The Evening Wrap: Hitting a Slick
Dow Jones Newswires</br></br>As oil flirted with $100 and credit markets continued to roil, stock indexes tumbled -- and tongues wagged.</br></br>Crude-oil futures stayed below the century mark today, settling 33 cents lower at $96.37. But they drove above $98 earlier in the day after a weekly government report on oil inventories showed a decline, albeit a smaller one than expected. U.S. inventories fell by 800,000 barrels; analysts surveyed by had expected a number about twice as large. In recent months, oil futures had approached and then vaulted over $90, making a march on $100 oil look inexorable. U.S. stocks plummeted on crude's gains today, although equities had often shrugged off recent crude rallies. The Dow fell 360.92 points, or 2.6%, to 13300.02, and the Nasdaq and S&P 500 fell even more on a percentage basis, losing 2.7% and 2.9%, respectively. European markets closed mostly lower, while Asian indexes were mixed. Bonds rallied. More rumblings in the credit markets also contributed to equities' slide: Moody's downgraded about $36 billion in debt securities held in so- called structured investment vehicles, and analysts at Royal Bank of Scotland Group said banks and brokers could face as much as $100 billion in write-downs on various exotic, illiquid holdings. Adding to the angst was the U.S. dollar. The greenback continued its downward spiral -- first on bearish remarks from a Chinese political official, and then on pressure from crude prices and the expectation that U.S. interest rates would stay below rates elsewhere. The euro peaked earlier at $1.4731. The British pound hit $2.1070, the first time it has broken $2.10 since 1981.</br></br>Stock indexes weren't alone in reacting to the oily mess. "Energy prices are entirely too high, and really affecting small businesses and families all across America, not to mention our economy," White House spokeswoman Dana Perino said Wednesday. Ms. Perino also said the Bush administration hoped lawmakers would soon move a bill that aims to cut U.S. dependence on foreign oil and boost domestic energy sources. Meanwhile, Fed governor Kevin Warsh said that oil and commodity prices were likely to put upward pressure on overall inflation in the short term. "There are...important reasons to be concerned about the outlook for inflation," he said today in an address to the New York Association for Business Economics. "Although recent readings on core inflation have been favorable, prices of crude oil and other commodities have increased. These changes most likely will put upward pressure on overall inflation in the short run." Mr. Warsh also said the weakening dollar could lead to higher prices for imported goods. "If these same forces cause inflation expectations to become less reliably anchored, then inflation could increase in the longer run as well." Separately, St. Louis Fed President William Poole warned today in a speech that "excessive" rate reductions would run the risk of fanning inflation and spurring market volatility. Since the summer, the Fed already has cut short-term interest rates twice as an antidote to the ills of the housing slump and the credit crunch. But the Fed last week released a policy statement that appeared to close the door on further cuts in the near future even as the economy appears to be downshifting.</br></br>---