Market briefing --- Lori
NYSE --- Deb (fast)
Rate --- June (slow)
wild ride on wall street after earlier gains. three major averages gave them all up and closed the session lower. worst performance in a couple of weeks for the three benchmark indices with the dow down 39 points, 11,235. g.m. was the top gainer on the dow on word they’re neither an agreement with delphi for early retirement on workers. the s&p 500 loses just about eight points, 1297. and the nasdaq composite index loses 20, 2294 the close there. stocks lower today, the bond market a big reason for the action in stocks. deborah kostroun has more on that and will explain why. hi, deb.
>> thanks a lot, lori. the dow and s&p 500 with their biggest retreat in a couple of weeks. so many traders i talked to said, well, when you talk about stocks today, you have to talk about bonds. we saw a drop in treasuries, sending the yields higher and so what we did see, yields on the two-year note, of course, inverting. we saw that inversion of the yield curve, but the yield on the two-year coming in about 4.73%. those were the kind of yields we saw about three weeks ago when the stock market wasn’t doing very well and we’re returning close to those areas. also, we saw wholesale prices increasing for the fourth straight month. the p.p.i. report suggesting that interest rates will continue to rise. one of the things we did see, the stock market selling off as the bond yields going higher and administrate-sensitive -- interest-rate-sense sensitive stocks, some of the biggest drags today. if you take a look, g.d.w., fannie mae, countrywide financial, along with washington mutual, those very closely tied to mortgage rates so as we’re talking about interest rates going higher, this sends some of the interest-rate-sensitive stocks closely tied to mortgage rates lower. also, real estate stocks were lower, as well. crude oil, we saw a big reversal in crude oil, ending out the day just up 15 cents, $60.57 a barrel. but it was pretty much a mixed bag with some of the oil services. you saw some higher, some lower. integrated oil stocks, however, those were all lower. of course, a lot of speculation that the energy department is going to show that gasoline inventories declining tomorrow, even though those crude oil inventories may be at their highest level in seven years. that’s another thing this market will be grappling with tomorrow, and that will be those inventories and that could have an impact on the stock market , as well. krispy kreme shares were up again today. bolstered by the appointment of a kraft foods official as their chief executive officer so you did see krispy kreme up 1%.
>> thanks so much for that. news after the bell from darden restaurants, owner of the olive garden and red lobster chains. better-than-expected by two pennies a share for darden, 57 cents a share, a 20% increase over the same quarter last year. thomson financial analysts were looking for third-quarter e.p.s. 65 cents. darden beating by two pennies. comparable sales for red lobster, down 7% to 8% though olive garden comp sales rose 3%. darden saying they’re boosting their full-year forecast to the top end of a 15% to 20% growth range. we’ll get to an extended session number later. moving on, here, fed chief ben bernanke suggested in his speech last night interest rates could continue to rise. what will that mean for the economy? june grasso has that story.
>> for all the worry about slowing consumer spending, bernanke said household finances appear healthy and the increase in mortgage debt from the housing currently of the last five years may not be a particularly serious problem. still, it’s the housing industry where most of the effect of higher rates can be seen. the effect it’s 30-year fixed mortgage rate since the fed began raising interest rates in june 2004. mortgage rates initially fell, tracking the drop on 10-year bond yields on hopes inflation would be stomped out. that idea went out of style in the fall of last year as oil and gas prices soared and bond yields rose, pushing up mortgage rates. anyone with an adjustable-rate mortgage will most likely face higher rates when the loan reprices and anyone shopping for a home will likely see higher rates. the end of the five-year boom in housing has been apparent. last month, k.b. home said cancellation orders rose and new orders fell. toll brothers, largest u.s. builder of luxury homes, cut its 2006 forecast for a second time after saying first-quarter orders dropped 29%. economist david rosenburg says, looking forward, the end of the housing boom will have a serious effect on the economy.
>> so, as housing goes, so does the economy and most of the housing indicators i looked to all peaked out. and the lag between housing and the broader economy is nine months so you’ll see some of the housing-related parts of the economy start to slow down and have a broader impact on the economy starting in the second quarter.
>> the effect of higher rates is showing up at mortgage lenders and bankers, both facing thinner profit margins while long-term rates have risen, short-term rates have risen even faster, squeezing banks who borrow at short-term rates and lend at long-term rates
>> thank you so much, june. exxon-mobil c.e.o. rex tillerson made comments earlier today about oil inventories and the sector. we’ll break down what the comments mean for the sector and look ahead to tomorrow’s weekly inventory report with our next guest, mary novak, managing director of energy services at global insight.
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Listen Interview: Managing director of Energy Services At Global Insight
>> moderate u.s. demand growth will require changes in capacity. this capacity will come from multiple sources. expansion of existing refineries and new additions are a primary means.
>> exxon-mobil’s chief executive officer, rex tillerson, there, talking about the need for refiners to expand to meet growing demand throughout the next decade. joining us to react to the headlines and preview tomorrow’s oil inventory report is mary novak, managing director of energy services at global insight. mary joins us from lexington, massachusetts. welcome.
>> thank you for having me
>> let me get your intcial impression―initial impressions of mr. tillerson’s comments today. is there a real concern that we will have fuel shortages in the next decade or is tillerson making a political move to prevent taxes on windfall profits?
>> certainly we have to expand refining capacity globally and it wasn’t addressed in his comments whether that capacity had to be located here in the united states or off shore in the caribbean or other areas. what he said is true. i mean, as we have demand grow, we’re going to have to have more refining capacity. and we’re going to have to have additional investment in existing refining capacity because the new supplies of crude coming on to the market are of a heavier, more sour grade and require a somewhat different kind of capacity to turn them into the light, sweet products that consumers demand. so that was a factual statement. on the other hand, refining capacity is only part of the issue. bringing additional crude supplies to market is also part of the issue.
>> if tillerson didn’t specify whether this should happen in the u.s. or globally, was there something to read behind that?
>> not a lot. we’ve been reluctant to increase refining capacity substantially in the united states and we haven’t needed to. our trading partners in the caribbean have been happy to locate facilities there to service the market and we anticipate in the next 10 years those relationships will continue to support our demand for refined petroleum products. a bigger concern is the level of building in the asia-pacific region. asia-pacific is growing the fastest of any of the regions and their refining capacity is not keeping pace with their expected rate of growth.
>> how has that been addressed?
>> we have arbitrage opening up so that they essentially begin to demand increased product from the atlantic market which principally serves the united states and can put pressure on our product prices as they attempt to meet their internal demands.
>> we have the big inventory report if the energy department tomorrow. the expectation is that crude inventories will reach the highest level in seven years. what are you expecting?
>> i’m certain crude inventories will continue to build. we’ve had pretty good production news over the last week or two and there is actually a situation right now, we’re going into refinery maintenance season which means refineries come off line for a couple of weeks and are tuned up for the summer driving season so during this time of year, we have a crude build every year. this year, it will just exacerbate a fairly large crude build already but at the same time we end up drawing down some of our product stocks. however, it’s just a seasonal effect. the refineries have to be pulled off line and maintenance has to be done. this year we’ll probably have a slightly extended maintenance season, just because when the refineries came back up as quickly as possible after the hurricanes in the fall, there was some delayed maintenance that should have taken place in the fall that will have to now take place in the spring.
>> mary, i want to ask you about the geopolitical risk. it seems there’s a tug of war between the solid for crude oil and risks in nigeria and elsewhere. is that what’s keeping prices around this level?
>> it’s a little bit more complicated. while the crude supplies are growing, much of that crude is heavier, more sour crude that’s difficult for many refiners to transfer into light products so even though the crude inventory numbers look large, they are not as large as they would appear but they’re still in pretty good shape so the thing that’s actually holding prices up is the continuing geopolitical uncertainty. the nigeria situation does not look like it will resolve any time soon, so, too, the iranian situation. so we have a couple of touch points there and we have other participants in the market taking advantage of that and always throwing in a few barbs to keep the―everyone guessing on what’s happening with the crude oil markets .
>> mary novak, managing director of energy services at global insight, thank you for joining us.
>> thank you.
>> it is that time, again. we are talking confession season. when we return, we’ll hear just how badly or well company forecasts are looking right now. stay tuned.
