By Carlos Guillen
Equity markets are taking somewhat of a breather if you will, after a very exciting week of trading activity that was driven by earnings releases from industry giants such as Intel (NASDAQ:INTC), Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), and General Electric (NYSE:GE), but most of all at the center of all the attention was Fed Chairman Ben Bernanke who spoke in front of congress for two straight days.
Today has been a light day in terms of economic data, but earnings results from Google and Microsoft threatened to sink stocks today after they both delivered financial results that did not meet the Street's expectations. As it stands, Microsoft is down close to 11 percent, representing sharpest decliner among Dow components. As we all have been fearing, sluggish personal-computer demand and a slow start in the tablet market have continued to hurt Microsoft's business. Google is also down but has been recovering some ground after being down close to 4 percent earlier in the session, after the company missed on the bottom line as a decline in price paid for clicks on search ads weighed on its earnings.
On the other side of the world, the People's Bank of China has made a move that is also helping stocks from sinking today. In an effort to spur growth and give banks more freedom to set borrowing costs, the People's Bank of China said it will remove the floor on lending rates offered by the nation's financial institutions. The change, effective tomorrow, eliminates a limit set at 30 percent below the current 6 percent benchmark. This move can be seen as a form quantitative easing, and investors are certainly encouraged by it.
Also positive today and helping stocks keep somewhat afloat was news that the U.S.'s Aaa credit-rating outlook was revised to stable from negative by Moody's Investors Service, which said the government's debt trajectory has steadied with budget deficits narrowing. According to the agency, growth in the economy, "while moderate," is proceeding even as the U.S. has enacted tax increases and spending reductions.
As the trading week comes to an end, investors are continuing to decipher the comments made by Fed Chairman Ben Bernanke in front of congress in the past two days. Speaking to the House Financial Services Committee on Wednesday and before the Senate Banking Committee on Thursday, Ben stressed that the central bank's timetable for pulling back on its $85 billion-a-month bond-buying program isn't on a "preset course" and that it could be delayed if the economy weakens. This lifted stocks to new highs and is continuing to keep investors' confidence strong during today's session.
Crude Spread Hits Parity
By David Urani
There's some interesting action in the oil markets of late, and today in particular saw the price spread between international Brent oil and the US's WTI oil whittled down to virtually nothing. In fact, WTI briefly went above Brent for the first time since mid-2010. Of course, the wide spread between the two before today was a consequence of the US shale boom which lowered the price of US oil. In February this year, the spread was as much as $20.
Some of the increase in WTI oil of late may be the result of a supply glut at the Cushing, OK hub being alleviated by the improving network of pipeline and rail. In the meantime, rocky economic conditions in Europe are serving to hold Brent down to an extent.
This effect, if sustained, is likely to change the dynamics of the oil industry somewhat, particularly in the transportation of crude.
US Rails have seen extra demand because of that Brent/WTI spread; some refiners who normally would have been using Brent from the Gulf switched to WTI which is being transported by rail from the North. Take for instance CSX (NYSE:CSX), who on Tuesday continued to see demand from just that, with new shipments from the shale to east coast refiners leading to an 11% increase in its chemicals shipments. With the two prices now back to parity one may expect some of that demand to return back to Brent and take some of the load off of rails.
Oil tanker operator Frontline (NYSE:FRO) also caught an interesting upgrade this morning from Global Hunter. FRO ships oil from the Middle East over to Asia, the US and other regions. With Brent oil now priced the same as WTI, that Brent oil can see improved demand, and in particular those abovementioned US east coast refiners may restart some of their purchases of international oil.