Markets Await Fed Decision

Bargain hunters boosted the stock market slightly in morning trading Monday, but uncertainties about jobs data, interest rates, and oil prices kept prices in check.

A few economists predict that dismal jobs data released Friday will prompt the Federal Reserve to leave interest rates unchanged at 1.25 percent at its meeting Tuesday. Most, however, still expect the central bank to hike rates by a quarter point.

Stocks plunged Friday after a report from the Department of Labor revealed that the economy added only 32,000 new jobs in July, sharply lower than the nearly 250,000 that had been predicted. The report also revised the figures for June, setting them even lower than originally announced.

Forecasting the Fed

By law the Federal Reserve has two purposes: to check unemployment and curb inflation. With inflation rising, some economists say the Fed must continue to raise rates.

The jobs data released Friday, however, throws a monkey wrench into the works. Although the central bank is still likely to raise rates Tuesday, the pace of future hikes is expected to slow.

Just a week ago, most analysts predicted that the Fed would raise rates at each of its remaining four meetings in 2004. Many now say that the Fed will avoid raising rates again until after the November 2 Presidential election.

In other news, the government said that wholesale inventories rose just over 1.1 percent in June, a half-point more than expected. The figure suggests strong productivity but also raises concerns that the supply of goods may soon outstrip consumer demand, which has been off this summer.

Oil Prices Still Sky-High

In morning trading, light crude rose four cents to $44.35 a barrel. Friday, the price hit $44.77, the highest since the New York Mercantile Exchange first started trading in oil futures in 1983. Crude hit a record high Friday in London as well.

Prices are up more than 30 percent in 2004 thanks to surging demand — especially in the United States and China — and questions about supply. The world’s oil suppliers are pumping at close to capacity, making the markets sensitive to any news of possible disruptions.

Oil prices rose despite good news from Russia, where the state railway announced that shipments of oil from Yukos would not be disrupted despite its failure to pay shipping fees by an August 10 deadline. Yukos still struggles from the threat of bankruptcy brought on by a huge tax bill from the Russian government. The government pumps about 2 percent of the world oil supply.

Positive news from Russia was offset by concerns about Iraq and Venezuela. Iraq cut exports in half after a pipeline breach, according to Bloomberg news. Venezuela will hold a referendum on the presidency of Hugo Chavez on August 15. In 2002, opponents of the leftist Chavez led a two-month strike that halted oil exports and caused a spike in oil prices. Venezuela is the fifth-largest oil-producer in the world.

Dollar Down

The dollar remained low against the euro and yen Monday. On Friday, U.S. jobs figures sent the dollar plunging to its largest one-day loss since January.

Monday morning the greenback was trading around $1.2265 per euro, about where it was at Friday’s close. The dollar fell a sharp two cents Friday in response to the U.S. job news.

The dollar was down slightly against the yen at 110.40 yen. The dollar is expected to hold its ground against the yen, largely because the continued high price of oil will hurt the Japanese economy, which is heavily dependent on imported oil.