Equity markets tried to overcome the weight of an interest rate increase in China, elevated oil prices, concerns about Japan’s nuclear crisis and another downgrade of Portugal’s credit rating. þþJapan’s benchmark Nikkei 225 index began the day by dropping 1.1 percent, amid frantic and unsuccessful efforts to control a radioactive leak at a nuclear plant damaged by the earthquake and tsunami on March 11. þþThe other big source of geopolitical tension, the conflict in Libya, kept oil prices high. The apparent stalemate in Libya, a country that accounts for about 2 percent of daily oil production, pushed the price of crude to $108.47 a barrel in New York on Monday. Prices fell 47 cents a barrel at $108 a barrel on Tuesday. þþHigh energy prices are making investors cautious about stock markets, particularly after the recent rally. þþOn Wall Street by midmorning, indexes had reversed earlier declines. The Dow Jones industrial average was up 11.77 points, or 0.1 percent, while the broader Standard & Poor’s 500-stock index gained 2.30 points, or 0.15 percent. The technology heavy Nasdaq gained 10.40 points, or 0.37 percent. þþIn economic news, the American service sector expanded in March, although growth slowed from February’s pace. The Institute for Supply Management, a private trade group, said Tuesday that its index of service-sector activity dropped to 57.3 last month, from 59.7 in February. That was the first decline in seven months. Still, any reading above 50 indicates expansion. þþNational Semiconductor jumped 71 percent after Texas Instruments said late Monday that it had agreed to buy the chip maker for $6.5 billion, or $25 a share. Texas Instrument shares were down less than 1 percent. þþApple’s shares slipped about 1 percent before recovering after the Nasdaq OMX Group announced that a rebalancing of the Nasdaq 100 next month would reduce Apple’s weighting in the index to 12 percent from 20 percent. That will probably force money managers to reduce their holding to reflect the new index. þþIn London, the FTSE 100 index was down 0.3 percent, and the DAX in Frankfurt dropped 0.5 percent. The CAC 40 in Paris was 0.5 percent lower. þþLater on Tuesday, the Federal Reserve will release the minutes of its last rate-setting meeting. þþWhile Libya and Japan will continue to be of interest the rest of the week, central banks are taking center stage. þþThe Reserve Bank of Australia kicked off a raft of statements this week earlier by keeping its benchmark interest rate unchanged at 4.75 percent, followed soon after by the decision by the People’s Bank of China to raise its benchmark interest rate by a quarter percentage point as it looks to fight inflation. The increase was announced on a Chinese holiday. þþWhile the European Central Bank is widely expected to raise interest rates, there is more uncertainty about what the Bank of England will do, with most economists predicting it will leave borrowing rates unchanged despite a forecast-busting services sector survey. þþThe Bank of Japan also meets this week and investors will be looking to see if it enacts any further policy measures. The central bank has pumped billions of yen into the economy as it tries to keep liquidity flowing through the system in the wake of the disasters. It has received international support to stem the export-sapping appreciation of the yen. þþThe intervention has clearly helped. The dollar was up 0.2 percent on the day at 84.26 yen — substantially higher than the record low of 76.53 yen. þþMeanwhile, the euro, which has gained a lot of ground as traders priced in the growing likelihood that the European Central Bank will tighten policy, was down 0.2 percent at $1.4189 as investors continue to fret about Portugal and whether it will have to get a financial lifeline. The country’s borrowing costs hit fresh euro-era highs Tuesday after Moody’s downgraded its bond rating by a notch to Baa1 and warned that another cut may be in the offing. þþThe Federal Reserve will also be in the spotlight later Tuesday when the minutes to the last rate-setting meeting are published. Investors will be looking to see if there are any signs of the central bank ending its current $600 billion monetary injection before June, and whether interest rates may start to rise sooner than the markets expect. þþIf the minutes do suggest that the Fed is sounding a more hawkish tone, analysts said the dollar could garner some support on views of higher future returns. Stocks may also suffer as higher interest rates tend to weigh on growth. þþRonan Carr, an analyst at Morgan Stanley, said equities will not like it when the monetary stimulus ends. þþ“Combined with the other headwinds we see — peaking leading indicators, margin pressures and inflation’s impact on growth — it suggests to us a more difficult phase ahead for equities,” Mr. Carr said. þþ
Source: NY Times
