US SUMMARY: Economic Data Sinks Shares; Treasurys Fall
DJIA 11025.51 loss 28.02 dn 0.2%
NASDAQ 2311.11 loss 3.53 dn 0.2%
S&P 500 1289.14 loss 2.10 dn 0.2%
Dow Future 11037.00 loss 8.00 dn 0.1%
NASDAQ Future 1697.50 loss 2.00 dn 0.1%
S&P Future 1290.50 loss 1.00 dn 0.1%
10-Yr US Treasury: 4.64% up 0.05
(Futures values as of 0550 GMT)
Nervous investors bid stocks modestly lower Thursday as disappointing retail sales reports prompted fresh concerns about a slowdown in the economy and a dropoff in corporate revenues. A surge in oil prices also spurred selling. Treasury prices tumbled on technical grounds.
STOCKS: While many big-name retailers reported solid, if uninspiring, sales for February, the majority of monthly retail sales were below Wall Street's expectations. That is a disturbing sign for investors who hope consumer spending will remain robust in the face of expected interest rate increases from the Federal Reserve.
"The economy is slowing, not to the point where anybody's really worried, but if corporate profits slow along with it, you're going to want to see the Fed finish up with rate hikes," said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco. "But the Fed is going to err on the side of inflation. So the one catalyst that could move the markets out of this trading range doesn't seem to be there right now."
Unrest in oil-producing regions as well as higher natural gas prices helped boost crude futures. A barrel of light crude settled at $63.36, up $1.39, on the New York Mercantile Exchange.
The retail worries overshadowed another sign of strength in the labor market. First-time jobless claims rose by 15,000 last week to 294,000, according to the Labor Department. The small increase kept claims below 300,000 for the seventh straight week.
"You look at the past three days, we're down, up and down again," said Arthur Hogan, chief market analyst at Jefferies & Co. "Without any real catalyst, and really, without knowing what the Fed will do, we're going to bounce around here for a while."
The Fed meets March 28, and is likely to raise the nation's benchmark interest rate to 4.75 percent. Wall Street will be watching closely for signs whether the March rate hike will be the last in the recent string of increases, or whether the Fed sees more signs of inflation to combat.
Against a backdrop of slowing consumer spending and falling retail sales, more rate hikes could further slow economic growth, which is why investors punished retail sector stocks. Among those reporting retail sales, discount merchants and department stores fared best.
U.S. auto sales edged up last month as gains by Asian and European companies offset declines at GM and Ford. The American car makers said they plan to cut production next quarter and are launching discount programs.
Google Inc. stock built on its 3% rise during regular hours, climbing nearly another 1% in late trading as the company's Chief Financial Officer George Reyes said Google's international growth was not slowing and that capital expenditures were expected to increase substantially in 2006.
BONDS: U.S. Treasury prices endured a tough session Thursday, as a wave of negativity engulfed rate markets, led by longer dated maturities.
Treasurys were under pressure from the start of New York trading as the European Central Bank raised its overnight night lending rate to 2.50% from 2.25%. Although the tightening was expected, some investors noted the ECB's concerns over price pressures. Inflation data due in Japan on Friday, could also nudge the Bank of Japan towards reversing its long period of effectively zero interest rates, inducing further pressure across global bond markets.
For now, the weakness in Treasurys is seen being more a story of bad positions.
"The selloff is technical in nature and this week's data does not argue for a more hawkish Federal Reserve," said Michael Cheah, portfolio manager at AIG Sun America Asset Management.
The current weakness in prices represents "a buying opportunity," said Cheah. He also expects "short covering" before the weekend will also support Treasury prices.
ASIAN SUMMARY: Japan Stocks Lower On Surprise CPI Jump
USD-Yen 116.40 gain 0.55 up 0.5%
AUD-USD 0.7746 loss 0.0040 dn 0.5%
Nikkei 225 15676.63 loss 233.10 dn 1.5%
Hang Seng 15894.00 gain 11.55 up 0.1%
Taiwan Index 6553.66 loss 89.30 dn 1.3%
S.Korea Kospi 1325.91 loss 41.79 dn 3.1%
JGB Yield 1.6200% down 0.0250
(All values as of 0550 GMT)
STOCKS: Leading share markets in Asia tumbled, as the release of stronger-than-expected inflation data out of Japan, a lower finish on Wall Street Thursday and rebounding crude-oil prices made for an uncertain picture.
Concern the Bank of Japan will tighten its loose monetary policy received a boost Friday after the government released January consumer price index data showing the biggest gains in more than seven years. The core nationwide CPI, excluding food, rose 0.5% in January from a year earlier. The increase marks the third straight month prices have risen.
OIL: Crude prices continued to rise, by 27 cents to $63.63, in Asia on a confluence of fresh supply fears.
EUROPEAN OUTLOOK: Stocks To Open Flat
Euro-USD 1.2025 loss 0.0012 dn 0.1%
Stlg-USD 1.7522 loss 0.0020 dn 0.1%
USD-Franc 1.3004 gain 0.0020 up 0.2%
(All values as of 0550 GMT)
European shares are likely to nudge higher at the open, with prices of government debt and the euro under some pressure.
STOCKS: European markets are set for a subdued opening session with little direction expected.
Tom Hougaard of U.K. spreadbettor City Index said the recent (market) volatility often precedes a turn in the market and there are signs of deterioration in the German indices.
"March has become the new month for the big trend changes and it bears watching at this point. We are seeing many clients taking out put options to protect themselves against any falls in the market over the coming months," Hougaard said.
Meanwhile, CMC Markets is calling the FTSE up 4 points at 5837, the DAX up 1 at 5784 but the CAC down 3 at 5006.
In corporate news, BT is being examined as a potential bid target by a number of global private equity firms in a move that could value the telecoms group at a minimum of GBP20 billion, The Times says.
European bourses ended lower in a see-saw Thursday session after interest-rate comments by European Central Bank President Jean-Claude Trichet were seen as hawkish and as U.S. stocks opened lower.
BONDS: European government bond prices are likely to open lower, extending losses from Thursday, as bunds hit a three-month low and gilts weakened in tandem. That came after Trichet said the ECB had raised its growth and inflation forecasts. As expected, the ECB raised its benchmark interest rate to 2.5% from 2.25%. Later Friday, however, short-covering could help bond prices come back ahead of the weekend.
Trichet said the ECB now forecast euro-zone gross domestic product growth of 1.7%-2.5% this year, up from its December estimate of 1.4%-2.4%. For 2007, it raised its forecast to 1.5%-2.5% growth from 1.4%-2.4% in December.
After explaining that the ECB rate hike reflected the upside risks to price stability, Trichet said the bank had also increased its inflation forecasts.
The central bank now expects annual HICP inflation of 1.9%-2.5% in 2006 and 1.6%-2.8% in 2007, he said. Trichet added that in the short term the bank expected inflation above 2%. The ECB's inflation target is below but close to 2%.
"He (Trichet) clearly indicated there are more rate hikes to come," said Sarah Lutgert, a fixed-income strategist at WestLB. "It's the tone really. He really stressed the risks for inflation more than the risks for growth...that's what everyone was looking at.
"Our main forecast is for a further (rate) hike in June but we clearly now see upside risk to our forecast," she added.
Marc Ostwald, a strategist at Monument Securities, said Trichet's refusal to comment on market expectations for rates and his confirmation that the bank had discussed a 50-basis-point hike, as well as keeping rates steady, suggested the ECB might be trying to give itself more room to maneuver.
"Indeed it does open the possibility that the next rate hike may come as soon as May, and a further move in July is certainly not out of the question, though clearly incoming data will be key," he said in a note.
FOREX: The euro starts lower but still above $1.2000 as the market adjusts to hawkish ECB intentions.
Peter Frank, senior foreign exchange strategist at ABN Amro in Chicago, said that the market perceived Trichet's comments about inflation as "reasonably hawkish."