US consumer prices flat, Bear Stearns flattened

Bloomberg reports that consumer prices in the US -- both overall and core prices -- were unchanged in February, making it easier for the Federal Reserve to make a big cut in interest rates next week.

That would have been expected to boost markets, were it not for yesterday's revelations on Bear Stearns. From Bloomberg:

Bear Stearns Cos., teetering on the brink of collapse from a lack of cash, got emergency funding from the Federal Reserve and JPMorgan Chase & Co. in the largest government bailout of a U.S. securities firm.

After denying earlier this week that access to capital was at risk, Bear Stearns Chief Executive Officer Alan Schwartz said today that the 85-year-old company's cash position had "significantly deteriorated" in the past 24 hours. The central bank agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement today.

That is making a big rate cut from the Fed look a necessity rather than a plus for markets. Bloomberg reports the action in markets yesterday.

Treasuries gained as Bear Stearns Cos. turned to JPMorgan Chase & Co. and the Federal Reserve for a financial rescue, heightening concern global credit market losses will deepen.

Shorter-term notes led the rally, pushing the yield on the two-year note to 1.37 percent, the lowest since July 2003. Traders increased bets that the central bank will cut borrowing costs by as much as 1 percentage point next week...

U.S. stocks plunged for a third day, the dollar sank to the weakest level ever against the euro and to a 12-year low versus the yen, and gold surged to a record $1,009 an ounce. Crude oil for April delivery fell after touching $111 a barrel yesterday, the highest since trading began in 1983.

In contrast, expectations for a rate cut by the European Central Bank receded further yesterday. Again from Bloomberg:

European consumer prices and wages rose more than economists forecast, leaving the European Central Bank with little room to lower interest rates as economic growth slows.

Consumer-price inflation in the euro area accelerated to 3.3 percent in February, the highest in 14 years, the European Union's statistics office in Luxembourg said today. That is faster than a Feb. 29 estimate and the median forecast in Bloomberg News survey of economists. Labor-cost growth quickened in the fourth quarter to the highest since 2006.