Oil jitters could spell trouble for Wall Street

Trade gap expected to grow; clarity sought on Fed's plan for interest rates
by Christopher Wang
Associated Press

With the latest batch of economic numbers doing little to dispel investors' uncertainty about the economy, turbulence in the energy market could make Wall Street's ride bumpier this week.

Investors have been poring over recent data for clues about the economy's health and whether the Federal Reserve might lift interest rates again at its June 28 29 meeting. Although last week's reports showed signs of a slowing economy, Wall Street still seemed unsure about inflation and the prospect of higher lending rates.

This week offers even less help on the economic front. An unexpected slowdown in the service sector could calm fears of accelerating growth; continued gains in weekly unemployment claims-evidence of a weakening job market-could further settle those worries. Other reports on import and export prices and the trade deficit are expected to have a minor effect on stocks and bonds. Instead, Wall Street might turn its focus to the volatile energy market. Crude futures wobbled last week before climbing to $72.33 a barrel Friday, fed by concerns that tension over Iran's nuclear arms program and political unrest in Nigeria could lead to a supply cutoff from two of the world's biggest petroleum suppliers.

And forecasters' recent warnings of another active hurricane season this summer were an eerie reminder of the devastation to Gulf Coast refineries caused by hurricanes Katrina and Rita last year. Oil prices already sit near the $75 per barrel record reached at the height of those storms; although most consumers seem to be handling the price jump well, fears linger that, at some point, they may indeed start curtailing their spending.

Wall Street will ultimately continue drifting until the Fed gives a definitive stance on the economy, inflation and its rate tightening, analysts say. But the market faces a number of hurdles along the way-and may have to recover from the occasional tumble.

"I don't think the Fed is going to be crystal clear," Jeff Kleintop, chief investment strategist of PNC Financial Services Group, said of the central bank's policy statement at its next meeting. "I'm looking more toward the end of summer or fall before the market pulls itself up and tries to make a new high on the Dow Jones industrial average."

Stocks seesawed before finishing the week barely changed. For the week, the Dow lost 0.27 percent, while the Standard & Poor's 500 index added 0.63 percent and the Nasdaq composite index rose 0.41 percent.

Economic Data

The week starts with the Institute for Supply Management's May services index Monday morning. Growth in the service sector is expected to retreat to 60.1 from a reading of 63 in April; any number above 50 implies expansion.

Wall Street on Thursday will be looking to the Labor Department's data on first time unemployment claims for a reading of the job market's health. The number of claims has steadily risen over the past few months; a weakening job market could build on beliefs that interest rates have risen enough to slow the economy.

On Friday, the Commerce Department's report showing the monthly change in prices for imported and exported goods could add to the inflation outlook as investors assess how much Americans were paying for foreign made products. In April, export prices rose 0.7 percent, while import prices were flat. Also Friday, the department posts the nation's trade deficit for April. The trade gap is forecast to grow to $65 billion after an unexpected drop to $62 billion the month before. The amount of goods moving in and out of the United States will provide clues about global demand.

Earnings

Tax preparation service H&R Block Inc. posts its results Wednesday afternoon. The company's earnings are expected to dip slightly to $1.80 per share from $1.83 per share the year before. H&R Block's shares have wobbled so far this year, and are up 11.3 percent from a 52 week low of $20.63 in March to finish Friday at $22.96.

Smithfield Foods Inc., the world's biggest pork processor, releases its earnings before the opening bell Thursday. Smithfield shares have fluctuated in 2006 amid sliding meat prices and concerns about mad cow disease, tumbling 9.4 percent to close Friday at $27.74. The company's profit is forecast to plunge to 7 cents per share from 73 cents a year ago.

During Thursday's session, National Semiconductor Corp. reports its quarterly profit, projected to grow to 38 cents per share from 25 cents last year. The chipmaker has been hammered by a recent steep pullback in the technology sector; its stock ended Friday at $26.34, down 14.2 percent from a 52 week high of $30.70 from early May.

Events

As investors continue their pursuit for clarity on the Fed's plan for interest rates, remarks by several central bank officials this week could give the market some guidance. Fed Chairman Ben Bernanke speaks in Washington Monday; appearances by Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, Jack Guynn, president and chief executive of the Federal Reserve Bank of Atlanta and former Fed Chairman Alan Greenspan are expected to be closely monitored.