Market briefing---Lane (medium)
Greenspan's comments---Mike (fast)
NYSE---Deb (fast)
Interview:
Clifford Bennett---Currency strategist---F.X.
>> welcome to world financial report. i’m lane bajardi in new york. today’s big news was made in other financial markets. alan greenspan gave the dollar a boost by saying the u.s. is able to fund its near record current account deficit with few consequences for the global financial system. and the dollar’s declain -- decline hasn’t sparked inflation.
>> there is for the moment little evidence of stress in funding u.s. current account deficits. yet, inflation, the typical symptom of a weak currency, appears quite low.
>> and michael mckee is here with more on greenspan’s comments. very interesting comments today.
>> yes, he did have quite an effect on the markets. greenspan conceded that euro area exporters are having a problem. they are under considerable pressure from the dollar’s decline. the chairman said he is quite optimistic there won’t be a dollar crisis because individual economies are more flexible than in the past. the dollar which had been down against the euro gained following greenspan’s comments. it’s down a little bit. well, unchanged now, as the new trading day begins against the japanese. and it rose against the euro. and the new trading gets underway in asia. it’s down just a tiny bit now. and it is up against the euro. greenspan’s point was that the weakening of the dollar isn’t a problem for the u.s. but it does put pressure on european corporations from a profit standpoint.
>> there’s still slack in the economy left over from prolonged slow growth. and the productivity growth itself is disinflationary. so i think we can have strong growth for some time before it threatens inflation.
>> now that was federal reserve bank of dallas president robert mctear who talked to us earlier today on bloomberg television suggesting the fed isn’t poised to raise interest rates. and mctear and greenspan’s comments had an effect on the bond market with the 10-year notarizing on the day by about .5%. on the shorter end of the curve, the two-year and three-year notes also rising the three-year by a quarter and the two-year by an eighth. lane?
>> ok. michael mckey. thank you. let’s take a look at other market numbers. showing you how the equity markets did in new york today. the dow jones industrial average was down 58 points. 10,427. s&p 500 lower by six points or .5%. the nasdaq composite was down 15 points, settling at 2,096. big board internals, 1.5 billion shares changed hands at the new york stock exchange. over at the nasdaq, we saw 2.3 billion shares move. now take a look at some other averages here. the nyse composite showing a loss much like the s&p 500 and dow. amex index was little changed. the russel 2000 losing .3%. concerned about fourth quarter earnings and what companies may say about their outlook weighed on stocks . deborah kostroun is at the new york stock exchange with more on today’s action.
>> lane, in fact some traders saying we could see the same type of action tomorrow. mainly as we’re waiting on intel, yahoo, and also apple to release their earnings. so kind of a wait and see. however, our volume once again coming in at pretty good levels for the seventh day in a row. we’re looking at above average volume at the new york stock exchange. in today’s session, we did see telecom in the spotlight. news coming out. verizon communication and other local telephone providers win something new protection from consumer lawsuits. that after the supreme court ruled that an antitrust claim can’t be based on failure to do enough to encourage competition. the phone companies looks like they are now not subject to antitrust claims for not complying with a 1996 federal law requiring that they give competitors access to their local networks. another stock that we’re watching to day, accenture, this on their earnings. not only was it one of the big net losers, they saw the biggest decline in that stock . that after their first quarter profit lagged estimates. also the company saying profits for the second quarter may disappoint investors. one of the things that they are really talking about, competition from other companies, including i.b.m. has forced thome switch to less profitable work such as managing personnel and payroll instead of helping clients install computer systems. taking a look at toronto dominion bank. this is canada’s fourth biggest lender. they may consider combining the t.d. waterhouse unit with e-trade financial. that transaction would actually form the second largest discount brokerage. companies saying the statement, they were in discussions with a possible transaction. so both of stocks ending higher. however, we did see manufacture the broker dealers, however, trading lower on the day. back to you in the studio, lane.
>> deborah kostroun at the new york stock exchange. now as mike mckee menged earlier, the dollar gained ground on fed chairman greenspan’s comments. now for traders’ perspective on what the top u.s. banker had to say and the ramification for the currency market, we bring in a strategist with f.x. max in sidney, australia. welcome.
>> thank you.
>> what’s it look like right now? you got your currency trading underway now. what is the reaction this morning in sidney for what the fed chairman had to say.
>> it is dollar bearish. but i think there is a lot more of that to come. it is a water shed statement, really. it was well timed to take place in europe where obviously there is concern about a weakening dollar and a strengthening euro in the effect on their exports. basically, i think the outcome is that greenspan has said, you know, it’s fine to have a current account deficit as long as the dollar is absorbing the shock of. that in other words, the rest of the u.s. economy will move along and the global economy will move along smoothly as long as the dollar continues to absorb the excesses at the moment which means a much lower u.s. dollar to come in coming weeks and months.
>> how much lower, do you think?
>> well, a lot of people have been saying numbers like 140. we’ve been saying 134 for quite a while. once you get around 134, 135, you’re going to get very voicterous political objection to the continuing strengthening euro. it’s interesting, though, that the lock has been higher against the u.s. dollar historically than it is now. so it might seem like fresh highs for the euro but really tore deutsche mark and others, it isn’t. i think we’ll go towards that 140, perhaps higher. but it’s going to become an increasingly volatile ride, if you like, as political comments become more voicterous.
>> what about the asia pacific currencies? you keeping an eye on the euro? we see it at the levels we do and we hear about these record lows for the dollar against the euro. and it’s truly very brief existence. what about the asian currencies? is there a story that is perhaps not being told because of the focus on the euro?
>> actually, probably the key story again comes out of greenspan’s speech. he mentioned how central banks are basically buying u.s. bonds through intervention. intervention leads to that. so basically, it’s intervention by countries particularly in asia that is supporting the current account deficit to some extent at the moment. i think the intervention process is going to lose and so you’re going to have a tremendous strengthening of asian currencies later in the year.
>> and what effect is that going to have on the demand for the dollar?
>> well, at some point obviously everyone is going to say, gee, the dollar is cheap. equities are firm. it’s a great buy. but it takes a long time for that sort of mood shift to take place. so i think we’re looking at another two to three months as -- at the earliest and probably six to nine months for dollar weakness.
>> at what level does it seem like a real extreme move, say dollar-yen, for instance?
>> ok, dollar-yen, our target for some time is 95. that might be conservative. you might get a move just under 90 before intervention starts to work. basically, the d.o.j. is playing a losing game at the moment. and its intervention is going to lead to more catastrophic collapse if you like in the u.s. dollar-yen exchange rate in coming weeks. certainly dollar-yen getting under 90rks you will start to see the fed thinking of intervening at that point.
>> and at what point does it become less attractive for outside people outside the u.s. to be holding so much as far as u.s. treasuries are concerned? isn’t there the real potential for there to be a serious problem?
>> well, part of the reason for the dollar weakness is really quite a historical shift from the rest of the world going -- you buy, you went, you make money in the late 1990’s and the rest of the world saying a more balanced portfolio is appropriate for the world. that’s what’s happening at the moment. i think if people start to say, and they will over the next month or two, start to say we don’t want to put any money into the u.s. at the moment. it is still a falling currency. i think that’s when you’ll see the last phase acceleration in the collapse of the u.s. dollar. it’s after that spike, if you like, which you see in equity markets and all sorts of markets, that spike low that will get a rebound.
>> a lot of people watching for that. clifford bennett, thank you. he joins us each tuesday from sidney, australia. still to come, much more on bloomberg television.
