Traders eye producer prices, weak Home Deport earnings
Stocks struggle amid inflation worries
Uncertainty about the retail sector also weighed on stocks. Home Depot Inc. said it expects sales to decline up to 5 percent this year as it contends with a slowing housing market.
Stocks had rallied Monday after ratings agency Standard & Poor’s affirmed investment grade “AAA” ratings for bond insurers Ambac Financial Group Inc and MBIA Inc. Market sentiment in recent sessions has been influenced to a large degree by the plight of the insurers who appear undercapitalized and could have trouble paying back bond holders if default levels are too high.
But economic concerns outweighed some of the optimism about the bond insurers Tuesday. The latest wholesale inflation report showed headline producer prices rising by a full 1 percent in January, driven up by higher energy prices and soaring food costs.
The result was a bit below the 1.1 percent advance projected by Thomson/IFR, but core PPI — which excludes food and energy prices — rose 0.4 percent, steeper than the predicted 0.3 percent gain. The data was disconcerting because the Federal Reserve is known to closely monitor core-level inflation in setting monetary policy.
In early trading, the Dow Jones industrial average fell 31.27, or 0.25 percent, to 12,538.95.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 3.72, or 0.27 percent, to 1,368.08, and the Nasdaq composite index fell 2.64, or 0.11 percent, to 2,324.84.
Government bonds rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.90 percent from 3.91 percent late Monday.
The dollar fell against most other major currencies.
Crude oil fell 25 cents to $98.98 a barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies rose 2.63, or 0.37 percent, to 713.09.
Overseas, Japan’s Nikkei stock average closed down 0.65 percent. In afternoon trading, Britain’s FTSE 100 rose 0.72 percent, Germany’s DAX index rose 0.81 percent, and France’s CAC-40 rose 0.20 percent.
The Labor Department said Tuesday that wholesale prices rose 1 percent last month, more than double the 0.4 percent increase that economists had been expecting.
The worse-than-expected performance was certain to capture attention at the Federal Reserve, which has chosen to combat a threatened recession by aggressively cutting interest rates in the belief that weaker economic growth will keep a lid on prices.But the combination of rising inflation and weaker growth raises the threat of “stagflation,” the economic malady that plagued the country through the 1970s, when a series of oil shocks left households battered by the twin problems of stagnant growth and rising prices.
The 1 percent jump in wholesale prices followed a 0.3 percent decline in December and was the biggest one-month increase since a 2.6 percent increase in November. That gain had been driven by sharply higher energy costs.
With the January jump, wholesale prices have risen over the past 12 months by 7.5 percent, the fastest increase since the fall of 1981, when the country was in a deep recession.
The big jump in wholesale prices followed a worse-than-expected increase in consumer prices, which rose by 0.4 percent last month as consumers got hit by higher costs in the same areas of food, energy and health care. The wholesale report said that energy prices jumped 1.5 percent, reflecting a 2.9 percent rise in gasoline and an even bigger 8.5 percent jump in the cost of home heating oil.
Food prices, which have been surging because of increased demand stemming from ethanol production, rose by 1.7 percent last month, the biggest monthly increase in three years. Prices for beef, bakery products and eggs were all up sharply.
Core wholesale inflation, which excludes food and energy, posted a 0.4 percent increase, the biggest increase in 11 months. This gain was led by a 1.5 percent spike in the cost of prescription and non-prescription drugs.
No comments:
Post a Comment