The number of out-of-work Americans who signed up for jobless benefits rose last week, the government reported Thursday, surprising economists who expected fewer claims.
The Labor Department said applications for jobless benefits rose to a seasonally adjusted 455,000, up by 10,000 from the prior week. That was above analysts' expectations of 440,000, according to a consensus compiled by Briefing.com. A year ago, initial claims stood at 319,000.
The four-week seasonally adjusted moving average of new jobless claims rose 5,000 to 445,000 in the past week. The average is used to smooth out weekly fluctuations and it stood at 323,250 a year ago.
A reading above 400,000 indicates weakness in employment.
The number of people continuing to receive unemployment benefits fell by 55,000, to 3.48 million in the week ended Sept. 6., compared with 2.56 million people a year ago.
The four-week moving claims average for those continuing to receive unemployment benefits rose by 29,750 to 3.46 million, compared with 2.58 million a year ago.
Earlier this month, the government reported that there were 84,000 jobs lost in August, bringing to 605,000 the number of jobs cut from payrolls by U.S. employers in the first eight months of the year.
The unemployment rate surged to 6.1% last month, a nearly five-year high and up from 5.7% in July.
On Monday, Hewlett-Packard (HPQ, Fortune 500) announced plans to cut about 24,000 employees and on Wednesday auto supplier Federal-Mogul (FDMU) said it is cutting its work force by 4,000 jobs.
North Carolina reported significant increases in initial filings, with layoffs in construction, furniture and transportation. Wisconsin also noted a surge in filings due to layoffs in manufacturing and construction. Texas and California both reported fewer layoffs in the service industry.
Thursday, September 18, 2008
Oil retreats as stocks rally
Oil prices backed off of earlier session highs as the stock market rallied on the promise of a major cash infusion from central banks around the world.
Earlier in the session, oil had raced past the $100-a-barrel mark to touch $102, as the chaos on Wall Street motivated investors to move out of stocks an into safer investments, such as oil, gold and Treasurys.
Oil was 83 cents higher at $97.99 a barrel, after having run up as high as $102.24. On Wednesday, oil prices jumped $6.01 a barrel, the second largest one-day surge on record, to settle at $97.16 a barrel on the New York Mercantile Exchange.
Wall Street caves: Early Thursday, a consortium of central banks coordinated their forces to inject nearly $180 billion dollars into the global economy. The Federal Reserve worked with the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Bank of Japan, and the Swiss National Bank to pull off the effort to juice the global economy.
The move came on the heels of three days of turmoil in the financial sector that began early Monday when Lehman Brothers (LEH, Fortune 500) filed for bankruptcy.
In the days that followed, Bank of America (BAC, Fortune 500) purchased the struggling Merrill Lynch (MER, Fortune 500) and the beleaguered American International Group (AIG, Fortune 500) received an $85 billion government loan to stave off bankruptcy. By Thursday, there was speculation about Washington Mutual (WM, Fortune 500) putting itself up for sale.
The unprecedented news of the week jolted the stock markets. On Wednesday, the Dow Jones industrial average fell 449 points in its second worst session of the year. The worst session - in fact, the worst on Wall Street in 7 years - came Monday when the Dow lost 504 points.
Oil and gold: The price of gold rose $70 on Wednesday, and when investors run to gold, that pulls the other commodities up, according to Phil Flynn, senior market analyst at Alaron Trading.
The move to gold was "because of a crisis of confidence in the U.S. economic system," said Flynn, and investors look to oil "as a safe haven" as well, said Flynn.
That's because "when you buy a barrel of oil, you know (exactly) what you are getting," said Tom Orr, director of research at Weeden & Co., a financial services firm. However, he explained that when you purchase a share of a financial company right now, it's not a tangible asset. "Your liabilities are unknown."
The oil market has been under serious pressure as demand for energy has fallen off, however. The concern about demand "is one of the reasons is why we are not at $150" in this recent flight to commodities, said Flynn.
"Even though in the short term, people are running to oil as a safe haven, the minute we get some stability, the focus will be on softening demand and oil will collapse once again," he added.
Dollar: The falling dollar was also supporting higher oil prices. "The dollar is getting creamed," said Orr. "The Fed is just flooding the system with liquidity."
When the supply of currency increases, the value of each greenback falls. Because crude oil is traded in U.S. currency around the globe, when the dollar loses value, it pushes up the prices of crude.
Big jumps: The oil market has been making big moves every day this week, reeling from the devastating news on Wall Street, as investors and traders digest an unprecedented set of moves in the financial sector.
On Monday and Tuesday, oil prices tumbled $10 as the oil market saw the implosion of Wall Street as another factor that will cripple demand. Crude prices have fallen sharply off their record of $147.27 a barrel hit July 11.
On Wednesday, however, oil prices staged a late day rally as investors decided that while oil was a volatile market, it was a safer place to have assets than the stock market.
Storms: Wall Street and the economic slowdown have been the focus of the oil market in recent sessions. But the Gulf of Mexico oil region was still struggling to get back on its feet after two Hurricanes - Gustav and then Ike - pummeled the production and refinery rich area.
In its weekly inventory report, the Energy Information Administration said Wednesday that gasoline supplies fell by 3.3 million barrels last week to 184.6 million barrels, the lowest level since 1990. Crude stocks fell by 6.3 million barrels, according to the same report.
The decline in crude and gas stockpiles was a result of the shuttered production facilities, both in anticipation of the storm and as a result of damage and flooding.
As of Wednesday afternoon, 12 refineries in Texas and Louisiana were shuttered, according to the Department of Energy, which resulted in a 3 million barrel decline in refinery capacity. Meanwhile, 95.9% of crude production and 82.3% of natural gas production in the Gulf of Mexico remained shuttered.
According to a report from the Minerals Management Service, 28 of 3,800 offshore platforms were destroyed by Hurricane Ike. Personnel from 425 out of 717 - or 59.3% - of the production platforms remained evacuated, according to MMS as of Wednesday
Earlier in the session, oil had raced past the $100-a-barrel mark to touch $102, as the chaos on Wall Street motivated investors to move out of stocks an into safer investments, such as oil, gold and Treasurys.
Oil was 83 cents higher at $97.99 a barrel, after having run up as high as $102.24. On Wednesday, oil prices jumped $6.01 a barrel, the second largest one-day surge on record, to settle at $97.16 a barrel on the New York Mercantile Exchange.
Wall Street caves: Early Thursday, a consortium of central banks coordinated their forces to inject nearly $180 billion dollars into the global economy. The Federal Reserve worked with the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Bank of Japan, and the Swiss National Bank to pull off the effort to juice the global economy.
The move came on the heels of three days of turmoil in the financial sector that began early Monday when Lehman Brothers (LEH, Fortune 500) filed for bankruptcy.
In the days that followed, Bank of America (BAC, Fortune 500) purchased the struggling Merrill Lynch (MER, Fortune 500) and the beleaguered American International Group (AIG, Fortune 500) received an $85 billion government loan to stave off bankruptcy. By Thursday, there was speculation about Washington Mutual (WM, Fortune 500) putting itself up for sale.
The unprecedented news of the week jolted the stock markets. On Wednesday, the Dow Jones industrial average fell 449 points in its second worst session of the year. The worst session - in fact, the worst on Wall Street in 7 years - came Monday when the Dow lost 504 points.
Oil and gold: The price of gold rose $70 on Wednesday, and when investors run to gold, that pulls the other commodities up, according to Phil Flynn, senior market analyst at Alaron Trading.
The move to gold was "because of a crisis of confidence in the U.S. economic system," said Flynn, and investors look to oil "as a safe haven" as well, said Flynn.
That's because "when you buy a barrel of oil, you know (exactly) what you are getting," said Tom Orr, director of research at Weeden & Co., a financial services firm. However, he explained that when you purchase a share of a financial company right now, it's not a tangible asset. "Your liabilities are unknown."
The oil market has been under serious pressure as demand for energy has fallen off, however. The concern about demand "is one of the reasons is why we are not at $150" in this recent flight to commodities, said Flynn.
"Even though in the short term, people are running to oil as a safe haven, the minute we get some stability, the focus will be on softening demand and oil will collapse once again," he added.
Dollar: The falling dollar was also supporting higher oil prices. "The dollar is getting creamed," said Orr. "The Fed is just flooding the system with liquidity."
When the supply of currency increases, the value of each greenback falls. Because crude oil is traded in U.S. currency around the globe, when the dollar loses value, it pushes up the prices of crude.
Big jumps: The oil market has been making big moves every day this week, reeling from the devastating news on Wall Street, as investors and traders digest an unprecedented set of moves in the financial sector.
On Monday and Tuesday, oil prices tumbled $10 as the oil market saw the implosion of Wall Street as another factor that will cripple demand. Crude prices have fallen sharply off their record of $147.27 a barrel hit July 11.
On Wednesday, however, oil prices staged a late day rally as investors decided that while oil was a volatile market, it was a safer place to have assets than the stock market.
Storms: Wall Street and the economic slowdown have been the focus of the oil market in recent sessions. But the Gulf of Mexico oil region was still struggling to get back on its feet after two Hurricanes - Gustav and then Ike - pummeled the production and refinery rich area.
In its weekly inventory report, the Energy Information Administration said Wednesday that gasoline supplies fell by 3.3 million barrels last week to 184.6 million barrels, the lowest level since 1990. Crude stocks fell by 6.3 million barrels, according to the same report.
The decline in crude and gas stockpiles was a result of the shuttered production facilities, both in anticipation of the storm and as a result of damage and flooding.
As of Wednesday afternoon, 12 refineries in Texas and Louisiana were shuttered, according to the Department of Energy, which resulted in a 3 million barrel decline in refinery capacity. Meanwhile, 95.9% of crude production and 82.3% of natural gas production in the Gulf of Mexico remained shuttered.
According to a report from the Minerals Management Service, 28 of 3,800 offshore platforms were destroyed by Hurricane Ike. Personnel from 425 out of 717 - or 59.3% - of the production platforms remained evacuated, according to MMS as of Wednesday
Tuesday, September 16, 2008
Fed leaves rates unchanged
The Federal Reserve left its fed funds rate at 2% Tuesday despite increased hopes for a rate cut.
Wall Street wanted a cut in order to help ease the pain in the financial sector and restore investor confidence.
The Fed's policymakers acknowledged the deepening problems facing the nation's financial markets as well as weaker economic fundamentals in its statement.
"Strains in financial markets have increased significantly and labor markets have weakened further," said the statement, making reference to the jump in unemployment to a five-year high of 6.1% in August. It also warned that softer spending by consumers is expected to slow economic growth.
But the Fed added that it believes rates are already low enough to spur future economic growth and that despite recent declines in commodity prices, such as oil, the outlook for inflation remains uncertain.
The fed funds rate is the central bank's key tool to affect the economy. Lowering the rate pumps money into the economy by reducing the cost on a broad range of loans, including credit cards, home equity lines and many business loans.
Stocks initially fell on the announcement but bounced back and were higher in late afternoon trading even though expectations had grown in recent days that the Fed would respond to market turmoil by lowering rates.
According to futures contracts listed on the Chicago Board Trade, investors were betting Tuesday morning that a rate cut of at least a quarter-of-a-percentage point was almost certain.
The Fed and AIGAlso lifting stocks were wire service reports that the Fed was considering loaning tens of billions to American International Group (AIG, Fortune 500), the nation's largest insurer and a key player in the financial markets. The Fed was said earlier to have reservations about lending to AIG but that may be changing.
AIG's scramble for cash this week is just the latest of the problems roiling the nation's financial markets.
In the past nine days, the Treasury Department took control of mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), investment bank Lehman Brothers (LEH, Fortune 500) filed for bankruptcy and Merrill Lynch (MER, Fortune 500) agreed to a buyout by Bank of America (BAC, Fortune 500).
In addition, shares of Washington Mutual (WM, Fortune 500), the nation's largest savings and loan, have plunged due to growing concerns that it too would have trouble raising necessary capital.
Keith Hembre, chief economist for First American Funds, said he thought a bailout of AIG made sense and that a potential rescue plan for the firm may have been one of the factors that stopped the Fed from cutting rates.
"If they were about to do an about face on AIG, that was probably a consideration on the rates," he said.
A Fed spokesman would not comment on the AIG report. But one possible indication of the Fed's involvement in any AIG discussions is that New York Federal Reserve President Timothy Geithner did not attend the meeting. Christine Cumming, first vice president of the New York Fed, voted in his place.
Geithner has been widely acknowledged as the Fed's main person involved in Wall Street efforts to save struggling financial firms.
In March, the Fed agreed to guarantee $29 billion in loans so that JPMorgan Chase would buy Bear Stearns. And Geithner led this weekend's last-minute efforts to save Lehman. Those talks between regulators and top banking officials were held at the offices of the New York Fed.
The New York Fed also pumped $50 billion into the nation's financial system Tuesday in an effort to help ease credit stresses.
Bernard Baumohl of The Economic Outlook Group in Princeton Junction, N.J., said that injection is a sign that the Fed recognizes it must deal with the problems facing Wall Street, even if it kept rates unchanged.
"The Fed is in effect saying, 'I'm not going to lower rates and subsidize the loan, but we're going to give you as much money as you need to conduct your operations," said Baumohl.
K. Daniel Libby, senior portfolio manager for Sands Brothers Asset Management, said he also believes the Fed made the right decision not to cut rates even though he remains worried about the outlook for AIG and Washington Mutual and other troubled financials.
"I am concerned about a number of banks and institutions being on the precipice of another downward spiral," he said. "But I don't know if [a quarter- point rate cut] would have helped us enough."
Libby said it's important for the Fed to not become too accommodative to the whims and demands of Wall Street.
Future rate cuts not out of the pictureWhat's more, the Fed may still wind up lowering rates later this year or early next year due to the weakness in the financial system, Hembre said. If the job market weakens further and oil prices continue to fall, that would reduce inflation fears and make it easier to justify a rate cut.
"We're likely to see inflation fall significantly and unemployment go higher, so that's a prescription for more Fed [cuts]," said Hembre.
Baumohl also noted that the Fed's decision Tuesday was unanimous -- the first time that's happened since early January.
Dallas Fed President Richard Fisher voted to raise rates at the last two meetings when they were left unchanged and voted against some of this year's rate cuts. Philadelphia Fed President Charles Plosser joined Fisher in some of his dissents during that period.
Baumohl thought the lack of a dissenting vote was key given the many fires that the Fed is trying to put out.
"This unanimity is important at this critical moment," he said.
Wall Street wanted a cut in order to help ease the pain in the financial sector and restore investor confidence.
The Fed's policymakers acknowledged the deepening problems facing the nation's financial markets as well as weaker economic fundamentals in its statement.
"Strains in financial markets have increased significantly and labor markets have weakened further," said the statement, making reference to the jump in unemployment to a five-year high of 6.1% in August. It also warned that softer spending by consumers is expected to slow economic growth.
But the Fed added that it believes rates are already low enough to spur future economic growth and that despite recent declines in commodity prices, such as oil, the outlook for inflation remains uncertain.
The fed funds rate is the central bank's key tool to affect the economy. Lowering the rate pumps money into the economy by reducing the cost on a broad range of loans, including credit cards, home equity lines and many business loans.
Stocks initially fell on the announcement but bounced back and were higher in late afternoon trading even though expectations had grown in recent days that the Fed would respond to market turmoil by lowering rates.
According to futures contracts listed on the Chicago Board Trade, investors were betting Tuesday morning that a rate cut of at least a quarter-of-a-percentage point was almost certain.
The Fed and AIGAlso lifting stocks were wire service reports that the Fed was considering loaning tens of billions to American International Group (AIG, Fortune 500), the nation's largest insurer and a key player in the financial markets. The Fed was said earlier to have reservations about lending to AIG but that may be changing.
AIG's scramble for cash this week is just the latest of the problems roiling the nation's financial markets.
In the past nine days, the Treasury Department took control of mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), investment bank Lehman Brothers (LEH, Fortune 500) filed for bankruptcy and Merrill Lynch (MER, Fortune 500) agreed to a buyout by Bank of America (BAC, Fortune 500).
In addition, shares of Washington Mutual (WM, Fortune 500), the nation's largest savings and loan, have plunged due to growing concerns that it too would have trouble raising necessary capital.
Keith Hembre, chief economist for First American Funds, said he thought a bailout of AIG made sense and that a potential rescue plan for the firm may have been one of the factors that stopped the Fed from cutting rates.
"If they were about to do an about face on AIG, that was probably a consideration on the rates," he said.
A Fed spokesman would not comment on the AIG report. But one possible indication of the Fed's involvement in any AIG discussions is that New York Federal Reserve President Timothy Geithner did not attend the meeting. Christine Cumming, first vice president of the New York Fed, voted in his place.
Geithner has been widely acknowledged as the Fed's main person involved in Wall Street efforts to save struggling financial firms.
In March, the Fed agreed to guarantee $29 billion in loans so that JPMorgan Chase would buy Bear Stearns. And Geithner led this weekend's last-minute efforts to save Lehman. Those talks between regulators and top banking officials were held at the offices of the New York Fed.
The New York Fed also pumped $50 billion into the nation's financial system Tuesday in an effort to help ease credit stresses.
Bernard Baumohl of The Economic Outlook Group in Princeton Junction, N.J., said that injection is a sign that the Fed recognizes it must deal with the problems facing Wall Street, even if it kept rates unchanged.
"The Fed is in effect saying, 'I'm not going to lower rates and subsidize the loan, but we're going to give you as much money as you need to conduct your operations," said Baumohl.
K. Daniel Libby, senior portfolio manager for Sands Brothers Asset Management, said he also believes the Fed made the right decision not to cut rates even though he remains worried about the outlook for AIG and Washington Mutual and other troubled financials.
"I am concerned about a number of banks and institutions being on the precipice of another downward spiral," he said. "But I don't know if [a quarter- point rate cut] would have helped us enough."
Libby said it's important for the Fed to not become too accommodative to the whims and demands of Wall Street.
Future rate cuts not out of the pictureWhat's more, the Fed may still wind up lowering rates later this year or early next year due to the weakness in the financial system, Hembre said. If the job market weakens further and oil prices continue to fall, that would reduce inflation fears and make it easier to justify a rate cut.
"We're likely to see inflation fall significantly and unemployment go higher, so that's a prescription for more Fed [cuts]," said Hembre.
Baumohl also noted that the Fed's decision Tuesday was unanimous -- the first time that's happened since early January.
Dallas Fed President Richard Fisher voted to raise rates at the last two meetings when they were left unchanged and voted against some of this year's rate cuts. Philadelphia Fed President Charles Plosser joined Fisher in some of his dissents during that period.
Baumohl thought the lack of a dissenting vote was key given the many fires that the Fed is trying to put out.
"This unanimity is important at this critical moment," he said.
House vote expected on oil drilling
The House has restarted a summerlong debate on expanding oil drilling in Atlantic and Pacific waters that would end a longtime moratorium.
The legislation is expected to be voted on later Tuesday. It would allow drilling 50 miles beyond shore if a state agrees to offshore oil or gas development.
Republicans in Congress slammed the measure, saying that it would keep off limits nearly 90% of offshore oil because it lies within 50 miles of land.
The bill also calls for $18 billion in taxes on the largest oil companies, with the money to be used for tax breaks for alternative energy such as solar, wind and biomass.
Democrats in Washington called it a balanced bill aimed at shifting priorities from fossil fuels to other energy sources.
The legislation is expected to be voted on later Tuesday. It would allow drilling 50 miles beyond shore if a state agrees to offshore oil or gas development.
Republicans in Congress slammed the measure, saying that it would keep off limits nearly 90% of offshore oil because it lies within 50 miles of land.
The bill also calls for $18 billion in taxes on the largest oil companies, with the money to be used for tax breaks for alternative energy such as solar, wind and biomass.
Democrats in Washington called it a balanced bill aimed at shifting priorities from fossil fuels to other energy sources.
Gas prices rise another penny
Gas prices ticked up another penny, bringing the total increase in gas prices to 18 cents since Hurricane Ike rocked the Gulf, according to a survey released Tuesday.
The average price of unleaded regular rose 1.2 cents to $3.854 a gallon, according to the survey released by motorist group AAA.
That followed increases of 4.7 cents on Monday, 5.8 cents Saturday and 6.2 cents Sunday. The jump on Sunday was the biggest one-day spike since after Hurricane Katrina hit the Gulf Coast in 2005.
Hurricane Ike slammed the Gulf Coast of Texas early Saturday, shutting down the heart of the nation's refinery operations. Preliminary reports indicate, however, that damage to refineries was not as bad as expected. Refineries process crude oil into usable products, such as gasoline and home heating oil, and are vulnerable to floods.
Before the storm, drivers had been breathing a sigh of relief as gas prices eased off the high price of $4.114 a gallon set July 17. Now, gas prices have increased for seven consecutive days and, while they're lower than a couple months ago, gas is 38% higher than the same time last year.
Twelve states reported gas prices above $4 a gallon in the AAA survey: Alaska, Alabama, Georgia, Hawaii, Illinois, Indiana, Kentucky, Michigan, North Carolina, South Carolina, Tennessee, and West Virginia.
Alaska had the most expensive gas prices, at $4.398 a gallon .The least expensive gas was in New Jersey, where gas cost $3.536 a gallon, according to AAA's Web site.
Even as gas prices continue to tick higher, crude futures were trading near $93 a barrel, or $54 off the record high price of $147.27 a barrel, set July 11
The average price of unleaded regular rose 1.2 cents to $3.854 a gallon, according to the survey released by motorist group AAA.
That followed increases of 4.7 cents on Monday, 5.8 cents Saturday and 6.2 cents Sunday. The jump on Sunday was the biggest one-day spike since after Hurricane Katrina hit the Gulf Coast in 2005.
Hurricane Ike slammed the Gulf Coast of Texas early Saturday, shutting down the heart of the nation's refinery operations. Preliminary reports indicate, however, that damage to refineries was not as bad as expected. Refineries process crude oil into usable products, such as gasoline and home heating oil, and are vulnerable to floods.
Before the storm, drivers had been breathing a sigh of relief as gas prices eased off the high price of $4.114 a gallon set July 17. Now, gas prices have increased for seven consecutive days and, while they're lower than a couple months ago, gas is 38% higher than the same time last year.
Twelve states reported gas prices above $4 a gallon in the AAA survey: Alaska, Alabama, Georgia, Hawaii, Illinois, Indiana, Kentucky, Michigan, North Carolina, South Carolina, Tennessee, and West Virginia.
Alaska had the most expensive gas prices, at $4.398 a gallon .The least expensive gas was in New Jersey, where gas cost $3.536 a gallon, according to AAA's Web site.
Even as gas prices continue to tick higher, crude futures were trading near $93 a barrel, or $54 off the record high price of $147.27 a barrel, set July 11
Oil at 7-month low on Wall Street woes
Oil prices settled at a seven-month low Tuesday as the meltdown on Wall Street pulled the oil market's focus to the economic slowdown that has already been cutting away at demand for energy.
Lehman Brothers (LEH, Fortune 500) filed for bankruptcy Monday, Merrill Lynch (MER, Fortune 500) agreed to be purchased by Bank of America (BAV) over the weekend, and American International Group (AIG, Fortune 500) continued to be hit by downgrades even as it struggles to come up with capital.
Oil closed $4.56 lower to $91.15 a barrel, after reaching as low as $90.51. Tuesday's settle was the lowest since Feb. 7, when oil closed at $88.11 a barrel.
On Monday, oil traded down $5.47, bringing the 2-day loss to $10.03.
"The sheer rise of oil as a financial instrument through July of this year is what pushed it higher, and it's now showing the other side of the same sword, with prices pushing lower," said Peter Beutel of energy risk management firm Cameron Hanover.
Beutel said oil prices would probably dip below $90 a barrel this week.
Slowdown cuts demand: Oil prices have fallen more than $56 from the record high price of $147.27 a barrel, set July 11. Prices have slid in recent months as the global slowdown has chipped away at demand, and the unprecedented implosion in the financial markets has cast more gloom over the oil market.
As the economy continues to deteriorate, so does demand for oil. And Wall Street's woes don't make it likely that demand will return to healthy levels any time soon.
The price of oil "is definitely not supply- and-demand related right now," said Neal Dingmann, senior energy analyst at Dahlman Rose. "It is clearly all demand related right now."
As Wall Street reeled Monday, stocks were battered. The Dow Jones industrial average shed 504 points, or 4.4%, which was the biggest one-day decline on a point basis since Sept. 17, 2001, when the market reopened for trading after having been closed in the aftermath of the 9/11 terrorist attacks. On Tuesday, Wall Street was much more subdued.
"When the stock market goes down like we have seen in the last day, commodity prices go down," said Mark Waggoner, president of Excel Futures.
Despite the fact that a major Hurricane barreled through the Gulf of Mexico, - leaving production limited, more than a dozen refineries shuttered, and gas stations without gas to pump - oil prices were still at 7-month lows, which shows "the severity of what is going on in the economy," said Dingmann.
Fed: Despite the recent tumult on Wall Street, Federal Reserve policy makers held their key interest rate steady at 2% at Tuesday's meeting. Oil prices were mostly unchanged after the announcement.
The Fed's decision to hold the key funds rate steady at 2%, while much of the market was looking for a rate cut, did not push oil prices outside of their range.
"If you look at where we were before the report and after the report, the price really did not change that much," said Waggoner. Oil prices "held pretty steady."
One analyst said the decision was a vote of confidence for the markets.
The Fed's "decision surely reflects confidence in the overall financial infrastructure but may reflect an even more strongly held confidence in the need for a strong dollar," said Dr. Larry G. Chorn, the chief economist at Platts, an energy research firm.
Ike: Hurricane Ike slammed the Gulf Coast of Texas on Saturday. The oil rigs and platforms in the Gulf were evacuated in advance of the storm and refineries were shuttered.
Hurricane Ike resulted in a decrease of 3.6 million barrels per day of refinery capacity, with 14 refineries in Texas and Louisiana shuttered, according to the Department of Energy.
Meanwhile, 99.9% of crude production and 93.8% of natural gas production in the Gulf of Mexico was shuttered, as of Tuesday.
Some of the refineries were hit strongly, and a few of them could be down for awhile, said Dingmann.
Another analyst said that Ike might have caused more damage than the first couple days of reports indicate. Ike was "not as horrible as Katrina or Rita, but I am in between - there are going to be some problems that we have to deal with," cautioned Waggoner.
The market needed to wait for more information to come in, according to Waggoner. "Although it was only a Category 2, it was a big, big storm," he said. "Some of these platforms are going to be virtually fine and some of them are going to have some major problems - but nobody knows yet."
MMS estimated that 498 of the 717 manned production platforms - about 69.5% - remained evacuated in the wake of Hurricane Gustav earlier this month and after Hurricane Ike, as of Tuesday. v
Lehman Brothers (LEH, Fortune 500) filed for bankruptcy Monday, Merrill Lynch (MER, Fortune 500) agreed to be purchased by Bank of America (BAV) over the weekend, and American International Group (AIG, Fortune 500) continued to be hit by downgrades even as it struggles to come up with capital.
Oil closed $4.56 lower to $91.15 a barrel, after reaching as low as $90.51. Tuesday's settle was the lowest since Feb. 7, when oil closed at $88.11 a barrel.
On Monday, oil traded down $5.47, bringing the 2-day loss to $10.03.
"The sheer rise of oil as a financial instrument through July of this year is what pushed it higher, and it's now showing the other side of the same sword, with prices pushing lower," said Peter Beutel of energy risk management firm Cameron Hanover.
Beutel said oil prices would probably dip below $90 a barrel this week.
Slowdown cuts demand: Oil prices have fallen more than $56 from the record high price of $147.27 a barrel, set July 11. Prices have slid in recent months as the global slowdown has chipped away at demand, and the unprecedented implosion in the financial markets has cast more gloom over the oil market.
As the economy continues to deteriorate, so does demand for oil. And Wall Street's woes don't make it likely that demand will return to healthy levels any time soon.
The price of oil "is definitely not supply- and-demand related right now," said Neal Dingmann, senior energy analyst at Dahlman Rose. "It is clearly all demand related right now."
As Wall Street reeled Monday, stocks were battered. The Dow Jones industrial average shed 504 points, or 4.4%, which was the biggest one-day decline on a point basis since Sept. 17, 2001, when the market reopened for trading after having been closed in the aftermath of the 9/11 terrorist attacks. On Tuesday, Wall Street was much more subdued.
"When the stock market goes down like we have seen in the last day, commodity prices go down," said Mark Waggoner, president of Excel Futures.
Despite the fact that a major Hurricane barreled through the Gulf of Mexico, - leaving production limited, more than a dozen refineries shuttered, and gas stations without gas to pump - oil prices were still at 7-month lows, which shows "the severity of what is going on in the economy," said Dingmann.
Fed: Despite the recent tumult on Wall Street, Federal Reserve policy makers held their key interest rate steady at 2% at Tuesday's meeting. Oil prices were mostly unchanged after the announcement.
The Fed's decision to hold the key funds rate steady at 2%, while much of the market was looking for a rate cut, did not push oil prices outside of their range.
"If you look at where we were before the report and after the report, the price really did not change that much," said Waggoner. Oil prices "held pretty steady."
One analyst said the decision was a vote of confidence for the markets.
The Fed's "decision surely reflects confidence in the overall financial infrastructure but may reflect an even more strongly held confidence in the need for a strong dollar," said Dr. Larry G. Chorn, the chief economist at Platts, an energy research firm.
Ike: Hurricane Ike slammed the Gulf Coast of Texas on Saturday. The oil rigs and platforms in the Gulf were evacuated in advance of the storm and refineries were shuttered.
Hurricane Ike resulted in a decrease of 3.6 million barrels per day of refinery capacity, with 14 refineries in Texas and Louisiana shuttered, according to the Department of Energy.
Meanwhile, 99.9% of crude production and 93.8% of natural gas production in the Gulf of Mexico was shuttered, as of Tuesday.
Some of the refineries were hit strongly, and a few of them could be down for awhile, said Dingmann.
Another analyst said that Ike might have caused more damage than the first couple days of reports indicate. Ike was "not as horrible as Katrina or Rita, but I am in between - there are going to be some problems that we have to deal with," cautioned Waggoner.
The market needed to wait for more information to come in, according to Waggoner. "Although it was only a Category 2, it was a big, big storm," he said. "Some of these platforms are going to be virtually fine and some of them are going to have some major problems - but nobody knows yet."
MMS estimated that 498 of the 717 manned production platforms - about 69.5% - remained evacuated in the wake of Hurricane Gustav earlier this month and after Hurricane Ike, as of Tuesday. v
Thursday, July 10, 2008
Stocks slide as oil spikes
Stocks inched lower Thursday afternoon, giving up an earlier rally, as financial market woes resumed and oil prices spiked more than $5 a barrel on supply disruption fears.
The Dow Jones industrial average (INDU), the Standard & Poor's 500 (SPX) index and the tech-heavy Nasdaq composite (COMP) all lost at least 0.3% with an hour left in the session.
Stocks had rallied through the mid afternoon as investors welcomed a $15 billion merger in the chemical sector and scooped up technology and other shares hit hard in Wednesday's selloff. But gains dissolved as oil priced spiked more than $5 a barrel, surging over $141, on new reports that Iran is again testing missiles and that the cease-fire in Nigeria has ended.
Stocks slumped Wednesday, with the Dow and S&P 500 hitting nearly two-year lows, as questions about Freddie Mac and Fannie Mae's ability to raise capital added to worries about credit markets and corporate profits.
Thursday brought new questions about the ability of the two mortgage lenders to stay afloat, dragging on the financial sector. Automakers continued to plummet as well, with GM hitting a 54-year low, despite CEO Rick Wagoner saying bankruptcy rumors are not accurate.
Investors remain caught between competing influences as they look for clues about the health of the economy and corporate America, said John Forelli, portfolio manager at Independence Investments.
"The drop in unemployment claims and the chemical buyout are giving a positive tone to the market, but at the same time people remain worried about Fannie Mae and Freddie Mac," he said.
The major gauges are now officially in a "bear market," which is technically defined as a drop of at least 20% off the cyclical highs - in this case, October. Forelli said that he thinks stocks have further room to fall this summer before there is a rebound late in the fall.
Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 1.11 billion shares. On the Nasdaq, decliners topped advancers seven to six on volume of 1.74 billion shares.
Fannie Mae and Freddie Mac fallout: Shares of the government lenders continued to plunge on worries about a potential collapse. Former St. Louis Fed President William Poole told Bloomberg that the companies were insolvent and may need a government bailout.
Bush administration discussions of what to do should the companies fail have reportedly been amplified in recent days, The Wall Street Journal reported. Fannie Mae (FNM, Fortune 500) lost 13% and Freddie Mac (FRE, Fortune 500) lost 23%.
Lehman Brothers (LEH, Fortune 500) lost another 20% on ongoing concerns about its solvency after it posted a $3 billion quarterly loss last month.
Wachovia (WB, Fortune 500) said it would report a quarterly loss of between $2.6 billion and $2.8 billion, prompting Moody's to put the bank's long-term debt rating on review for a downgrade.
Elsewhere in the financial services sector, AIG (AIG, Fortune 500) and PMI Group (PMI) both slipped after Moody's downgraded the companies' insurance financial strength ratings. Moody's also downgraded PMI's debt.
Meanwhile, Treasury Secretary Henry Paulson and Federal Reserve chief Ben Bernanke told Congress Thursday that legislation is needed to modernize the nation's financial system.
Wal-Mart impresses, other retail sales mixed: The world's largest retailer reported stronger-than-expected June sales, thanks in part to the economic stimulus payments. As a result, Wal-Mart (WMT, Fortune 500) said second-quarter earnings will come in ahead of forecasts. Nonetheless, shares slipped modestly. (Full story).
Discounters benefited most from the tax rebates, with Costco (COST, Fortune 500) also reporting better-than-expected June sales. Specialty retailer Children's Place (PLCE) also reported sales that topped forecasts.
But sales at Limited Brands (LTD, Fortune 500) slipped more than expected, reflecting the still-sluggish pace of spending for mall-based retailers amid a consumer spending slowdown.
The number of Americans filing new claims for unemployment fell last week, the government reported, although the number of Americans filing continuing claims rose more than expected.
Other stock movers: Dow Chemical is buying specialty chemical maker Rohm & Haas for $15.3 billion plus the assumption of debt. Shares of Dow (DOW, Fortune 500) slipped 5% Thursday, while Rohm & Haas (ROH, Fortune 500) jumped 65%. (Full story)
Shares of rival chemical company DuPont (DD, Fortune 500), a Dow component, gained modestly.
Dow stock Alcoa (AA, Fortune 500) gained 8% on reports that Chinese aluminum companies will cut back production. The aluminum maker also reported better-than-expected quarterly sales earlier this week.
Dow stock General Motors (GM, Fortune 500) slumped 8.6%, hitting a 54-year low. Fellow automaker Ford Motor (F, Fortune 500) lost 9.
General Electric (GE, Fortune 500) said it will spin off its consumer and industrial businesses, which make light bulbs and household appliances. Shares inched higher.
Market breadth turned negative. On the New York Stock Exchange, losers beat winners 8 to 7 on volume of 920 million shares. On the Nasdaq, advancers topped decliners four to three on volume of 1.41 billion shares.
Fuel prices: U.S. light crude oil for August delivery gained $5.60 to settle at $141.65 a barrel on the New York Mercantile Exchange.
The national average price for a gallon of regular unleaded gas fell to $4.104 after holding stead at a record $4.108 for three days straight, according to AAA. (Full story).
Other markets: In currency trading, the dollar fell versus the euro and rose against the yen.
In the bond market, Treasury prices fell, raising the yield on the benchmark 10-year note to 3.83% from 3.82% late Wednesday. Treasury prices and yields move in opposite directions.
COMEX gold for September delivery rose $13.40 to settle at $944.50 an ounce. To top of page
The Dow Jones industrial average (INDU), the Standard & Poor's 500 (SPX) index and the tech-heavy Nasdaq composite (COMP) all lost at least 0.3% with an hour left in the session.
Stocks had rallied through the mid afternoon as investors welcomed a $15 billion merger in the chemical sector and scooped up technology and other shares hit hard in Wednesday's selloff. But gains dissolved as oil priced spiked more than $5 a barrel, surging over $141, on new reports that Iran is again testing missiles and that the cease-fire in Nigeria has ended.
Stocks slumped Wednesday, with the Dow and S&P 500 hitting nearly two-year lows, as questions about Freddie Mac and Fannie Mae's ability to raise capital added to worries about credit markets and corporate profits.
Thursday brought new questions about the ability of the two mortgage lenders to stay afloat, dragging on the financial sector. Automakers continued to plummet as well, with GM hitting a 54-year low, despite CEO Rick Wagoner saying bankruptcy rumors are not accurate.
Investors remain caught between competing influences as they look for clues about the health of the economy and corporate America, said John Forelli, portfolio manager at Independence Investments.
"The drop in unemployment claims and the chemical buyout are giving a positive tone to the market, but at the same time people remain worried about Fannie Mae and Freddie Mac," he said.
The major gauges are now officially in a "bear market," which is technically defined as a drop of at least 20% off the cyclical highs - in this case, October. Forelli said that he thinks stocks have further room to fall this summer before there is a rebound late in the fall.
Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 1.11 billion shares. On the Nasdaq, decliners topped advancers seven to six on volume of 1.74 billion shares.
Fannie Mae and Freddie Mac fallout: Shares of the government lenders continued to plunge on worries about a potential collapse. Former St. Louis Fed President William Poole told Bloomberg that the companies were insolvent and may need a government bailout.
Bush administration discussions of what to do should the companies fail have reportedly been amplified in recent days, The Wall Street Journal reported. Fannie Mae (FNM, Fortune 500) lost 13% and Freddie Mac (FRE, Fortune 500) lost 23%.
Lehman Brothers (LEH, Fortune 500) lost another 20% on ongoing concerns about its solvency after it posted a $3 billion quarterly loss last month.
Wachovia (WB, Fortune 500) said it would report a quarterly loss of between $2.6 billion and $2.8 billion, prompting Moody's to put the bank's long-term debt rating on review for a downgrade.
Elsewhere in the financial services sector, AIG (AIG, Fortune 500) and PMI Group (PMI) both slipped after Moody's downgraded the companies' insurance financial strength ratings. Moody's also downgraded PMI's debt.
Meanwhile, Treasury Secretary Henry Paulson and Federal Reserve chief Ben Bernanke told Congress Thursday that legislation is needed to modernize the nation's financial system.
Wal-Mart impresses, other retail sales mixed: The world's largest retailer reported stronger-than-expected June sales, thanks in part to the economic stimulus payments. As a result, Wal-Mart (WMT, Fortune 500) said second-quarter earnings will come in ahead of forecasts. Nonetheless, shares slipped modestly. (Full story).
Discounters benefited most from the tax rebates, with Costco (COST, Fortune 500) also reporting better-than-expected June sales. Specialty retailer Children's Place (PLCE) also reported sales that topped forecasts.
But sales at Limited Brands (LTD, Fortune 500) slipped more than expected, reflecting the still-sluggish pace of spending for mall-based retailers amid a consumer spending slowdown.
The number of Americans filing new claims for unemployment fell last week, the government reported, although the number of Americans filing continuing claims rose more than expected.
Other stock movers: Dow Chemical is buying specialty chemical maker Rohm & Haas for $15.3 billion plus the assumption of debt. Shares of Dow (DOW, Fortune 500) slipped 5% Thursday, while Rohm & Haas (ROH, Fortune 500) jumped 65%. (Full story)
Shares of rival chemical company DuPont (DD, Fortune 500), a Dow component, gained modestly.
Dow stock Alcoa (AA, Fortune 500) gained 8% on reports that Chinese aluminum companies will cut back production. The aluminum maker also reported better-than-expected quarterly sales earlier this week.
Dow stock General Motors (GM, Fortune 500) slumped 8.6%, hitting a 54-year low. Fellow automaker Ford Motor (F, Fortune 500) lost 9.
General Electric (GE, Fortune 500) said it will spin off its consumer and industrial businesses, which make light bulbs and household appliances. Shares inched higher.
Market breadth turned negative. On the New York Stock Exchange, losers beat winners 8 to 7 on volume of 920 million shares. On the Nasdaq, advancers topped decliners four to three on volume of 1.41 billion shares.
Fuel prices: U.S. light crude oil for August delivery gained $5.60 to settle at $141.65 a barrel on the New York Mercantile Exchange.
The national average price for a gallon of regular unleaded gas fell to $4.104 after holding stead at a record $4.108 for three days straight, according to AAA. (Full story).
Other markets: In currency trading, the dollar fell versus the euro and rose against the yen.
In the bond market, Treasury prices fell, raising the yield on the benchmark 10-year note to 3.83% from 3.82% late Wednesday. Treasury prices and yields move in opposite directions.
COMEX gold for September delivery rose $13.40 to settle at $944.50 an ounce. To top of page
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