US SUMMARY: Interest Rate Worry Plagues Stocks Again
DJIA 10980.69 gain 22.10 up 0.2%
NASDAQ 2268.38 loss 17.65 dn 0.8%
S&P 500 1275.88 loss 2.38 dn 0.2%
Dow Future 10978.00 loss 6.00 dn 0.1%
NASDAQ Future 1663.50 loss 2.00 dn 0.1%
S&P Future 1277.25 loss 0.25 0.0%
10-Yr US Treasury: 4.73 unchanged
(Futures values as of 0550 GMT)
Stocks closed mostly lower Tuesday on resurgent fears of rising interest rates. Investors sold as bond yields remained high, government data showed wages rising and a Federal Reserve official, William Poole, warned more interest rate hikes may be needed. Treasurys ended little changed after a volatile session.
STOCKS: "It seems like the stock market is finally recognizing what happened to the bond market," said Frank Gannon, senior equity portfolio manager, AIG SunAmerica Mutual Funds.
In economic news, wage pressures accelerated at the fastest pace in a year, according to Labor Department data, intensifying inflation concerns. Revised figures from the Labor Department showed the efficiency of American workers declined in the final three months of 2005, the first time that has happened in more than four years.
"The market is looking at that and worrying that inflation may be rekindling as the unemployment rate moves lower," said Stuart Freeman, chief equity strategist for A.G. Edwards & Sons.
On the corporate front, Texas Instruments fell a further 3% following Monday's 3.5% decline after the chip maker's first-quarter mid-quarter update failed to impress investors. Last week, shares climbed on expectations the company would raise its financial outlook for its first quarter, which it didn't.
Crude oil futures fell. A barrel of light crude settled at $61.58, down 83 cents, on the New York Mercantile Exchange.
BONDS: Another day of heavy selling battered U.S. Treasurys for most of the session Tuesday, though the market recovered in late trade and bonds settled back near closing levels seen the prior session.
"We've had such a significant move over a short period of time that it makes sense to take a break," said Jim Caron, market strategist with Merrill Lynch in New York. He added, however, that "I don't think those underlying forces" that have driven all the recent selling and position readjustments "have gone away." It's just that "the market is taking a little bit of a breather," Caron explained.
Some market participants said fears about a new era of rising interest rates around the globe, with the European Central Bank already having joined the Federal Reserve in tightening monetary policy and the Bank of Japan expected to do so.
The convergence of the three major central banks on a tightening policy, "creates an extraction of liquidity from the global market," said Christopher Sullivan, portfolio manager at The United Nations Federal Credit Union in New York.
"It's only a matter of time before we start inverting again, and we're telling people to buy the back end of the market and sell the front end," said Tom di Galoma, head of Treasurys at Jefferies & Co. in New York.
Federal Reserve Bank of Chicago President Michael Moskow cautioned that the next rate decision "is much less certain" - even though futures markets have priced in two more rate hikes of a quarter percentage point each by May.
ASIAN SUMMARY: Bank Of Japan Still Worries Markets
USD-Yen 117.70 loss 0.15 dn 0.1%
AUD-USD 0.7342 gain 0.0010 up 0.1%
Nikkei 225 15632.70 loss 93.32 dn 0.6%
Hang Seng 15413.74 loss 188.60 dn 1.2%
Taiwan Index 6459.57 loss 34.58 dn 0.5%
S.Korea Kospi 1305.72 loss 10.95 dn 0.8%
JGB Yield 1.6100 down 0.0350
(All values as of 0550 GMT)
STOCKS: Japanese stocks fell amid growing expectations that the Bank of Japan's two-day meeting could mark the end of the central bank's super-easy monetary policy.
The Tokyo market has fallen four of the last five sessions amid growing expectations that the central bank will scrap its five-year policy of "quantitative easing," which involved keeping interest rates at zero and flooding the financial system with excess cash to spur borrowing.
Most likely, the Bank of Japan will leave interest rates the same for some time but move first to stop injecting cash into the banking system, experts say.
Any announcement of a change in policy would likely come after the meeting ends Thursday.
The Bank of Japan's policy meeting was also being closely watched in New York, where some investors are concerned that higher interest rates in Japan and Europe could prompt the Federal Reserve to raise U.S. rates.
BONDS: Prices of Japanese government bonds rallied as stocks fell. The market has priced in a BOJ tightening, traders said.
OIL: Prices of crude futures fell 13 cents to $61.45 with the market convinced that OPEC will leave current production levels unchanged.
EUROPEAN OUTLOOK: Govt Bonds May Outpace Stocks
Euro-USD 1.1895 gain 0.0008 up 0.06%
Stlg-USD 1.7374 gain 0.0012 up 0.07%
USD-Franc 1.3126 loss 0.0008 dn 0.06%
(All values as of 0550 GMT)
Government debt prices in Europe may edge higher, with stocks opening slightly weaker. The euro starts steady after earlier losses.
STOCKS: European markets are likely to start marginally lower after Wall Street's mixed performance overnight.
U.K. spreadbettor CMC Markets is calling the FTSE down 8 points at 5849, the DAX down 3 at 5742 and the CAC down 7 at 4985.
"We think restructuring will remain a feature of the European corporate landscape, even though a range of measures suggest companies are enjoying record profitability," said European equity strategists at J.P. Morgan.
These strategists expect further significant restructuring in insurance, autos, telecoms, staples, retail banks and the pharmaceutical sectors, noting that together these sectors add up to roughly one half of equity market capitalization.
"From the macro perspective, restructuring potential is one of the key differences between euro zone and the U.S.," the strategists said.
Dutch media company VNU was locked in negotiations Tuesday to reach a deal to sell itself to a group of six private-equity firms for about $8.5 billion or slightly more, but any deal must still be accepted by shareholders who have been deeply at odds with the company for months, the Wall Street Journal reported.
European stocks eased back on Tuesday as a sharply lower resource sector and a mixed start to trading on Wall Street weighed on indexes.
BONDS: Government bond prices may start slightly higher in a bounce from recent losses on rate worries.
"We are in a global environment of rising interest rates," said Sarah Luetgert, fixed-income strategist at WestLB. "The Fed and the ECB are in a tightening cycle and expectations are high that the Bank of Japan's loose monetary policy may also come to an end soon; all this exerts considerable pressure on bonds," she said.
A break below the major 119.03 support level in the March bund futures contract would worsen the already bleak outlook for the contract, she said. It closed at 119.25.
Moyeen Islam, fixed-income strategist at Barclays Capital, said the recent environment would suggest lower prices and higher yields in the months to come.
"The data flows out of the euro zone were good in recent months...Europe is clearly showing signs of stronger economic growth," Islam said.
The Bank of England Monetary Policy Committee's next rate announcement is due Thursday, with analysts expecting the bank to keep rates unchanged at 4.50%.
European government bonds prices tumbled Tuesday on fears of higher interest rates across the globe.
FOREX: The euro is little changed against the dollar after losing heavily on Tuesday on the idea that U.S. interest rates will rise faster than Europe's.
Meanwhile, the yen rose versus the dollar and the euro in Asia Wednesday due to buying by Japanese trust funds looking to repatriate earnings before the end of the fiscal year on March 31.
CALENDAR: Wednesday, March 8: US Oil Data; Fed Speakers
GMT Expected Previous
1000 GER RWI research institute's growth
forecast
1130 GER Chancellor Merkel meets with Polish
Pres Kaczynski
1200 US Mar 3 MBA Refinancing Index +0.1%
1315 CAN Feb. CMHC Housing Starts (Annualized) N/A 247,900
1400 US St. Louis Fed Pres Poole speaks before
the Regional Commerce and Growth Assn
in St. Louis
1530 US Mar 3 US Energy Dept Gasoline Stocks (in -600,000 +300,000
barrels)
1530 US Mar 3 US Energy Dept Crude Oil Stocks (in +1.2M +1.6M
barrels)
1530 US Mar 3 US Energy Dept Distillate Stocks (in -1.4M -1.5M
barrels)
1700 US Fed Chairman Bernanke speaks before the
Independent Community Bankers of
America natl convention in Las Vegas
N/A JPN BOJ Policy Board meeting
N/A GER Govt pension report in Berlin
N/A US Pres Bush visits hurricane-ravaged
parts of Louisiana, Mississippi
