Business News

Stocks slip on oil

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by Peter Switzer

Those who dismiss the Libyan impact on oil prices and shares got it wrong today with the Dow Jones index down over 160 points and the broader S&P 500 index dropping over 1.5 per cent.

And our market is bound to have a challenging day at the office.

The day actually started positive on Wall Street but once the Fed Chairman started talking the bleeding obvious about oil prices and how they could hurt the US recovery if they remain high, the market went into reverse.

Oil price spike

Middle East and North African people protests have oil prices hovering around the US$100 a barrel level and the market doesn’t like it. This price spike has two big negative impacts — it raises costs and hurts demand both of which will not help economic growth.

This is critical in the US for jobs, profits and then share prices. That is why Wall Street is down today.

Things are not being helped by protests in Iran and false rumours that Saudi Arabia sent tanks to Bahrain to settle down protestors.

And you wonder why share players are a bit skittish today.

Not surprisingly, gold rose to a record high above US$1431 per ounce and why wouldn’t it with so much uncertainty.

Financials were also weaker because of suggestions that their legal bills could run into the many billions over their roles on failed loans and foreclosures.

The US recovery

Against this, the US recovery rolls on surprising to the high side.

The Institute for Supply Manufacturer's Index rose to the highest level in seven years at 61.4 in February, which was slightly more than expected. In addition both employment and price action was up as well, which is consistent with the view that while there has been a lot of money supply boosting via QE II, at least there has been some bang for the many bucks put out there into the US economy.

Against this good news, construction spending fell to the lowest level in five months, which shows that turning around this big US economy is no walk in the park and it shows why the Fed Chairman will not be raising interest rates soon, despite talk of inflation starting to kick in.

Jobs report

It certainly will but Bernanke won’t raise rates until he sees convincing jobs growth, and the next employment show and tell comes out on Friday, US-time.

Economists’ computer models are tipping 200,000 jobs were created in February and that would be a lot better than the 36,000 that showed up in the month before data!

This could be a big market mover number and so will what goes on in those countries where oil is pumped and people are p’d off big time.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, March 02, 2011