Fed Minutes Drag Stocks Lower, Crude Surges

123jump.com Staff
21 May, 2008
New York City

U.S. stocks fell after the Fed minutes showed that future rate cuts may not be necessary unless the economy deteriorates further. The Fed officials appear to think that risks of inflation and impediments to growth appear to be in balance. The Fed monetary policies have come under heavy criticism and follow in the footsteps of the loose credit path initiated during the Greenspan time. The U.S. stocks fell sharply after the minutes release and crude oil surged above $133 a barrel.

10:00PM Frankfurt, 4:00PM New York, 8:00AM Sydney[R]– U.S. stocks fell after the Fed minutes suggested that future rate cuts may be on hold. The Bank of England left its interest rate unchanged, a day after the Bank of Japan left its key rate at 0.5%. Crude oil prices surged above $132 a barrel.[/R]

Global Markets Update

Crude oil futures, near and long term rocketed past $140 a barrel as speculators expect prices to reach $190 a barrel. Rising consumption of crude oil in the U.S., China and India is expected to lift the demand above 85 million barrels a day by 2012. However, world crude oil supply has been relatively stable near that level. Lack of new crude supply in the market and the occupation of Iraq are contributing to the sustained rise in oil prices.

In the European trading rising crude prices dominated the sentiment. However, German business confidence index rose in May and outlook for the six months appear positive according to the businesses surveyed. German businesses and economy is able to withstand strong euro as exports remain strong to the Middle East and Asia. In Germany, the DAX 30 declined 1.1% or 74.4 and the French CAC 40 lost 0.7% or 22.60.

In Japan, weak financial stocks led market indexes lower. Oppenheimer & Company forecasted $170 billion of additional write-off at financial institutions by the end of 2009. The additional losses at banks in the U.S. will likely lead to another round of losses at banks in Japan. Mitsui & Company led consortium has agreed to extend loan of as much as $3.4 billion to Venezuela to expand refineries.

Stocks in India fell as inflation continues to hover near 3-year high, crude reached another record and weak rupee against dollar. Sensex fell 13 points to 17,243. Daily turnover on the BSE stood at 7,077 crore rupees and on the National Stock Exchange the turnover was recorded at 15,279 crore rupees. The RBI approved the merger between HDFC Bank and Centurion Bank of Punjab. Rupee fell to 42.83 against the U.S. dollar.

European Markets indexes

In London FTSE 100 Index closed higher 6.50 or 0.10% to 6,198.10, in Paris CAC 40 Index decreased 27.33 or 0.54% to close at 5,027.55 and in Frankfurt DAX index lower 77.67 or 1.09% to close at 7,040.83. In Zurich trading SMI decreased 52.31 or 0.69% to close at 7,574.27.

Of the DAX 30 shares in Frankfurt trading, Merck KgA led by 2.2% rise or 1.92 euros, RWE AG gained 1% or 0.91 euros, BASF increased 1% or 0.91 euros, E.ON AG climbed 0.9% or 1.23 euros and Linde AG jumped 0.5% or 0.43 euros.

Infineon led the decliners in the index with a loss of 5.4% as the future of its CEO hangs in a balance followed by losses at Bayer of 4.2% and 3.3% at Continental AG. Daimler lost 2.7% after it posted 18% rise in auto sales in May. Hypo Real Estate fell 2.7% to 0.58 euros.

Among the CAC 40 shares in Paris trading, Peugeot led the decliners with a loss of 4.5% to 41.82 euros followed by losses at Michelin of 3.4% to 59.05 euros, at Societe Generale of 3.1% to 66.01 euros, at Renault of 3% to 64.91 euros and at Air France of 2.7% to 18.80 euros.

Vallourec led the gainers with a rise of 1.9% to 167.41 euros followed by increases in Unibail Rodamco of 1.4% to 171.40 euros, in Essilor International of 1.2% to 40.27 euros, in Suez of 1.1% to 40.27 euros and in Total of 1.1% to 57.585 euros.

North American Markets indexes

Dow Jones Industrial Average fell 227.49 or 1.77% to a close of 12,601.19, S&P 500 closed down 22.69 or 1.61% to 1,390.71, and Nasdaq Composite Index decreased 43.99 or 1.77% to close at 2,448.27. In Toronto TSX Composite closed down 256.54 or 1.70% to 14,790.80.

Of the 30 stocks in Dow Jones Industrial Average, 2 closed higher, 28 closed lower, and none were unchanged.

Boeing led the decliners in the Dow Jones index with a loss of 4.7% followed by losses in Citigroup of 4%, in Hewlett Packard of 3.8%, in American Express of 3.6% and in General Motors of 3.5%. Chevron and Exxon Mobil edged a fraction higher.

Of the stocks in S&P 500 index, 80 stocks increased, 418 declined, and two were unchanged. Of the stocks in the index, 81 stocks fell more than 3% and 7 gained more than 3%.

Moody’s Corp led the gainers in the S&P 500 index with a fall of 16% followed by losses in MBIA of 9%, in Lennar and Centex of 6.8%, Ambac, DR Horton, Pulte Homes and KB Home of 6% and Brunswick Corp and McGraw Hill of 5.8%. SLM Corp led the gainers in the S&P 500 index with a rise of 6% followed by increases in National Oilwell of 4.5%, in Anheuser Busch of 4%, in Compuware of 3.7% and in Intuit Inc of 3.3%.

South American Markets Indexes

Argentina and Chile led the gainers in the Latin American markets with a rise of 1.10% followed by increases in Brazil of 0.11%. Colombia led the decliners in the region with a loss of 0.9% followed by declines in Mexico of 0.85%, in Venezuela of 0.46% and in Peru of 0.22%.

Asian markets

In Tokyo Nikkei 225 Index closed lower 233.79 or 1.65% to 13,926.30, in Hong Kong Hang Seng index increased 290.83 or 1.16% closed to 25,460.29. In Australia ASX 200 index lower 84.70 or 1.43% to close 5,823.40. In Malaysia KL Composite index decreased 6.23 or 0.48% closed to 1,281.20.

In South Korea Kospi Index decreased 25.64 or 1.37% to close at 1,847.51, in Thailand SET index closed higher 10.37 or 1.19% to 884.19 and Indonesia JSE Index edged decreased 16.25 or 0.65% to 2,494.71. Sensex index in India increased 12.98 or 0.08% to 17,243.16.

Commodities, Metals, and Currencies

Crude oil increased $4.77 to close at $133.75 a barrel for a front month contract, natural gas increased 33 cents to $11.70 per mBtu, and gasoline futures increased 10.40 cents to close at 340.84 cents per gallon.

Gold increased $8.40 in New York trading to close at $928.60 per ounce, silver closed up 32 cents to $18.05 per ounce, and copper for front month delivery decreased 2.80 cents to $3.74 per pound.

Wheat futures decreased 6.00 cent in Chicago trading and closed at $7.78 per bushel. Sugar decreased 3 cent to $10.60 per pound. Soybean future closed up 17.50 cents to $13.49 a bushel.

Dollar edged lower and traded near record low against euro to $1.5791 and fell against yen to 103.02.

Yields on U.S. bonds increased to 3.80% with 10 years of maturities and increased to 4.54% with 30-year of maturities.