Rising rates trump all else this morning as Wall Street braces for a downhill slide on the opening. European markets are broadly lower, continuing their downtrend after the European Central Bank raised interest rates by a quarter point to 4%, as expected. Chinese stocks closed higher and Asia's other markets were mixed.
CNBC Europe this morning reports that Morgan Stanley is warning of a coming selloff in European equities, predicting a 14% correction in the MSCI index of 600 European and British stocks over the next six months.
Stocks yesterday took a beating as traders watched interest rates creep toward 5%. Fed Chairman Ben Bernanke's early morning comments about a continuing slump in the housing market didn't help, nor did his vow to continue fighting inflation, a sign to some traders that there will be no rate cuts anytime soon.
The Dow lost 80, after dipping as much as 125. This was the first drop in three days for the index. The S&P ended its six day winning streak and fell eight points. The Nasdaq was off seven points, its first down day in seven.
The 10-year fell 12/32 point, lifting its yield to 4.976%, its highest level since Aug. 14, 2006. The dollar fell 0.2% against the euro to $1.3519 dollars per euro. This morning the dollar's move is mixed, with a slight edge up against the euro and a weakening versus the yen.
"Sometimes any excuse will do to give the markets a dose of reality, and no market can up as much as stocks have without taking a breather," says our Rick Santelli, who follows the futures markets from Chicago.
Santelli tells a story of three markets yesterday when you see how the stock, bond and currency markets moved.
"Bernanke did not change his view, though the stock market took his comments to mean that there will be no rate cut coming any time soon. Foreign exchange investors heard him say there will be no action of any type, and traders in that market have been building positions as if there was a period of Fed tightening coming because of their preoccupation with inflation. So they heard "no Fed action" and they sold the dollar," he said.
"Credit market traders didn't hear anything new or different, and they continued to sell Treasurys, pushing rates incrementally higher, which has been the pattern for many months now. The one difference is the two-year and the ten-year almost touched 5% which put interest rates in the middle of everybody's radar screen and got the attention of stock traders."
Up and Down Wall Street
TD Ameritrade is in play today. Two hedge funds who own 8.4% of the company are seeking to increase their position and say the firm should merge. The funds SAC and Jana say they are going to increase their stakes.
Prudential's name as a stock research and trading firm will soon disappear. Prudential Financial today said it will shut down its research and stock-trading business globally.
President Bush today says that Russia does not pose a threat to Europe despite Russian President Putin's vow to aim missiles at Europe if the U.S. proceeds with its plan for an anti missile shield. Our Trish Regan is in Germany, covering G8 where the faceoff between the U.S. and Europe about climate change will share the stage with the icy exchanges between Putin and Bush. As usual at the event, protesters surround the gathering.
Over a Barrel
Oil is slightly weaker today after slipping 60 cents yesterday to $65.61. The market is focused on inventory data though traders continue to talk about the cyclone in the Persian Gulf. The Wall Street Journal reports today that OPEC's new secretary general said oil producers may have to lure in more foreign investment to meet world oil needs. He said OPEC countries, controlling 40% of world petroleum demand, must invest as much as $500 billion by 2020 and they will have to get some of that money from sources such as Western oil majors. This comes at a time when Western oil companies have not found their ventures around the world met with open arms. Abdalla El-Badri was also quoted by the Financial Times today as saying Western countries set on cutting back on oil reliance with biofuels risk sending the price of oil "through the roof."
Around the World
The United Nations says Iraq violence has forced more than four million Iraqis from their homes and the crisis will likely worsen.