers and other large speculators increased net-long positions, or bets on higher oil prices.
U.S. crude-oil inventories rose 1.75 million barrels last week.
Chinese crude-oil imports rose to 14.29 million metric tons, about 3.6 million barrels a day.
Gasoline for April delivery rose 2.42 cents to $2.7185 a gallon. Futures touched $2.7325
Gold
Gold and silver futures fell as investors sold precious metals to cover losses in equity markets.
U.S. shares fell for a third straight session. European stocks dropped to the lowest since June 2006, and Asian stocks declined to a seven-week low.
Gold futures for April delivery fell $2.40 to $971.80 an ounce. The price earlier touched $961.90. Silver futures for May delivery slid 46.5 cents to $19.785 an ounce. The price earlier declined as much as 97 cents to $19.28.
The 14-day relative-strength index for silver has been above 70. Analysts say that a reading above 70 is a signal that prices are headed lower. The index topped 85 last week.
Some investors had purchased silver as a cheaper alternative to gold as prices of precious metals soared.
Hedge-fund managers and other large speculators decreased their net-long position in gold futures. Speculative long positions, or bets prices will rise, declined 6.5 percent from a week earlier.
Gold pared losses as crude-oil futures surged as much as 3.1 percent to a record $108.21 a barrel.
Bond investors have never been so sure that the Federal Reserve will lose control of inflation. They're so convinced that they're giving up yields just to buy debt securities that protect against rising consumer prices.
The yield on the five-year Treasury Inflation-Protected Security due in 2012 has been negative and traded today at minus 0.17 percent. The notes have never before traded below zero. Even so, several big U.S. mutual fund companies said TIPS are a bargain.
For the first time in a generation, money managers must come to grips with a central bank that's more intent on spurring the economy than restraining price increases. With oil above $100 a barrel, gold approaching $1,000 an ounce and the dollar at a record low against the euro, TIPS show investors aren't convinced Fed will be able to tame inflation once Fed stop cutting interest rates.
Because TIPS pay a principal amount that rises in tandem with the consumer price index, buyers accept lower yields in a bet the inflation adjustment will make up the difference.
Investors typically determine what they are willing to receive in interest by deducting the rate of inflation expected over the life of the securities from the rate on a comparable Treasury. Investors can still earn money from TIPS with sub-zero rates because the principal rises with the CPI.
TIPS have returned 6.2 percent this year, compared with 3.7 percent from regular Treasuries.
Record-low TIPS yields also reflect bets on surging commodities. Crude oil futures rose to $106.54 last week.
Lehman Brothers Holdings Inc. is eliminating 5 percent of its workforce as credit markets remain frozen and the U.S. economy slows. The cuts will affect all divisions and regions.
A Lehman spokeswoman declined to comment on the latest round of firings. The company fell $2.45 to $43.91.
Credit-default swaps on Lehman rose 60 basis points to 395. The swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline indicates improvement in the perception of credit quality; an increase, the opposite.
Wall Street firms have eliminated more than 30,000 employees in the last seven months as the U.S. housing market contracted and the price of mortgage-related assets declined.
Banks and brokers have written down more than $188 billion of subprime-related assets since the beginning of 2007.
The Federal Reserve said last week that it increased the amount of funds to be auctioned to banks this month to $100 billion from $60 billion. The Fed also said that it would make $100 billion available through weekly 28-day repurchase agreements, where the central bank will lend cash in return for assets including mortgage-backed bonds.
Stock Market
U.S. stocks fell for a third day, led by a plunge in financial shares, on speculation earnings estimates will prove to be too high as the economy slows and credit losses spread.
The decline in banks steepened on concern Bear Stearns Cos. was facing financial difficulties. Fannie Mae and Freddie Mac, both fell 13 percent on expectations they face increasing losses as the housing slump deepens.
The Standard & Poor's 500 Index declined 15.29 points to 1,278.08. The Dow Jones Industrial Average lost 113.65 to 11,780.04. The Nasdaq Composite Index decreased 30.46 to 2,182.03.
The S&P 500 dropped to the lowest on growing concern that the economy will slip into a recession after banks wrote down $188 billion in subprime-related securities losses and analysts forecast earnings for members of the index will decline this quarter and next. The benchmark for U.S. equities is approaching a so-called bear market, marked by a decline of at least 20 percent from a peak.
Financial shares in the S&P 500 slumped 2.1 percent as a group today and contributed the most to the overall index's retreat. Producers of raw materials retreated 2.8 percent and telephone companies dropped 1.6 percent as a group.
Citigroup Inc. slipped 80 cents to $20.12. Bank of America Corp. declined $1.10 to $35.64. Citigroup and other U.S. banks had their combined earnings estimates cut by $8.8 billion at Morgan Stanley, which cited slower equity capital markets and a ``severe'' deterioration in credit conditions this year.
Bear Stearns fell $5.72 to $64.36. There's a rumor and concerns on liquidity .
Blackstone Group LP slumped 55 cents to $14.03. They said fourth-quarter profit decreased 89 percent on lower takeover fees and the writedown of its holdings in bond insurer Financial Guaranty Insurance Co.
Countrywide Financial Corp. dropped 62 cents to $4.45. They are under investigation by FBI for possible securities fraud.
Fannie Mae fell $3.01 to $19.76 after Barron's said solvency may be tested at the largest source of financing for U.S. home loans. Freddie Mac slid $2.52 to $17.13.
Financial companies have dropped 19 percent, dragged down by the collapse of the subprime-mortgage market.
Freeport-McMoRan Copper & Gold Inc. lost $3.69 to $96.19. Copper fell on speculation a U.S. slowdown will exacerbate slowing demand from China. Aluminum, zinc and tin also declined.
Concern that the U.S. has tipped into a recession grew last week after the Labor Department reported a drop of 63,000 jobs last month and home foreclosures climbed to a record.
Medco Health Solutions Inc. gained $1.31 to $43.15.
McDonald's Corp. climbed the most, gaining $1.64 to $53.91. They said Europe and Asia spurred the sales increase. U.S. same-store sales rose 8.3 percent.
Currencies
The yen strengthened as widening losses in credit markets prompted investors to reduce holdings of high-yielding assets funded by loans in Japan.
The yen approached an eight-year high compared with the dollar and extended gains against major currencies. The dollar rose from close to a record low against the euro after European Central Bank said the central bank is concerned about excessive exchange-rate moves.
Japan's currency advanced to 101.85 per dollar. The dollar traded at $1.5341 per euro.
The yen's advance gained momentum as losses in U.S. stocks deepened.
The dollar got some support against the euro as the ECB is ``concerned about excessive exchange-rate moves in the present circumstances. ECB comment will hold the euro bulls back in the near-term, but it won't change the more dominant dynamic in the market to sell the dollar against major currencies.
The yen advanced 1.9 percent against the Australian dollar as traders exited carry-trade bets.
Currency volatility rose, increasing the risk of the carry- trade strategy. One-month volatility on dollar-yen options was about 15 percent, up from about 10.5 percent two weeks ago. Currency swings can erase profits earned from rate differentials.
The dollar set a record low against the euro in eight of the past nine trading days as investors bet the Federal Reserve will lower interest rates to 2.25 percent at its March 18 policy meeting.
The Dollar Index traded on ICE Futures in New York touched a record low of 72.46 on March 7. It was at 72.99 today.
The euro's 14-day relative strength index held above 70 for a ninth straight day, signaling the euro may be poised to decline.
Commodities
Oil
Crude oil rose above $108 a barrel in New York to a record as investors purchased futures because the returns have outpaced those of financial markets.
Oil in New York surged 80 percent over the past year. China increased crude-oil imports by 18 percent last month and halted overseas shipments to meet rising demand.
Crude oil for April delivery rose $2.77 to $107.92 a barrel. Futures surged to $108.21 a barrel today.
Brent crude for April settlement climbed $1.78 to $104.16 a barrel. Futures reached a record $104.42 a barrel.
Bets that May crude oil will fall below $90 a barrel were the most-actively traded options contracts on the Nymex today. The put contracts fell 16 cents to 55 cents, or $550 per contract. One options contract is for 1,000 barrels of oil.
Hedge-fund managers and other large speculators increased net-long positions, or bets on higher oil prices.
U.S. crude-oil inventories rose 1.75 million barrels last week.
Chinese crude-oil imports rose to 14.29 million metric tons, about 3.6 million barrels a day.
Gasoline for April delivery rose 2.42 cents to $2.7185 a gallon. Futures touched $2.7325
Gold
Gold and silver futures fell as investors sold precious metals to cover losses in equity markets.
U.S. shares fell for a third straight session. European stocks dropped to the lowest since June 2006, and Asian stocks declined to a seven-week low.
Gold futures for April delivery fell $2.40 to $971.80 an ounce. The price earlier touched $961.90. Silver futures for May delivery slid 46.5 cents to $19.785 an ounce. The price earlier declined as much as 97 cents to $19.28.
The 14-day relative-strength index for silver has been above 70. Analysts say that a reading above 70 is a signal that prices are headed lower. The index topped 85 last week.
Some investors had purchased silver as a cheaper alternative to gold as prices of precious metals soared.
Hedge-fund managers and other large speculators decreased their net-long position in gold futures. Speculative long positions, or bets prices will rise, declined 6.5 percent from a week earlier.
Gold pared losses as crude-oil futures surged as much as 3.1 percent to a record $108.21 a barrel.
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