NEWS | Wednesday, 18 June 2008

Sceptre of higher energy prices overshadows trading in US, Europe

Stocks declined yesterday as investors reviewed worrisome data that underscored the drag of higher energy prices on the economy.
In volatile trading, crude oil at times rose above US$134 a barrel on the New York Mercantile Exchange, renewing unease about energy. Investors have been worried that rising energy prices, which affect almost all other costs, are going to prove too much for already strapped US consumers.
The day’s economic data were troubling to Wall Street. The Labour Department said its index of producer prices shot up 1.4 per cent in May, the largest jump since November, indicating that companies are having to swallow large cost increases.
The core producer price index, which strips out food and energy prices, rose by a mild 0.2 per cent. Still, the big concern on Wall Street is that companies may be forced to pass their rising costs on to customers.
Government figures released last week showed consumer prices rising slightly more than expected last month due, in part, to spiking energy prices.
Also yesterday, the Commerce Department reported a 3.3 per cent decline in May home construction and a 1.3 per cent dip in building permits -- signs of persistent weakness in the struggling housing market.
Subodh Kumar, global investment strategist at Subodh Kumar and Associates in Toronto, said inflation concerns were weighing on stocks right now as investors try to readjust their models to factor in the effects of energy prices sustaining high levels. The price of oil, for example, has doubled in the past year.
‘’The market and bonds are recalibrating themselves lower because of inflation. I think what you’re seeing is more trading activity but more discrimination in terms of quality in the company level,” he said.
In late morning trading in the US, the Dow Jones industrial average fell 59.60, or 0.49 per cent, to 12,209.48.
Broader stock indicators declined. The Standard and Poor’s 500 index fell 3.41, or 0.25 per cent, to 1,356.73, while the Nasdaq composite index fell 5.34, or 0.22 per cent, to 2,469.44.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.21 per cent from 4.27 per cent late Monday. The dollar was mixed against other major currencies, while gold prices rose.
In recent trading, light, sweet crude fell 81 cents to US$133.80 on the New York Mercantile Exchange.
Declining issues narrowly outnumbered advancers on the New York Stock Exchange, where volume came to 397.5 million shares.
The Russell 2000 index of smaller companies fell 2.55, or 0.34 per cent, to 738.19.
Overseas, Japan’s Nikkei stock average fell 0.04 per cent. Britain’s FTSE 100 rose 1.79 per cent, Germany’s DAX index advanced 1.30 per cent, and France’s CAC-40 rose 0.61 per cent.