Market briefing---Matt (slow)
Mad Cow---Su (fast)
NYSE---Deb (fast)
Currency
Interview: Tempus Consulting---Salvaggio, Greg---Currency Strategist
welcome to “world financial report.” i’m matt nesto. u.s. cattle futures plunged for a third straight session after japan said it won’t end a ban on u.s. beef imports because of safety concerns. su keenan has the latest on the ongoing financial fallout. su?
>> some analysts expected the drop in cattle futures would bottom out after u.s. officials announced over the weekend that the first u.s. case of mad cow disease originated in a cow imported from canada. the u.s. officials say that means it probably was infected before arriving here. they also said today the 6 1/2-year-old animal was born months before the u.s. and canada implemented a ban on the feed that can cause mad cow disease. ron dehaven, the u.s. department of agriculture’s chief veterinary of officer said this is evidence that the feed ban is effective.
>> the worst case scenario is that the disease exists in the united states at a very low prevalence and even if it is here, our procedures and most notably, the feed ban, would be eliminating the disease as independently confirmed.
>> the u.s. department of agriculture said today its recall of 10,000 pounds of beef from 20 animals, including the infected cow, is a precautionary measure and most of the beef has been distributed in four northwestern states. the recall includes a total of eight states and guam. more than two dozen countries have stopped imported u.s. beef because of the mad cow case. the u.s. delegation began talks with japanese officials in tokyo today to urge them to end the japanese import ban. japan says it’s not yet ready to do that but it will send inspectors to the u.s. in the next month. february cattle futures fell for the third straight session today. shares of meat-related restaurants and food producers such as tyson and mcdonald’s rebounded. peter morici, former chief economist with the international trade commission, does not expect the ban on imports to seriously hurt the industry.
>> the beef industry is about $30 billion a year. but the exports are much less than that, only about 10%, maybe in the range of $3 billion a year. this is not a huge amount of money in terms of the overall economy. it’s about .03%.
>> and tyson foods and mcdonald’s, just two of the many affected stocks . both ending the session up just over 2% today.
>> thank you very much. while you were speaking, $8.6 billion contract crossing the wire for boeing, awarded that from the navy. and that is to build as many as 210 so-called super hornet fighter jets for the navy. the contract would run from 2005 through 2009 and obviously a big victory for the new c.e.o., harry stonecipher who took over for phil condit who stepped down under pressure last month. let’s go to the new york stock exchange for the latest action there where mad cow was also clearly in the headlines. and on the minds of investors. deborah kostroun there at the big board with the latest.
>> just to follow on some of the things that su keenan was talking about, mcdonald’s upgraded today. that helped lift the dow jones industrial average to that 21-month high. and the mad cow ruckus probably won’t hurt sales although the price of beef is dropping. according to j.p. morgan, they raised mcdonald’s to overweight saying if the trend continues, earnings for mcdonald’s and other fast food outlets and steakhouses will rise. and stocks that fell last wednesday on the mad cow news rising for a second day. s.g. cowen expects the companies to recoup all that was lost last week. with today’s gains, mcdonald’s recovered about 1/3 of what they lost and outback has recouped 80% of their losses last week. csfb lowered ratings on hormel and smithfield, saying that the declining cattle prices is pushing hog prices lower so smithfield and hormel lower. in the broader market, we saw very large gains based on hopes that the economy will keep growing next year resulting in fatter profits for most companies. we saw computer chipmakers leading the gains and the rally extended past tech into gold, manufacturing, industrial, telephone and steel stocks . one of the things we did see, the dow closing at a 21-month high and the s&p closing at a 20-month high and the nasdaq at its highest level in nearly two years, closing above 2000. some of the things we’ve been talking about, large cap stocks still in the lead this month with the dow and s&p at the top of the heap and that outperformance comes as a change in leadership is taking place with earnings growth. prudential equities group steven desanctis saying that large cap profits this quarter will grow 18%, faster than small and midcap company earnings and that this is the first time that large cap earnings will grow faster than small cap companies in over two years. and that change in profit leadership comes as investors say that large cap stocks will outperform next year. back to you in the studio.
>> thank you very much. also today, we were checking action in the bond and currency markets. let’s take a look at those numbers. actually, folks, they’ll be back up and give you the closing dow, s&p and nasdaq figures. dow up 125. the s&p up 13.5 points, 1.2% for both of those. the big number there is a 21-month high for the dow and 20-month high for the s&p 500. speaking of the euro, the dollar with its biggest drop against the yen in three weeks today. not only weakness against the euro, but also more pain in asia. it fell after japan’s economic fiscal policy minister, hayes hayes―heizo takenaka, said that bad loans at large banks are declining faster than expected. the currency also reached a low at 1.25 per euro. and joining us to discuss the currency markets, vice president at tempest consulting in washington. what do you make of this euro, the latest milestone of 1.25. is this the end?
>> the market seems un relenting right now in the selling of the dollar. we have several people who believe 1.30 is the target and we can’t rule that out midway through the first quarter of next year. we think several things has to happen before the market buys dollars again and that includes recovery in the u.s. jobs market, growth in the payrolls numbers and movement in the fed or european central bank.
>> what do you think the pain level is? at what point will european politicians and/or central bank members say enough on the dollar weakness or euro strength and take action? what level?
>> we’re starting to hear grumbling right now. the f.t. reported over the weekend that the e.c.b. is putting in place some plans through some policy initiative to somehow weaken the euro, probably through an interest rate cut. we believe the level is probably close to 1.30 so they’ll allow another 3% to 4% appreciation of the euro before central bankers are antsy.
>> i don’t know if you can do it in 20 seconds, but japanese banks, what do you make about that and the comments out of japan, the yen?
>> i think what we see happening there is really a great job so far by the japanese government. koizumi has put in place some policy initiatives that are really cleaning up the balance sheets at these japanese banks. i think dollar-yen is probably much more vulnerable now than the euro is.
>> greg, i have to jump in. thank you very much, vice president of tempus in washington. our next guest recently sold most of his retail stocks and bought industrials and we’ll hear why, next.
