Stocks were relatively tame today after the wild frenzy of past weeks.
Ben Bernanke is still trying to concoct a way to throw QE3 upon us. I guess failure twice in QE1 and QE2 wasn't enough for him.
Are you wondering as the price per barrel of oil is going down, why we are not seeing more of a drop in the actual price per gallon at the pump? There is a good article from the Wall Street Journal below explaining why which includes the devaluation of the dollar thanks to the aforementioned QE1 and QE2.
Here are the top financial stories of the day:
1) Bargain hunters tiptoe back but remain cautious-From Reuters
U.S. stocks ended slightly higher on Monday after four weeks of losses as investors hesitated to take big risks without a catalyst for buying.
The market was led by large-cap techs and industrials until late in the session when a rally faded.
Banks struggled. Bank of America (NYSE:BAC - News), the largest U.S. bank, fell 7.9 percent to $6.42, the biggest drop among the Dow's components. Chief Executive Brian Moynihan sent a memo to senior executives last week outlining plans to cut another 3,500 jobs. JPMorgan Chase (NYSE:JPM - News) lost 2.7 percent to $33.41.
"The ground zero of all worries is financials," said Charlie Smith, chief investment officer of Pittsburgh-based Fort Pitt Capital Group.
Google (NasdaqGS:GOOG - News), Hewlett-Packard (NYSE:HPQ - News) and IBM (NYSE:IBM - News), were among the top gainers. Hewlett-Packard shares came back from a 20 percent decline on Friday in its worst day since 1987.
The S&P 500 has dropped 12.7 percent so far in August on fears of another recession and the intractable European debt crisis. The rebound came on lower volume than in recent days of selling.
"I don't see any major appetite for buying stocks. We are driven higher (today) because of selling exhaustion," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
One possible spark for the market could be Federal Reserve Chairman Ben Bernanke's Friday speech in Jackson Hole, Wyoming. Some in the market hope Bernanke will hint at additional stimulus measures that could buoy stocks.
"Until we get some kind of a catalyst from Europe regarding the sovereign debt crisis or from the Fed later this week, I expect range-bound trading with high intraday volatility," said Dailey.
The Dow Jones industrial average (DJI:^DJI - News) was up 36.85 points, or 0.34 percent, at 10,854.50.
The Standard & Poor's 500 Index (^SPX - News) was up 0.29 point, or 0.03 percent, at 1,123.82. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was up 3.54 points, or 0.15 percent, at 2,345.38.
IBM shares gained 0.9 percent at $158.98 and Hewlett-Packard rose 3.6 percent to $24.45.
On Monday, Credit Suisse cut its year-end target for the S&P 500 to 1,100 from its previous level of 1,275. U.S. equity strategist Doug Cliggott cited expectations for lower earnings in coming quarters and little hope for price-to-earnings multiples to expand.
Some investors hope the Fed will announce a new stimulus after the central bank promised earlier this month to keep interest rates near zero for at least two more years and said it would consider further steps to help growth.
Shares of Lowe's Companies Inc (NYSE:LOW - News) rose 1.1 percent to $19.53 after the company said it has put aside $5 billion to buy back its shares over the next two to three years, joining a string of companies using their cash reserves to shore up their stocks in a weak economy.
2) How to Tell If QE3 Is Coming-From CNBC
Reading Fedspeak has never been easy, but these tips will help you weigh the odds of another round of pain for the dollar - er, quantitative easing.
Want to figure out if QE3 is in the works? You could wait to hear what Fed Chairman Ben Bernanke has to say at Jackson Hole - or you could consider these clues.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, looks for a convergence of indicators to figure out the odds of QE3. Right now, he told me, surveys of things like sentiment and consumer confidence are quite negative, but "real data like retail sales - those data are holding up better."
For Chandler to view QE3 as likely, he says, "I would want to see that survey data as lead indicators for the real sector data. I would want to see the real sector data break down. We're not seeing that yet."
Aroop Chatterjee, foreign exchange strategist at Barclays Capital, looks at long-term inflation expectations.
He has compared five-year over five-year inflation expectations now and right before the beginning of QE2, and he says investors are now expecting about 2.5% inflation, compared to less than 2% before the last round of easing. Chatterjee argues that the dollar (New York Board of Trade (Futures): .DXY) has remained weak against the euro (Exchange: EUR=X)because investors are anticipating QE3, but he says, "I think the Fed would want to see more evidence of a real slowdown in the economy" before committing to another round.
Others think QE3 could be with us already. "Holding the fed funds rate low to the middle of 2013 will require the Fed to buy quite a lot of bonds, and that is actually a de factor QE3," Diane Swonk, chief economist at Mesirow Financial, told me.
Swonk says that as recently as a few weeks ago, she would have put the odds of QE3 quite low. But the downward revision of GDP "lowered that threshold quite dramatically," she says, as did the wrangling over the debt ceiling and the euro zone's failure to resolve its issues.
You have to decide for yourself whether QE3 is in the works. But at least now you can understand the Fedspeak.
3) Oil's Slide Stalls at Pump-From The Wall Street Journal
U.S. benchmark oil prices have tumbled since early May, but drivers—and the economy—have yet to feel the full benefit.
While crude-oil futures on the New York Mercantile Exchange are down 38%, ending last week at $82.26 a barrel, the average price of gas at the pump is down just 9% in that time.
That suggests that some forecasts for an easing of pressure on the U.S. economy may be optimistic, for now.
Economists estimate that a $10 drop in oil prices translates to an increase of a few tenths of a percent in gross-domestic product growth. But that is largely dependent on the decline in prices flowing through to consumers. With financial markets tumbling due to fears of a second recession in the U.S. and debt contagion in Europe, dropping fuel costs would be a welcome relief for household budgets and business balance sheets.
The disparity comes in part because of a quirk in the oil market—U.S. gasoline prices are affected far more by international crude prices, which haven't come down as much as U.S. crude prices. In fact, the gap between international prices and U.S. Nymex oil is at a record high. That all could change—even if temporarily—should the success of rebel forces in Libya fuel investors' hopes for the reopening of the oil fields in the nation.
Even then, gas prices are still lagging behind. Much of the fuel sold in the U.S., especially on the East Coast, follows the price of Brent crude, which is down 14% since the beginning of May. The Nymex price is primarily a benchmark for some oil in the middle of the U.S.
Brent is being held relatively high by strong demand from emerging markets such as China, and lingering worries about turmoil in the Middle East, which could curtail supplies. Refiners have been reluctant to ratchet down prices, hoping to capture as much profit as possible lest prices shoot higher again, said Sander Cohan, principal at energy consultancy ESAI Inc.
"Typically, the retailer will raise prices in front of rising crude and be more reluctant to lower prices" when it drops, he said.
Some consumers have noticed.
"I don't understand how the oil price can fluctuate so much, and yet the price of gas has just not changed," says Ritch Blasi, a 57-year-old telecom marketer from Middlesex, N.J. "If a barrel of crude drives the price, there's a lot of different things that happened between that crude and when it goes into my car. And something in there is messed up."
lag may be expected, but this time around it is far more pronounced. In the second half of 2008, for example, when oil slumped 68%, gasoline prices fell 61%. Regular-grade retail gasoline was at $3.58 a gallon last week, according to the Energy Information Administration. Prices remain 33% higher than this time last year, while crude is just 11% higher.
Many suggest that crude prices may be unlikely to fall much further, removing hopes for further relief for the economy.
In a shift from recent years, when investment flows and prices of other assets were guiding oil-price projections, analysis of supply and demand is regaining its importance. The continued thirst for oil in China and other countries has become a crucial part of that.
Nymex prices have hewed close to $80 in recent trading. Tim Evans, an oil analyst with Citi Futures
Perspective, said prices near current levels are reasonably balanced given the current outlook for oil supply and demand, a view shared by several market watchers.
J.P. Morgan Chase & Co. expects oil demand to grow by as much as 1.2 million barrels a day this year, despite worries that the U.S. is downshifting to another recession, with turmoil in the U.S. and Europe cutting just 250,000 barrels a day from its earlier forecast.
The International Energy Agency, an agency looking out for the interests of oil-consuming nations, expects a more conservative increase of 600,000 barrels a day, based on a forecast that the global economy will grow by 3% in 2011.
"Demand growth continues to be driven almost exclusively by emerging markets," wrote Lawrence Eagles, J.P. Morgan global head of oil research, in a report.
China's fuel consumption is expected to grow by 6.1% this year despite efforts by the government to slow growth, and will reach more than 10.1 million barrels a day in 2012, according to the IEA. Demand is expected to grow by 3.6% this year in India.
On the supply side, the civil war in Libya has meant exports from that country have essentially halted. Before the outbreak of fighting, it was producing 1.7 million barrels of oil a day.
Overall, though, the expected growth in global demand for oil has outweighed the decline in gasoline use seen in the U.S. The Department of Energy expects U.S. demand to fall to 10-year lows during what's usually the peak summer driving season.
Only a major cratering in the global economy is likely to bring either Brent or Nymex oil prices back down to the lows seen in 2008, says Adam Sieminski, chief energy economist at Deutsche Bank.
"Could you go to $40? Sure, but only if we're going to have the Great Depression all over again. Oil will be $30 and a cup of coffee will be 25 cents," Mr. Sieminski says.
Quote of the Day from Dave Ramsey.com:
Motivation is a fire from within. If someone else tries to light that fire under you, chances are it will burn very briefly. — Stephen R. Covey
No comments:
Post a Comment