Market Talk

US stock mostly weaker, but a midafternoon bounce take some of the pain away, even as the Libyan revolt continues.

DJIA drops 37 (0.3%) to 12069, S&P 500 eases 1 to 1306, but Nasdaq Comp rises 15 (0.6%) to 2738. After rising over $103/barrel, Nymex crude lately down around $96/barrel, and when crude changed direction, so did everything else. Still, it’s the Dow’s third consecutive losing session, and it’s the biggest three-day decline since August.

Indexes bounced back after the Dow crossed under the 12000 mark; crude also rebounded after some government reports that existing oil stockpiles could absorb the disruption in Libyan oil. Kind of an odd spark for a rally, since we already knew that.

Kind of a weird bounce, at that. Had the feel of one of those technical moves, and the fact that people are attributing it to the stockpiles thing seems odd. It was just stocks and oil, either. I’m looking at a report about Canadian bonds that’s talking about the reversal as well, and another about eurodollar futures. Whatever moved the market moved all the markets.

This is what our colleague Jerry DiColo wrote about oil’s move:

Crude futures retreated sharply from a fresh two-and-a-half year high Thursday, as U.S. and other officials said current oil stockpiles were adequate to meet any supply disruptions.

They’re talking, of course, about any Libyan disruptions. Still, it would’ve been news if the Saudis or the U.S. or anybody said they couldn’t handle any Libyan disruptions. So the move today very likely has more to do about some kind of market dynamic than any fundamental change in the picture.

It took about three months (which is a little longer than we initially expected) but GM shares finally reached another milestone: they breached below their November $33 IPO price.

As you recall, it was one of the most highly anticipated and hyped-up IPOs in years, and got off to a bit of a shaky start as shares flirted with breaking the IPO price throughout its first week of trading. Of course, the underwriters weren’t about to let this thing flop right away, and the stock eventually gained a little momement, carried along by a buoyant mood in the stock market overall.

It hit a high of $39.48 in early January, but it’s been mostly downhill since then, even as the broader market continued higher. The sell-side analysts have (naturally) been unabashedly bullish, with more than 70% calling the stock a buy, or some equivalent rating.

GM made $510 million in its fourth-quarter, and full-year profit of $4.7 billion. Investors don’t appear to be impressed, with the stock currently down 4% at $33.20; earlier as low as $32.05.

Inflation? What inflation? Oh, you mean that inflation.

Even as Fed chairman Ben Bernanke continues to insist that inflation is “quite low,” facts on the ground, as they say, are painting a different picture.

First, there’s gas. Crude oil prices are spiking on the Mideast revolts, and gas prices don’t even reflect this week’s move; that will take a few weeks to filter down to the pump in your town.

Don’t be surprised if prices are about a quarter higher by mid-March. So if the national average is about $3.23 right now, it could be pushing $3.50 soon. That’ll be great fuel for the economy.

But it’s not just gas, it’s food, too. The USDA today said it expects food prices will be 3-4% higher in 2011.  “Rising grain, livestock and energy costs are pressuring food manufacturers, restaurants and supermarkets to pass along higher costs even though postrecession consumers are leery about paying more,” the Journal’s Scott Kilman writes. The government agency said retail ground beef and steak prices were up 9.9% and 9.8% from a year ago, respectively. Retail pork prices were up 9.9%.

Maybe 3-4% doesn’t sound so bad to you. But is your salary going up 3-4% this year? Do you still have a salary?

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Now we’re going to see what happens when a strategy of kicking the can down the road, or two cans, or a hundred cans, runs into a road that’s being blown up.

The level of violence in Libya continues to rise, the level of uncertainty across the Middle East continues to rise, crude oil prices across the globe continue to rise, and people are starting to get nervous out there. The rhetorical questions are becoming less rhetorical and more practical by the day.

On the most basic level, there has been a slight disruption to global oil supplies given the civil war in Libya (and that’s what it is,) one that can easily be made up by other producers, as well as existing stockpiles. That isn’t what’s driving crude-0il futures higher. This is: the thought that the Jasmine Revolution might reach Saudi Arabia. It was wild talk a week ago; it isn’t today. The royal family is taking it seriously: they literally threw $37 billion at their people, in an outright attempt to buy off revolution.

If Saudi oil goes offline, you will see crude prices spike to new records, and then all bets on the global recovery are off. How much “disruption” will it take to tilt Europe? To tilt the United States? This is what everybody’s starting to calculate. Banks in Europe and the U.S. are still carrying tens of billions in loans that could easily go sour if the economies were to fall back into recession.

The response from governments in the U.S. and Europe was the just underwrite everything, prop the system up, and hope that the markets would slowly, almost imperceptibly, work through the bad loans, work off the excesses. The Fed made it clear it’s main goal was to reflate, to inflate.

The Fed may be successful in driving prices higher, in creating inflation, and slam that headlong into a crumbling economy.

East Shore Partners’ Joan McCullough frames it up:

Needs to be said: Those who do not venture outside the metropolitan areas and I can only speak for the NY metropolitan area … have absolutely no clue as to how desperate many Americans are at this moment. Insufficient wages, no jobs, no market for their homes, aggressively higher food costs and now energy is exploding as the Middle East erupts.

My biggest fear right now is that we are on a course where all the negatives converge to a point where even the spinmeisters will be rendered speechless. As the international scene and the national economic underpinnings implode at the same time.

Continue reading…

Surging oil prices have stalled the US stock market’s months-long rally for two days now, and with crude futures parked above $100/barrel, early signs point to equities opening lower again.

Spike in oil continues to fuel concerns that the global economy (and our own delicate recovery in the US) is in for a setback. Weekly jobless claims, January durable goods orders both due at 8:30 a.m. ET; January new-home sales set for 10:00 a.m. Kansas City Fed February manufacturing survey at 11:00 a.m.

GM and Target report earnings results before the open; AIG reports after the close.

S&P futures down 7.20, DJ futures down 52. Ten-year note higher, yield at 3.43%.