Whipsawed by fresh worries on the financial sector, Wall Street enters the summer season with investors in a sour mood ahead of a meeting of increasingly hawkish US Federal Reserve policymakers.
Market jitters have risen amid high oil prices, troubles in the banking sector and the prospect of higher interest rates despite soft economic conditions. Auto sector troubles also have intensified.
In the week to Friday, the blue-chip Dow Jones Industrial Average skidded 3.77 percent to end at 11,842.69, closing below 12,000 for the first time since March.
The Standard & Poor’s 500 broad-market slumped 3.10 percent to 1,317.93 and the tech-heavy NASDAQ composite fell 1.97 percent on the week to 2,406.09.
Sentiment faces yet another test in the coming week, when the US Federal Open Market Committee (FOMC) headed by Federal Reserve Chairman Ben Bernanke is expected to signal a tougher position on inflation that could eventually mean higher interest rates.
“All eyes will be on the FOMC which is slated to announce its latest policy decision on Wednesday,” said Meny Grauman, economist at CIBC World Markets. “The markets seem convinced that the Fed will hold rates at 2 percent, but there is considerably more uncertainty about whether the Fed will signal a tightening bias.”
The Fed’s shift in tone has been closely watched by analysts. After slashing rates by 3.25 points over the past few months in an effort reignite growth, the Fed has signaled that it is unlikely to cut rates further and may boost rates if inflation gets out of hand.
“The Fed is approaching a danger point, in our opinion,” said Ethan Harris, senior economist at Lehman Brothers. “It is very unusual for it to contemplate hiking rates when the unemployment rate is steadily moving above its inflation-neutral level.”
Market troubles over the past week were fueled by growing worries about the banking sector. Citigroup’s warning of more writedowns from real-estate losses and a need for fresh capital from regional bank Fifth Third fueled fears about the sector.
“Each day the Street is seeing similar news — such as higher energy costs, financial losses, worries of inflation, and continuing housing slumps. The bleak news is keeping investors from stepping into the market,” said Colleen King at Schaeffer’s Investment Research.
Gerard Cassidy at RBC Capital Markets said bank stocks are headed for a brief rebound from their troubles as they recognize losses from real-estate investments.
“Though we expect the bank stocks to rally as much as 20 percent into second-quarter earnings announcements, we believe the fundamental trend is still bearish for banks stocks,” he said. “Credit problems are expected to deteriorate over the next 12 months, which should drive stock prices lower in the second half of this year, in our opinion.”
A Chinese freighter that allegedly snapped an undersea cable linking Taiwan proper to Penghu County is suspected of being owned by a Chinese state-run company and had docked at the ports of Kaohsiung and Keelung for three months using different names. On Tuesday last week, the Togo-flagged freighter Hong Tai 58 (宏泰58號) and its Chinese crew were detained after the Taipei-Penghu No. 3 submarine cable was severed. When the Coast Guard Administration (CGA) first attempted to detain the ship on grounds of possible sabotage, its crew said the ship’s name was Hong Tai 168, although the Automatic Identification System (AIS)
An Akizuki-class destroyer last month made the first-ever solo transit of a Japan Maritime Self-Defense Force ship through the Taiwan Strait, Japanese government officials with knowledge of the matter said yesterday. The JS Akizuki carried out a north-to-south transit through the Taiwan Strait on Feb. 5 as it sailed to the South China Sea to participate in a joint exercise with US, Australian and Philippine forces that day. The Japanese destroyer JS Sazanami in September last year made the Japan Maritime Self-Defense Force’s first-ever transit through the Taiwan Strait, but it was joined by vessels from New Zealand and Australia,
CHANGE OF MIND: The Chinese crew at first showed a willingness to cooperate, but later regretted that when the ship arrived at the port and refused to enter Togolese Republic-registered Chinese freighter Hong Tai (宏泰號) and its crew have been detained on suspicion of deliberately damaging a submarine cable connecting Taiwan proper and Penghu County, the Coast Guard Administration said in a statement yesterday. The case would be subject to a “national security-level investigation” by the Tainan District Prosecutors’ Office, it added. The administration said that it had been monitoring the ship since 7:10pm on Saturday when it appeared to be loitering in waters about 6 nautical miles (11km) northwest of Tainan’s Chiang Chun Fishing Port, adding that the ship’s location was about 0.5 nautical miles north of the No.
SECURITY: The purpose for giving Hong Kong and Macau residents more lenient paths to permanent residency no longer applies due to China’s policies, a source said The government is considering removing an optional path to citizenship for residents from Hong Kong and Macau, and lengthening the terms for permanent residence eligibility, a source said yesterday. In a bid to prevent the Chinese Communist Party (CCP) from infiltrating Taiwan through immigration from Hong Kong and Macau, the government could amend immigration laws for residents of the territories who currently receive preferential treatment, an official familiar with the matter speaking on condition of anonymity said. The move was part of “national security-related legislative reform,” they added. Under the amendments, arrivals from the Chinese territories would have to reside in Taiwan for
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