Focus: Fed
let’s start you off on the top stories. what was a rally in commodity prices has turn into quite a selloff today. they are tumbling as higher interest rates around the world are threatening to curb the demand which caused the run-up in prices of the metals. oil as other commodities also down. copper is down the most in a year-and-a-half. zinc has dropped the most in 17 years. in other economic news, foreign investors slowed down their purchases of u.s. securities in march. net holdings of stocks and government bonds as well as other assets went up about 20% less than in february. the treasury department said that foreign central banks were net sellers of u.s. treasury notes. it’s the first time in six months that has happened. the report has got the dollar gaining against the euro this morning where strategists say our currency is more appealing because foreign investors bought enough u.s. assets to cover the trade deficit. china’s currency strength and past the 8 to the dollar. it prompts speculation that china is letting the yuan trade more freely to satisfy the united states. let’s get a quick comment on the markets from our featured guest. rob, what do you make of this round of selloff we’re seeing? >> i think there are two reasons for it. one, the extremely easy money phase of monetary policies at other major countries is gradually ending. in some sense, ben bernanke had had suggested that that process may have already been finished in the united states and the european central bank and the bank of japan have been making noises about raising interest rates. i think the more important factor is the enormous rally we have seen in all commodities in the month of april. copper prices have doubled in just one month. it’s not surprising there’s a wake-up call that goes out and you see adjustments.
>> i guess the question is this a reversal of a trend or correction and a continuing upward channel?
>> my bias says this is the beginning of a reversal. it’s not going to happen smoothly. you will get the alternate up and down in the commodity prices. i wouldn’t be surprised if we saw the run-up in commodity prices before they fall. think back to 2000 when stock markets here came down quite a bit there were two peaks. there was a peak in march and another in august. then they were down for good. similar thing could happen in commodity prices in the current. >> we’ll talk about commodities late he on in the hour. let’s check the overall markets . we’re seeing a little bit of a bounce-back for the dow and s&p. the dow is up 14 points. the nasdaq is lower, after 6 points. the treasury markets , the ten-year note has a yield of 5.717%. the two-year note is trading just a little bit higher as well. a little bit of buying coming into the two-year note, but certainly not as much as the long end. here’s the trade on the foreign exchange markets where the dollar right now is stronger across the board. keep in mind that the yuan has strength and to above 8 versus the dollar in the overnight session. crude oil futures are down 3% lower. we are below $70 a barrel at this point. in the meantirjs other stories we’re thinking of, that is shares of target, because it is among the biggest losers today in the equity markets . let’s send you to ellen braitman to give us more on target.
>> suzy, interesting numbers out from target. first quarter results at 63 cents per share, essentially matching the average analyst estimate but it is short of what some analysts had been looking for and the key is the profit margins for the company in the quarter were lower. in fact, profit margins narrowing for the first time in at least two years. the company may be relying more on less profitable products in order to lift sales. as for the sales, they were up 12%, stronger than analyst had been looking for. the company does have its first quarter conference call going on with analysts right now, and it does say that gross margin decline is not from an underlying problem, saying it will match or exceed gross margin rate for the year. that’s according to the chief financial officer. also, the company saying that costs are likely to remain under some pressure. take a look what’s happening to the shares. down 9% so far this year, and they have been underperforming wal-mart and that’s very interesting to note because for several years running now, target shares have outperformed wal-mart, but year to date, you have wal-mart doing better. wal-mart is out with earnings before the bell tomorrow. they may report the biggest sales gains in more than five years. wal-mart shares are rising up .7% in trading this morning. let’s also talk about bausch & lomb right now. it’s the biggest percentage gainer in the s&p 500. the company is removing its moisture lock contact lens cleaner from worldwide markets effective immediately. the company says that the solutions formula may increase the risk of a potentially binding infection. the decision to halt production stems reports by health authorities in hong kong, singapore and the u.s. that moisture lock was used by many contact lens wearers that had been infected with this infection. so, why are the shares surging?
>> if you look at what’s happening year to date, the shares have been slumping on those reports that i was talking about that led to today’s decision. also, in the past few minutes, you had comments come out from the food and drug administration saying that manufacturing problems are not tied to these eye infections. again, the f.d.a. saying that manufacturing problems from the company are not tied. keep in mind, 30 million americans wear contacts. industry officials say one in four use the products that are made by bausch & lombe in order to clean their lenses. suzy. back to you.
>> thank you very much.
>> ron, what is your biggest bet right now in the hedge fund that you are running?
>> well, we think given what is happening to the dollar, it makes sense to be long european interest rates against u.s. interest rates. when you look at the u.s. economy, there are two issues facing us in the next two months and the more important one is inflation. it looks like, just looking at commodity prices and pass-throughs that one hears about in the newspapers from energy prices and other costs, that inflation numbers in the next few months will be on the high side. so --
>> but that’s a global thing, not necessarily just a u.s. problem, or even a european problem for that matter?
>> except if you compare across the major countries, let’s say for the sake of argument, u.s. against europe and against japan european inflation rates are just barely 2%. our headline is well over 3%, comparing headline inflation to headline inflation. japanese headline inflation is close to zero. our inflation has risen more over the last year, than inflation rates in these other countries.
>> but we have also had 16 consecutive interest rate hikes, and they have had maybe one or none.
>> that’s true.
>> that granted, the markets are confused whether the 16 interest rate hike hes are enough. whether we need more. my bias is we will see two or four more interest rate hikes by the time this year is out, because the underlying economy is healthy and inflation numbers are picking up. that gives the risk/reward facing the federal reserve to be tighter than easier on monetary policy. all of the uncertainties are going to hurt the long end of the curve, i think. the long bond yields, whereas in europe, interesting things are happening with the shorp fall of the dollar. the euro is rising. the euro is benefiting almost disproportionately, it’s rising not only against the dollar but a bunch of currencies. that may have put the pace of the e.c.b.’s central bank interest rate hikes. they committed to raising rates in june. after that, who knows. they may have to slow the pace down and let part of the tightening happen through the exchange rate.
>> so, you’re long the euro on interest rates now. the expense of the u.s. interest rates.
>> u.s. interest rates, right.
>> what specifically, if constituented to play that, how can they do that?
>> in the futures markets , we have bought bund futures contracts which is a ten-year german bond. so, and sold ten-year u.s. treasury note contracts. the front end of the curve, short term interest rates, we bought december contracts because they have factored into it almost three further interest rate increases by the european central bank. they’re not sure with the dollar doing what it is, that they have the flexibility to raise interest rates three times for the rest of this year.
>> in terms of what happens from here on, and at what point do you re-evaluate that position?
>> if the u.s. economic numbers were much weaker going forward, then we have to ask the question okay, is the fed actually right, which is, they can afford to pause and not have any further interest rate increases. i don’t think we are there yet, but the data will tell us that?
>> you think pretty much two to four more moves by the fed?
>> that’s what we’re expecting. in our forecasts.
>> all right. we’re going to have more with ram after this please stay with us. when we come back we’ll keep the focus on the plunge we’re seeing in the metals markets . axle merk manages the currency fund. he will tell fuss he was among the sellers this morning. we’ll talk about the dollar and more about inflation and the impact there as well as of course, the commodities frenzy that we have seen as of late. we will be right back after this break. please stay with us.
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Listen Focus: Commodity prices
>> as we have been telling you, commodity prices are plunging this morning. gold is under $700 an ounce. copper prices dropped to 16-month lows. that metal had hit a record last week. zinc post its biggest one-day drop in nine years. aluminum is down right now. and with us here on set to talk about this is john adler, the investment products analyst out of montreal. welcome to the program. and you are actually the physical dealers.
>> yes.
>> of the bouillon. what are you seeing in the last couple of days? give us some insight as to from your vantage point, what are you seeing?
>> well, in the close to 30 years that we have been in business, we have only seen this level of activity basically twice. first time in 1979 through ‘81. and the second time in the period of 1987 through 1989. and yet, both of the periods by a long shot. we are hearing from on average a thousand people a day doing transactions with the company. we are experiencing well over 3.5 million visits on the website, on the home page. so it’s of epic proportions really.
>> are people nervous, is this panicked buying going on? what are you hearing from these clients?
>> we don’t sense much panic as we see in the last three years or so, a new found quest for capital preservation. a lot of people made a lot of money in to go go ‘80’s and ‘90’s and they’re looking to pull that money off the table, position themselves fo
