Focus: Alan Greenspan
>> federal reserve chairman alan greenspan is waging a war against inflation and bond traders say the war is won. that difference in opinion has led investors to price government debt in a way not seen in four years. in the face of rising interest rates, falling bond yields remain a puzzle to fed policymakers as well as others. how the conundrum is resolved may help determine if alan greenspan ends his tenure at the fed on a high note. peter cook joins us with more.
>> more than three months since alan greenspan told congress he was puzzled by the behavior of world bond markets , his conundrum remains. despite the fed tripling the benchmark overnight lending rate since june, the yield on the 10-year treasury has not correspondingly increased but has fallen .5%. it’s a bet by bond traders that the economy has slowed and the fed has won the fight with inflation and won’t need to raise interest rates further. the manager of the world’s largest bond fund sees the yield on the 10-year potentially dropping to 3%.
>> at some point hopefully in the next month or two, the fed will rest. that’s one of the premises behind this potential, it’s not a forecast, but the potential for 3% 10-year treasuries going forward.
>> bond traders say there is the potential for short-term yields to exceed long-term yields. the last inverted yield curve, in 2000, the year before the u.s. entered an eight-month recession. some economists say the bond market is off target when it comes to the economy.
>> i think there is a bit of a disconnect. the market does anticipate a significant stalling in economic activity. we do not think that’s going to occur and therefore we don’t think the fed will pause all that soon.
>> but if mortgage and other private borrowing rates don’t start rising soon, former fed governor lyle gramley says the central bank may feel the need to take action, it may conclude it’s not getting the traction it needs and it may need to move more aggressively to get the markets in line, tgating the prospect for a soft landing for the economy as greenspan prepares to end his rub―run has chairman.
>> hopefully, mr. greenspan will retire with a smile on his face as opposed to egg on his face.
>> fed governor don kohn told an audience in australia he’s not frustrated by the continuing yield curve question. it’s something he said we need to work with and work around. in the meantime, it was not that long ago we were talking about the weak u.s. dollar. no longer. it’s getting stronger and currency strategist predicts the rebound will continue.
>> the focus of the foreign exchange market has focused away from external imbalances and now the focus is on the more favorable economic outlook for the united states than for the euro zone or japan so i think the dollar will move against the yen to 112 or 115.
>> chertkow says the dollar’s rise will make china reluctant to change the yuan peg.
>> i think the chinese will move to a more flexible exchange rate regime later this year or early next year as required under the world trade organization membership but i don’t think an interim revaluation, say of 3% to 5%, is likely, because a revaluation of that magnitude would simply fuel speculation on a further installment.
>> the dollar is little changed against the yen and euro. turning attention to world and national news where it has been another violent day in iraq. the update from mark crumpton.
>> thank you. the associated press reports that in the latest incident, 10 were killed, another 30 wounded, at a car bombing outside of a shiite mosque south of baghdad. earlier, insurgents assassinated an iraqi security official in baghdad. according to an emailed statement from iraq’s security ministry, he was killed along with his driver when two car loads of gunmen opened fire on a baghdad street. three u.s. soldiers were injured at their base in samarra when two suicide car bombs exploded. broadcast reports say that four were killed and scores injured when a car bomb exploded outside of a baghdad restaurant, popular with police
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Listen Market briefing --- Ellen (slow)
Rally --- Deirdre (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
Oil price --- Su (fast)
three-month low. the gross domestic product report comes out on thursday. the estimate for expansion of 3.6% for the fourth quarter. gains across the board for the dow -- interesting trade in treasuries today as we saw prices surge, pushing the yield on the 10-year to within 4% for the second time this year. the treasury department saying it will sell $22 billion of two-year treasuries on may 25, the smallest action of two-year’s since november 2001. as for currencies, the dollar fell against the yen on speculation the dollar’s recent three-week rally was too much given the outlook for economic growth in japan. the dollar also lower today against the euro. certainly with stocks, we saw continuation of last week’s rally as we talked about, the dow and s&p right near the two-month highs. deirdre bolton has the story.
>> even a bounce back in oil prices could not wipe out investors’ enthusiasm for stocks today. 17 of the 24 groups tracked on the s&p 500 closed higher today. oil prices did rebound off those three-month lows and energy stocks led the markets higher. exxon-mobil, conocophillips and chevrontexaco pushed the energy group higher. sanford c. bernstien upgraded the stock, saying oil prices will be above $50 a barrel for the next three months. some traders say the stock market can tolerate the oil prices at these levels.
>> the fact that it hasn’t gone straight to $60 has put a psychological ease on both the small investor and institutional investor.
>> capital goods stocks including 3m, g.e. and united technologies gained on optimism that data this week will show the economy is growing faster than investors thought.
>> it’s possible that energy moves higher as people regain confidence in what’s going on with the u.s. economy. the same can be said about capital goods. i think this thursday we’ll see an upward revision in the first-quarter g.d.p. numbers from 3.1 to maybe 3.6 or 3.7, much like what happened in the fourth quarter last year.
>> optimism about the economy also helped lift retailers, including wal-mart. the company says may sales may rise as much as 4%. looking ahead, investors tomorrow will hear what alan greenspan and fed policymakers said at the last meeting about the economy and interest rates. key concerns for the markets .
>> the fear that’s foremost in my mind is that the fed tightens too much even though inflation seems undercontrol and the fed has to stop at some point here. if they keep going, i think we run the risk of an ugly market situation.
>> interest-rate-sensitive groups are likely to move off of the meeting minutes, financially in particular. year to date that group is down 5.5%, more than the s&p 500’s 1% drop in that time. ellen, back to you.
>> thank you very much. right now we want to get more on what helped fuel the rally today with a report from deborah kostroun.
>> another day and another rally in the dow jones industrial% average.% however, we didn’t close at our best level. however, a lot of traders focusing in on where we’ve been in the rally so far this year. looking at the highest close so far this year in the dow, it was on march 4 where we closed at 10,940. our lowest level so far this year was on april 20, 10,012. right now, we’re just a little bit above the midway point between those two levels so many traders are focusing in on what is going to be happening this week to maybe help propel the rally. we have our g.d.p. revision coming out on thursday. remember, first-quarter g.d.p. was reported at 3.1%, we’re looking at that to be revised up to 3.6%. tomorrow, we get the minutes from the may 3 federal reserve meeting to be released and may give us more clues as to the fed’s thinking on the economy and inflation. looking at retail on the day, wal-mart reiterating its sales forecast for the may number. the company reaffirming that may sales may rise as much as 4% as shoppers spend more on food. the biggest gainer in the s&p 500, energy index, materials and consumer services all performing well. crude oil closing up 51 cents, $49.16 a barrel, but remember, that june contract expired on friday so now we’re looking at the july contract as the lead contract and so we did see that advance in crude oil for the first day in four. looking at how some of the integrated oil stocks did, they performed well, upgraded by sanford c. bernstien, at least exxon, conoco and chevron upgraded. looking at also the oil services performing well and even natural gas stocks all putting in a good performance. campbell’s soup, highest price in 3 1/2 years, this after the third-quarter earnings beat analysts’ estimates. i’m deborah kostroun at the new york stock exchange.
>> and over on the nasdaq, it was tech stocks that led the nasdaq to its highest level in 2 1/2 months. robert gray has details.
>> the nasdaq composite closing higher for the seventh consecutive session, the longest streak of gains since november, tying the longest streak since the end of 1999. late december was the last time we saw eight straight gains on the nasdaq. so we’ll see, tomorrow, traders and investors looking towards the fed minutes tomorrow to call the tune of trading tomorrow, according to john o’donoghue, with c.s. first boston, looking to that. as far as today’s rally, it was a continuation of the trend from the past few days and the fear of the hedge fund below occupy mitigated somewhat, according to john o’donoghue, although he says his issue is the lack of volume. we saw below average volume in today’s session, we we’re moving higher with light volume. we want to look at some of the stocks moving higher today. google rising to another record in today’s session. the talk on the street, the past few weeks, is that it will be added to the s&p 500, driving the gains. john o’donoghue from c.s. first boston weighing in on google, as well, saying many funds did not own google and now racing to own it ahead of the addition to the s&p 500 as they track the index. goldman sachs upgrading the software group to attractive from neutral. some of the stocks they like, microsoft, oracle, s.a.p., mercury interactive and cognos. shares of apple computer rising, the best performer percentage wise in the nasdaq 100. the “wall street journal” reporting that intel may use -- apple may use intel chips. and pixar, number two performer today, upgraded to overweight from neutral weight at prudential.
>> to the rebound in the price of oil. which rose today on speculation the recent slump in prices is not justified. prices climbed 1% today. our su keenan has more on what lies ahead.
>> a couple of factors behind today’s earlier rally. the upcoming memorial day holiday kicking off the summer driving season and traditionally pushes prices higher. refco’s jim steel says there’s a view that prices have fallen too far, too fast.
>> we’ve come down $10 in the past several weeks and the market does appear to be poised to be going lower still but we still have refining tightness, we still have some concern over the upcoming gasoline driving season so it’s not, as i say, unexpected for the market to have minor, even quite vigorous rallies overall.
>> he says expect more volatility. one of the issues causing the past month’s trend of lower oil prices is bulging supply, pushing the nation’s crude oil stockpiles to the highest levels in six years. even so, there are indications opec will continue to raise near record oil production. the 11-member cartel probably pumped close on 30 million barrels a day this month, according to petrol lojilvetics which tracks tankers to game output.
>> we have an inventory overhang to work off, which is, by its own nature, bearish for the market of the secondly, gasoline inventories are ample and we’re just about ready to go into the first major driving holiday of the summer season and it’s very possible that we’re not going to see much of a spike in gasoline prices.
>> let’s take a look at gasoline futures. they declined for a second session after europe’s third largest oil company resumed fuel production at pi french refineries. checking futures, they fell 1.5% today after gaining more than 27% so far this year.
>> thanks so much. turning attention to hedge funds, goldman sachs and morgan stanley may face rising costs. allan dodds frank will explain what hedge funds have do with that. stay with us.
