Interview: Drug stocks
>> higher energy prices drew the attention of nasdaq investors on tuesday. that meant transports led the index lower. robert gray has details from the nasdaq in new york.
>> the nasdaq closing on the lows of the session today, the fourth straight day of declines for the nasdaq. it is first of those four, i should note, that have been above the three-month daily average volume-wise, something to keep in mind, that market technicians would see as a bearish sign, heavier volume on a down day. down volume outpaced up volume significantly, as well. we did see higher oil prices, also playing out in the market . taking the transports lower, the weakest group in the session. we saw that playing out with the truckers. expediters international, yellow, j.b. hunt, c.h. robinson, all lower. airlines lower, as well, jetblue, nearly a two-year low for jetblue during the session. ryanair a.d.r.’s also trargged trading lower, northwest and sky west, as well. semiconductors with bullish notes early in the session, smith barney raising semiconductor stocks to overweight from market weight, boosting the chip stocks early in the session. but we did see them give back all of those gains as the semiconductor index did finish the session lower today and we did hear other bullish comments out but those did not carry over. sirius satellite radio, one of the worst performers on the nasdaq 100. chief executive mel karmazin saying that no company officers have been subpoenaed in connection with the company’s agreement to higher howard stern. the “new york post” reported that a frequent stern guest has been looking into insider trading surrounding his appearances with howard stern and the announcements that stern’s show is moving to sirius satellite. sirius paying $107.5 million for the rights to broadcast nascar stock racing beginning in 2007. that’s a look at the nasdaq. i’m robert gray.
>> warburg pincus says it invested about $1 billion of equity in indian companies. the buyout firm reports it has earned more than three times its 1999 investment of $300 million in the mobile phone company. the company’s co-president says the opportunities in places like india are evolving rapidly. warburg pincus has focused these investments since establishing asian offices over a decade ago. the i.m.f. says hong kong may be able to balance its budget two years ahead of schedule. the international lender says surging tax receipts and revenue from land sales may allow the city to eliminate its shortfall in the year ending march 2007. the report recommends hong kong start a sales tax to diversify government revenue. the fund predicts the city’s growth will slow to 4% this year following 8.3% expansion in 2004 santos and c.s.l. are among companies that reported earnings this morning. we’ll go to stuart kelly, our stock reporter in sydney. take us through the earnings reports.
>> good morning. there are plenty of earnings reports out this morning. c.s.l., world’s second largest maker of blood products, said first-half net income rose sixfold to 160 million australian dollars, beating the 138 million australian dollars that analysts surveyed by% bloomberg were expecting. the company said it would buy back 10 million shares, or 5% of the company’s total capital. santos limited reported this morning, australia’s third biggest oil and gas producer, saying full-year profit rose 16% to 380 million australian dollars, easily beating that estimated by analysts surveyed by bloomberg. also maine group said first-half net income fell 18% to 40 million. still, that managed to beat the 33.5 million that analysts expected. we can expect a rise in all three of those shares today.
>> what is the benchmark index likely to do today?
>> well, the benchmark index’s futures contract is down about .6%, a relatively sharp drop compared to the past month or so. if stocks fall today, there could be two reasons. firstly, a sharp 5.8% surge in oil prices to above the $51 barrel mark in new york overnight could weigh on sentiment. some of the consumer-related stocks, particularly retailers such as harvey norman, coles myer and wesfarmers. investors has been anticipating a rise in interest rates next month, the first such interest rate rise since december 2003. we are awaiting a wages report coming out around about 11:30 a.m. sydney time that could very well weigh on the central bank’s thinking. so keep an eye out for that, catherine. that’s all for me. i’ll have an update a little bit later.
>> our next guest thinks the australian central bank will raise rates as early as march 2. we’ll learn what that means for the economy from the head of market economics at national australia bank.
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u.s. consumer confidence falls% for the first time in three months. we’ll be talking about that and more with an economist in new york. the headlines―the bank of korea sends the u.s. dollar lower against 30 currencies. south korea’s central bank says it will add to non-dollar denominated foreign reserves. the dollar fall 2% against the korean won, the biggest loss in three months and dropped against the euro. oil vaults to a four-month high, closing above $51 a barrel for the first time since october. colder-than-expected weather and weaker u.s. dollar sent crude higher. rising oil prices knocked u.s. stocks lower. the dow and s&p 500 registered their biggest losses since august. all three of the major u.s. stock market indexes are now lower for the year. american airlines and continental win and delta loses when it comes to flying to china. the u.s. government awarded licenses for flights to china to a.m.r.’s american airlines and continental. each airline won the right to fly seven weekly round-trips to china. they join united and northwest as the only u.s. passenger airline with direct routes to china. the department of transportation shut out delta, fedex, u.p.s., northwest and polar air won rights to fly three cargo flights to china each week. the u.s. and china agreed to expand their aviation agreement. u.s. consumers are more skeptical about what the next six months will bring. the conference board’s index showed americans were the most optimistic about their current conditions than at any time since september 2001. stephen stanley joins us with more from new york, chief economist with r.b.c. capital markets . the conference board’s consumer confidence index fell in february. how concerned should we be?
>> the confidence numbers have been fairly steady the last couple of months and certainly if you look at consumer spending in the second half of 2004, it was tremendously strong. so i think these levels of consumer confidence are consistent with robust consumer spending.
>> the proportion of consumers that saw jobs as hard to get fell to its lowest since may 2002. what does today’s report tell us about the larket? labor market ?
>> i think labor market conditions are improving gradually and we feel, in particular, since the turn of the year, that firms will be more interested in hiring people. we didn’t see it in the january payroll numbers and i think that was partly a function of poor weather and one-time factors. i think we’ll start to see better job gains in the months to come and that certainly is corroborated by this number as well as the drop in unemployment claims and other indicators we’ve been watching.
>> what would that mean for consumer spending in the next three to six months?
>> i think consumers will continue to spend. the pace of spending in the second half of 2004 was extraordinary and i don’t know we’ll necessarily keep up with that pace but i think we’ll continue to see healthy gains in consumer spending in 2005 and certainly the, aboutetter the job situation, the more consumers will be in a position do so because incomes will be rising.
>> what will the january c.p.i. data out later today tell bus inflationary pressures?
>> well, i think after last friday’s p.p.i. report, this will be a really important report for the markets because up until now, we really weren’t that worried about inflation. the fed continued to tell us, hey, don’t worry about it, inflation will be well contained and all of a sudden we have a bad inflation number and we’ll see if it carries forward to consumer prices. if it doesn’t, it’s something the fed won’t worry too much about because they’re focused on core consumer prices but i think there’s a real possibility -- our forecast is for .2% increase and that, i think, would be fine, but there’s a real possibility of a .3% increase and if we got that, i think it would certainly raise an eyebrow at the fed and be something the markets will be very concerned about.
>> when the fed raised overnight lending rates in the past, long-term interest rates rose, as well, but this time around, we’re not seeing that. why is this happening? what does that tell us?
>> that’s a great question. chairman greenspan calls it a conundrum. i’m certainly puzzled by it myself and i think everybody is. if you get the answer, let me know, we’ll start an investment fund. i think part of it is―has to do with technicals within the market . there’s a lot of demand for long-dated paper in the u.s. market and in addition to that, i think there are more fundamental things going on. i think people in the market are skeptical about whether the recovery can last, how far is the fed going to go before the economy starts to taper off? i think most people in the markets would believe that pretty soon the fed will get to a rate level that’s going to start to weaken the economy. we think the fed will end up having to go a little bit more but that’s a debate to be played out over the course of the year in the markets .
>> the central bank in south korea said in a february 19 report to a parliamentary committee that it will invest in higher yielding currencies like the australian and canadian dollars. what do you think this will mean for the u.s. bond market ?
>> well, it’s certainly something the markets are paying a lot of attention to and not just korea, but a number of the asian central banks, particularly, obviously, the bank of japan and china, as well, are large holders of treasuries so the markets get skittish when we hear rumors of diversification out of dollar holdings and certainly you saw that in the reaction of the dollar today, as well, maybe to some degree in the treasury market . it will be something that folks in the market will be watching and in fact that’s one of the technical factors i alluded to that has held up the u.s. treasury market in the last year or so.
>> what about for oil? prices surged above $51 a barrel in new york to its highest in almost four months. is there a risk higher oil prices may derail global growth, including the u.s. economy?
>> that’s certainly a risk. i think we’re all pleasantly surprised last year by the resilience of certainly the u.s. economy and more broadly, the global economy, in the face of tremendous increases in the price of oil. so i think we have more confidence now than we might have, say, 12 months ago, in the face of rising oil prices but it’s certainly something we’re going to watch. for me, it wouldn’t matter very much how long oil prices stayed at these levels or even if they go higher, if it lasts. we’ve seen brief spikes that have not persisted and those tend not to have a big impact on the consumer. it’s only when oil stays this high and starts to feed through into gasoline prices and some of the other things that consumers actually buy that it becomes more of a concern and so we’ll have to see how it plays out over the next month or two.
>> stephen, we have 30 seconds. what will be the catalyst for two-year yields to begin falling
>> for yields to begin falling? i think you’d have to see some indication of either the economy weakening, i guess mainly if the economy weakens and we start to price in a scenario where the fed’s not going to tighten as much, which is certainly counter to what we’re looking for, that would have to be the driver because i think yields at the short end are mainly pegged off of what people think the fed doll.
>> all right. we have to leave it there, thank you very much for joining us, stephen, stephen stanley of r.b.c. capital.
