Fed Chairman Ben Bernanke is in the spotlight Tuesday and he could talk tough on inflation.
But it's not likely the Fed chairman will wander far from his recent comments when he speaks to the International Monetary Conference in Barcelona at 9 a.m. via satellite. He is one of several participants on a panel, which includes European Central Bank President Jean-Claude Trichet and Bank of Japan Governor Masaaki Shirakawa. The panel will also take questions.
"A good speaker always knows his or her audience. It is a European one and that should change the tone a little bit and skew it toward international issues," said Miller Tabak's Tony Crescenzi. With "Bernanke being in the company of Trichet, it might make him sound a little more hawkish on inflation than he might otherwise sound."
The market sees the Fed now holding rates steady, but Crescenzi says it is already looking ahead and has priced in a quarter point rate hike in December.
"If there's any surprise (in Bernanke's speech), maybe there's a little bit of leaning toward a hawkish tone that gives a little bit more support to the dollar," he said.
Both Crescenzi and Deutsche Bank's chief U.S. economist Joseph LaVorgna said Bernanke's comments may sound a lot like those made by Atlanta Fed President Dennis Lockhart Monday. Lockhart said he sees a gradual improvement in the economy, but he's not yet ready to "breath easy" because of uncertainty from housing, energy prices and the credit markets.
"I don't think he'll declare we're out of the woods and there aren't risks to the economy because there are. I think it will be relatively balanced and won't stray much from what the last statement said," LaVorgna said. He said Bernanke's comments will be fairly general and may note that the economy has some risks to the downside. He also expects him to acknowledge inflation risks but say that inflation will eventually come down.
Besides Bernanke's speech, there is little economic news Tuesday. Factory orders for April are released at 10 a.m.
But the auto makers report May sales Tuesday, and its clear there will be strong evidence of the shift away from big gas guzzling vehicles. The U.S. automakers are expected to show double digit declines in sales.
General Motors, meanwhile, holds its annual meeting in Wilmington, where it is expected to make news. GM is likely to announce restructuring moves that would emphasize a new product mix, including more fuel efficient vehicles. GM is not expected to pare its dividend as part of the plan, the Wall Street Journal reports.
In other corporate news, Ambac also holds its annual meeting in New York Tuesday and look for earnings from Toll Brothers .
Monday's market focused on negatives right out of the gate, with financials taking a beating on a variety of stories. British mortgage lender Bradford & Bingley said its seeing margins decline and an increase in late payments. It changed plans for a 300 million pound discounted stock issue and said it was selling a 179 million pounds to Texas Pacific Group, worth 23 percent of the firm.
Then Wachovia said its board whacked ceo Ken Thompsonand later in the day, Standard and Poor's cut the ratings of Merrill Lynch, Lehman and Morgan Stanley because of anticipated writedowns and a slowdown in business activity. Not surprising to see the financial sector lose nearly 1.8 percent.
The Dow was off 134, or 1.1 percent to 12,503. The S&P 500 fell 14.71 points to 1385.67.
Andrew Burkly of Brown Brothers Harriman said in a note today that he views this current pull back as a high-level consolidation, not the start of a new downward leg. He said the S&P 500 made a near term peak on May 19 and the consolidation period is just two weeks along.
"While it is impossible to know how long the current choppiness will last, we believe buying this dip will prove to be a winning strategy for investors with a longer term horizon," he wrote. He said stocks within the consumer discretionary and technology groups had only minor setbacks and look ready to move higher. But, he warns, the primary drag on the market continues to be the financials and he would avoid them.
Crescenzi said despite Monday's drama in stocks, with downward pressure on financials, the credit markets did not reinforce the phobia about financials. He said the move was out of sync. "In my major gauges that the world follows - credit swaps, libor, commercial paper, bond issuance - I have nothing," he said.
The dollar held its ground against the euro, gaining 0.11 percent at $1.5539 per euro. Buying in Treasurys pushed the yield on the 10-year lower to 3.971 percent and the two-year was yielding 2.512 percent.
Oil rose $0.41 to $127.76 per barrel. In the middle of the day, oil climbed as traders talked about a web report on Debka that the U.S. was planning to strike Iran. NBC News Pentagon correspondent Jim Miklaszewski reported for CNBC that there are no active plans for air strikes or missile strikes against Iran. According to a senior official, "There's been plenty of rhetoric swirling around ... but militarily speaking, there's nothing."
The EIA reported late Monday that retail gasoline was up 3.9 cents for the week to a record $3.976 per gallon.
Sticky-Fingered Robots Did It?
As in any hot market, market moving data is the hottest of commodities and investors will go out of their way to get it as quickly as possible. It seems the EIA may have been outsmarted by investors who have rigged up "robots" to get at the weekly oil inventory data.
In a press release, the EIA acknowledged that oil inventory data really did hit the market early, ahead of the 10:30 a.m. release time last week. The EIA said the information was available and accessed on the public EIA website before the scheduled release because of a malfunction in the system.
The agency said it will change its release system and also said it plans to block robots that are trying to access the website in a "excessive or malicious" way or trying to download data multiple times per second in a way that hurts access to the data by others.
EIA says it realizes it needs to change its system and it will temporarily release the data at 10:35 a.m. on Wednesdays until it has a new system in place. Meanwhile, Congress is holding hearings Tuesday on energy market manipulation and federal enforcement regimes. The hearing also looks at the impact of rising prices on consumers.
Around the World
In Rome, UN Secretary General Ban Ki-moon will speak about food shortages and ask world leaders to suspend trade restrictions, taxes and other price controls.
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