Published May 11, 2011
FOX Business: The Power to Prosper
Wall Street sustained steep losses after the commodities complex sold off, pressuring energy and materials stocks.
A slew of big-name energy companies, including Schlumberger (SLB) and ConocoPhillips (COP), sustained substantial losses. Materials stocks such as Silver Wheaton (SLW) and Freeport-McMoRan (FCX) were off considerably as well.
Energy markets have been the most volatile since the geopolitical tumult in North Africa and the Middle East began in late-February, according to a recent reading of the Oil VIX.
A bearish report on oil and gasoline inventories put significant selling pressure on energy futures. Oil stocks jumped 3.8 million barrels to 370 million in the prior week, a far bigger build than the 1.4 million analysts forecast. Gasoline inventories were up 1.3 million barrels, greatly exceeding the 200,000 build Wall Street was expecting.
Strength in the U.S. dollar, which recently gained 0.87% against a basket of world currencies, weighed on commodities as well.
Trading was so furious, the CME Group halted the crude oil, RBOB gasoline and heating oil contracts on the Globex Exchange for five minutes before doubling the downward limits.
Light, sweet crude slid $5.67, or 5.5%, to $98.21 a barrel. Wholesale RBOB gas plunged 26 cents, or 7.6%, to $3.12 a gallon -- the biggest percentage decline in two years.
In metals, gold traded lower by $15.50, or 1%, to $1,501 a troy ounce. Silver was off by $2.97, or 7.7%, to $35.51 a troy ounce.
Gasoline prices on the consumer level have been fluctuating in a tight, but elevated, range this week. A gallon of regular gas at the pump cost $3.96 on average nationwide, up from $3.77 last month and $2.90 last year.
The U.S. trade deficit increased to $48.2 billion in March from $45.4 billion the prior month, well higher than estimates of $47 billion. The deficit was the highest since June 2010.
Exports increased 4.6% to a record high of $172.7 billion, but imports increased by 4.9% to $220.9 billion. The oil import price surged 26% to $93.8 a barrel from $74.32 last year. That lead to a substantial widening of the deficit with the Organization of Petroleum Exporting Countries to $10.8 billion from $9.4 billion, on a month-over-month basis.
The difference between imports and exports directly figures into the calculation for economic growth -- the higher the deficit the more it cuts from domestic expansion -- so even though the report lags behind, it could have a market impact.
Also on the economic front, the Bank of England raised its inflation forecast in its quarterly inflation report, saying rising energy prices make the risk for near-term inflation "markedly higher." The central bank also cut its forecast for economic growth, saying risks are "skewed to the downside."
With the rate of inflation increasing and growth apparently slowing down even though the bank's short-term interest rates are at a record-low 0.5%, many market participants are beginning to question the specter of stagflation. Stagflation is generally defined as a situation wherein inflation and unemployment rise together, while economic growth remains slow.
"I'm afraid stagflation here is beginning to peek its head," wrote Peter Bookvar, managing director at Miller Tabak + Co., in a note; adding stagflation is "the worst possible outcome for one's economy."
On the corporate front, bailed-out insurer American International Group (AIG) filed a prospectus saying it will sell 100 million shares of stock and the U.S. Treasury will sell 200 million shares in a public offering. The offering can be worth as much as $9 billion based on Wednesday's closing price.
Toyota's (TM) January to March profit was off 77% due to production disruptions created by the devastating earthquake an tsunami that hit Japan in March. The automaker didn't provide a full year outlook.
Macy's (M) posted earnings of 30 cents a share, compared with 5 cents last year, easily topping forecasts of 18 cents. Revenue was $5.89 billion, higher than expectations of $5.86 billion.
Intel (INTC) boosted its quarterly dividend by 16%.
Johnson & Johnson (JNJ) unit Janssen said it is in talks with regulators in five countries regarding the presence of trace amounts of a fungicide found in certain lots of Prezista, its HIV drug.
Teva Pharmaceutical Industries (TEVA) posted quarterly earnings for $1.04 a share on $4.1 billion in revenue. Profits were inline with estimates, but revenues were expected to hit $4.27 billion for the quarter.
Level 3 Communications (LVLT) was chosen by HBO to support its HBO Go mobile App, giving shares a boost.
Starwood Trust (STWD) unveiled a 22 million share common stock stock offering.
The English FTSE 100 was down 0.71% to 5,976, the French CAC 40 was up 0.14% to 4,058 and the German DAX fell 0.09% to 7,495.
In Asia, the Japanese Nikkei 225 was up 0.46% to 9,864 and the Chinese Hang Seng slipped 0.19% to 23,292.