Stocks lost ground on Monday as a jump in crude oil prices to nearly $64 a barrel raised concerns about the impact on the economy and the outlook for interest rates. Concerns the Federal Reserve may carry a more hawkish tone about interest rates in tomorrow's meeting also contributed to market weakness, reports Standard & Poor's MarketScope.
The Dow Jones industrial average fell 21.1 points, or 0.2%, to 10,536.93. The broader Standard & Poor's 500 index was down 3.29 points, or 0.27%, to 1,223.13. The tech-heavy Nasdaq composite lost 13.52 points, or 0.62%, to 2,164.39.
September crude oil hit new highs, up $1.54 to $63.85 a barrel after just clipping $64 ($63.99 record high) in early dealings. Concerns about refining capacity and the closure of the U.S. Embassy and consulates in Riyadh, Saudi Arabia, all fueled gains today, compounded by reports out of Britain that militants were preparing an attack in the Saudi capital, says Action Economics. After recent bombings in London, the energy market took the warnings at face value, says Action Economics.
The main event Tuesday is the meeting of Federal Reserve's policy-setting arm, the Federal Open Market Committee on Tuesday. Economists are expecting the Fed to raise its target fund rate another quarter point to 3.50%.
With a 25 basis-point hike fully priced into the market, traders will look to the statement for further policy clues, says Action Economics. While the statement should be little changed from June 30, the Fed could indicate a more upbeat view on the economy and some ongoing concern over elevated prices, says Action Economics.
Also being released Tuesday are second-quarter productivity data and June wholesale trade. The productivity data could add to fears of an extended period of Fed rate hikes given a likely slowdown in productivity and risk of rising unit labor costs, says Action Economics.
Companies reporting quarterly earnings Tuesday include Cisco Systems (CSCO) and Walt Disney (DIS).
Among the merger news Monday, networking equipment maker Cisco Systems is reportedly considering bidding for Nokia (NOK).
Maytag (MYG) shares rose after Whirlpool (WHR) bid $20 per share, or $2.6 billion, a 43% premium over the price offered by Triton Acquisition for the Newton, Iowa-based appliance maker.
E*Trade Financial (ET) agreed to acquire the U.S.-based online brokerage operations of Harrisdirect from BMO Financial Group for $700 million in cash. After the completion of integrations, the deal is expected to generate earnings per share of 17 cents for E*Trade.
McDonald's (MCD) rose after fast-food chain posted 4.9% higher July global same-store sales and 6.1% higher total systemwide sales (as reported).
Baidu.com (BIDU) shares continued to climb, after 4 million American Depositary Shares were offered in Friday's IPO at $27 per ADS.
On the earnings calendar, car parts maker
Delphi (DPH) posted a 60 cents second-quarter loss, vs. 25 cents EPS (GAAP) a year ago, on 6.7% lower revenue. It says if talks with unions don't lead to plan to address existing legacy costs, will consider other alternatives, including bankruptcy.
Meanwhile, Delphi rival Visteon (VC) said it sees a $9.49 second-quarter loss per share (including $1.1 billion non-fixed asset impairment charges, or $9.01 per share) on $5 billion sales.
Treasury prices, hammered Friday by strong jobs report that just about assures Fed will raise rates 25 basis points at Tuesday's meeting, fell as the market braced for the possibility of a more hawkish tone from the Fed following strong economic data recently. The 10-year note yield rose to 4.41%.
Also Tuesday, the government kicks off a 3-day $44 billion quarterly refunding.
European stock markets finished higher on Monday. London's Financial Times-Stock Exchange 100 index was up 29.6 points, or 0.56%, to 5,344.3 even though U.K. input prices rose 1.8% in July, output rose 0.7%. Among stocks on the move, Marconi was higher on a Sunday Times report China's Huawei Technologies is in talks to buy the company. Standard Chartered was higher after company said first half profits rose 28%.
Germany's DAX index was up 10.68 points, or 0.22%, to 4,837.86 as Eurozone July retail PMI jumped to 51.0 from 49.1, well above expectations. Bilfinger Berger was higher after UBS raised the share-price forecast by 13% to 51 euros. Degussa lower as second-quarter earnings fell 5.9%.
In Paris, the CAC 40 index gained 19.31 points, or 0.44%, to 4,441.01 on short covering. Archos was higher after reporting a 52% hike in second-quarter sales. Sanofi-Aventis rose on report preliminary human tests showed experimental vaccine is effective against a bird flu seen capable of starting global outbreak of the disease.
Asian markets finished higher on Monday. Japan's Nikkei 225 index edged up 12.5 points, or 0.11%, to 11,778.98. Prime Minister Junichiro Koizumi's plan to privatize Japan Post, the world's largest savings institution, was rejected. Late market gains reflected sentiment that the failure of this plan to pass had been priced in last week, when stocks tumbled, reports Standard & Poor's MarketScope.
In Hong Kong, the Hang Seng index rose 57.62 points, or 0.38%, to 15,108.94 led by blue chips. Market gains were limited by expectations that local banks will raise lending rates after an anticipated 25 basis point hike in the U.S. federal funds rate by the Federal Reserve on Tuesday.