Investing.com Weekly Wrap-Up 05 June 2015

June 5th, 2015
in contributors, syndication, forex

U.S. stocks mixed, as strong jobs data support 2015 rate hike

by Investing.com Staff, Investing.com

U.S. stocks were mixed on Friday, as optimistic U.S. jobs data sent strong indications that the Federal Reserve could lift interest rates at some point this year.

The U.S. Bureau of Labor Statistics said on Friday morning that non-farm payrolls for the month of May soared by 280,000, far exceeding analysts' low end of forecasts for a 220,000 gain. Private payrolls increased by 262,000 in May, as professional business services added 63,000 positions on the month. The labor market also added 17,000 construction position, following a significant gain of 35,000 a month earlier.

Follow up:

Stocks on the Dow Jones Industrial Average and the S&P 500 Composite index fell mildly during a choppy session, while the NASDAQ Composite index inched up bolstered by gains in the energy industry. Energy stock gained more than 0.75% on the session after OPEC decided to lower its production ceiling below 30 million barrels per day at a meeting in Vienna.

The Dow lost 56.12 or 0.31%, to close at 17,849.46, finishing down for the week. The NASDAQ, meanwhile, gained 9.33 or 0.18% to 5,068.46.

The S&P 500 lost 3.01 or 0.14% to 2,092.83, as six of 10 sectors closed in the red. Stocks in the Telecommunications and Utilities sectors lagged, each closing down by more than 1.25% while stocks in the Energy and Financials sectors led.

The top performer on the Dow was JPMorgan Chase & Co (NYSE:JPM), which gained 1.09 or 1.64% to 67.42. The worst performer was Verizon Communications Inc (NYSE:VZ), which fell 0.87 or 1.81% to 47.23.

The biggest gainer on the NASDAQ was Regeneron Pharmaceuticals Inc (NASDAQ:REGN), which rose 20.42 or 3.94% to 539.04 after the U.S. Food and Drug Administration said its experimental drug aimed at lowering LDL cholesterol was generally well-accepted. The worst performer was VimpelCom (NASDAQ:VIP), which fell 0.39 or 6.53% to 5.58. VIP finished just ahead of Vodafone (NASDAQ:VOD) Group PLC (LONDON:VOD), which lost 0.66 or 1.75% to 37.05.

Regeneron was also the top performer on the S&P 500, ahead of Zions Bancorporation (NASDAQ:ZION), which gained 1.62 or 3.44% to 31.85 days after announcing a comprehensive corporate restructuring plan earlier this week. The worst performer wasAltria Group (NYSE:MO), which dropped 1.67 or 3.35% to 48.21.

Forex

The euro fell sharply against the dollar on Friday extending losses from the previous session, as positive U.S. jobs data reinforced the notion that the Federal Reserve could institute its first interest rate hike in nearly a decade at some point this year.

EUR/USD plunged 0.0123 or 1.10% to 1.1115, capping a choppy week for the currency pair. For the week, the euro edged up 1.45% after opening on Monday below 1.10. The pair traded between a low of 1.1050 and a peak of 1.1280 on Friday.

EUR/USD likely gained support at 1.0913, the low from June 1 and was met with resistance at 1.1328 the high from May 19.

The pair moved lower in U.S. morning trading after the U.S. Bureau of Labor Statistics released better than expected job figures for the month of May. Last month, U.S. non-farm payrolls soared by 280,000, far exceeding analysts' low end of forecasts for a 220,000 gain. Private payrolls increased by 262,000 in May, as professional business services added 63,000 positions on the month. The labor market also added 17,000 construction position, following a significant gain of 35,000 a month earlier.

More importantly, average hourly wages surged by 0.3% on a month-to-month basis up from a 0.1% increase in April. The Fed would like to see robust wage growth and inflation move toward its targeted goal of 2% before it institutes its first interest rate hike in nearly a decade. While the economy grew at a tepid pace over the last several months, Hawkish members of the Fed argued that temporary drags such as severe winter weather and a West Coast port labor dispute disproportionately restrained growth. The Labor Department also upwardly revised jobs figures for the previous two months further underscoring the Hawkish viewpoints.

While the unemployment rate inched up to 5.5% in May, the Labor Force Participation rate also moved higher last month, increasing 0.1% to 62.9%.

The figures pushed yields on U.S. 10-Year Treasuries up more than 10 basis points to 2.409%, its highest level in six months. Bond prices fall when yields rise. High yields are also a sign of improving growth in the economy.

Yields on German 10-Yea bonds, meanwhile, inched down one basis point to 0.84% as the spread between U.S. and German 10-year sovereign debt increased to more than 157 basis points.

Elsewhere, the two sides in the Greek Debt negotiations failed to reached an agreement on Friday. Earlier this week, France president Francois Hollande said Greece and its international creditors appeared to be hours from reaching a deal on agreement that could unlock critical aid to the beleaguered nation. Greece prime minister Alexis Tsipras, though, may have rankled creditors on Thursday by bundling four separate obligations to the IMF into one repayment at the end of this month. In doing so, Greece delayed repayment of a €300 million payment due on Friday.

In a defiant speech to Parliament, Tsipras urged European leaders to withdraw a proposal Greece viewed as unrealistic.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained 0.93% to 96.38.

CTFC Commitment of Traders

This week speculators were less bearish on the S&P 500, while becoming more bearish on the yen.

cot.2015.june.03

Gold

Gold futures ticked down on Friday extending losses from earlier this week, as optimistic U.S. jobs data increased the possibility that the Federal Reserve could raise interest rates sooner than previously expected.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery fell 7.00 or 0.60% to 1,168.20 a troy ounce. Gold futures plummeted to a monthly-low of 1,162.20 before rising slightly on a choppy day of trading. At one point, gold hit a session-high of 1,178.00.

Gold prices plunged early on Friday morning after the U.S. Bureau of Labor Statistics released better than expected job figures for the month of May. Last month, U.S. non-farm payrolls soared by 280,000, far exceeding analysts' low end of forecasts for a 220,000 gain. Private payrolls increased by 262,000 in May, as professional business services added 63,000 positions on the month. The labor market also added 17,000 construction position, following a significant gain of 35,000 a month earlier.

More importantly, average hourly wages surged by 0.3% on a month-to-month basis up from a 0.1% increase in April. The Fed would like to see robust wage growth and inflation move toward its targeted goal of 2% before it institutes its first interest rate hike in nearly a decade. While the economy grew at a tepid pace over the last several months, Hawkish members of the Fed argued that temporary drags such as severe winter weather and a West Coast port labor dispute disproportionately restrained growth. The Labor Department also upwardly revised jobs figures for the previous two months further underscoring the Hawkish viewpoints.

While the unemployment rate inched up to 5.5% in May, the Labor Force Participation rate also moved higher last month, increasing 0.1% to 62.9%.

The Fed's decision to tighten monetary policy is viewed as bearish for gold. The precious metal is not attached to dividends or interest rates and struggles to compete with high-yield bearing assets in periods of rising rates.

Separately, Federal Reserve of New York president William Dudley reiterated on Friday that the Fed will likely raise rates at some point this year. It is widely expected that the Fed could wait until September before raising its benchmark Fed Funds Rate, though it has not ruled out lift-off in June. On Thursday, the International Monetary Fund suggested that the Fed should wait until the first half of 2016 for lift-off unless the U.S. economy improves dramatically over the next several months.

As expected, the two sides in the Greek Debt negotiations failed to reached an agreement on Friday. Earlier this week, France president Francois Hollande said Greece and its international creditors appeared to be hours from reaching a deal on agreement that could unlock critical aid to the beleaguered nation. Greece prime minister Alexis Tsipras, though, may have rankled creditors on Thursday by bundling four separate obligations to the IMF into one repayment at the end of this month. In doing so, Greece delayed repayment of a EUR 300 million payment due on Friday.

In a defiant speech to Parliament, Tsipras urged European leaders to withdraw a proposal Greece viewed as unrealistic.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose 0.86% to 96.32.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for July delivery fell 0.0106 or 0.66% to 15.995 an ounce.

Copper for July delivery gained 0.02 or 0.06% to 2.689 a pound.

Oil

Crude futures rose steadily on Friday, halting a midweek slump as OPEC expectedly kept production levels unchanged from their current level at approximately 30 million barrels per day.

On the New York Mercantile Exchange, WTI crude for July delivery gained 1.12 or 1.94% to 59.12 a barrel ending a two-session losing streak. U.S. crude futures plunged roughly 5% over the previous two session in advance of Friday's meeting in Vienna.

Texas Long Sweet futures plunged more than 1% ahead of Friday's announcement to a daily-low of $56.86, before reversing course after the world's largest oil cartel decided to keep production levels steady for the second time in six months.

While crude prices are down dramatically from their peak of $115 last summer, they are still up more than 10% from touching down to a 52-week low of $45 a barrel in January. At Friday's meeting Iran oil minister, Bijan Namdar Zanganeh indicated that he expects crude prices to reach $75 by year's end.

Although the majority of OPEC's smaller nations have advocated for a slash in production output to boost prices, they have been overruled by Saudi Arabia which is looking to undercut U.S. shale producers by depressing prices.

"The reality now is that we cannot have this $100 (a barrel) anymore. This is a fact. We have less value for our barrels," OPEC secretary general Abdalla Salem el-Badri said at a Friday news conference.

A content Saudi Arabian oil minister Ali al-Naimi told reporters afterward that he was surprised by how amicably the meeting went.

On the Intercontinental Exchange (ICE), brent crude for July delivery rose 1.32 or 2.14% to 63.35 a barrel, ending a two-session skid. Brent futures also fell before the meeting dropping below $61 before rallying later in the session. The spread between the international and U.S. benchmarks for crude stood at 4.23, slightly above Thursday's level.

Iran, which could release a glut of crude into the global markets over the next several months if longstanding economic sanctions are lifted by Western powers, announced Friday that it is currently producing approximately 3 million bpd. In a span of only five years, Iran is optimistic it can double output to a level of 6 million bpd by 2020.

An outflow of Iranian oil into the global markets is considered to be bearish for crude prices, which have been tamped down by a glut of oversupply in recent months.

In the U.S., oil services firm Baker Hughes (NYSE:BHI) said that the number of oil rigs nationwide fell last week by four to 642, the lowest level since August, 2010. It marked the 26th consecutive week of weekly rig declines. Though U.S. shale producers have been forced to slash drilling due to the lower price of crude, they have responded by keeping their more efficient rigs online.

The U.S. Dollar Index, which measures the strength of the greenback versus six other major currencies, surged 0.86% to 96.32 amid strong U.S. jobs data.

Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.

Natural Gas (Thursday Report)

Natural gas futures plunged sharply to hit a five-week low on Thursday, after data showed that U.S. natural gas supplies rose more than expected last week.

On the New York Mercantile Exchange, natural gas for delivery in July slumped 4.6 cents, or 1.75%, to trade at $2.588 per million British thermal units during U.S. morning hours, the weakest level since April 30. Prices were at around $2.617 prior to the release of the supply data.

A day earlier, natural gas futures tumbled 6.4 cents, or 2.37%, to close at $2.634 as forecasts for mild weather across the U.S. through mid-June dampened near-term demand expectations for the fuel.

Futures were likely to find support at $2.599 per million British thermal units, the low from June 2, and resistance at $2.845, the high from May 28.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended May 29 rose by 132 billion cubic feet, above expectations for an increase of 121 billion and following a build of 112 billion cubic feet in the preceding week.

Supplies rose by 118 billion cubic feet in the same week last year, while the five-year average change is an increase of 92 billion cubic feet.

Total U.S. natural gas storage stood at 2.233 trillion cubic feet as of last week. Stocks were 751 billion cubic feet higher than last year at this time and 22 billion cubic feet above the five-year average of 2.211 trillion cubic feet for this time of year.

Meanwhile, weather forecasting models called for mostly normal temperatures across the U.S. through mid-June, suggesting little demand for the fuel and paving the way for additional hefty inventory builds in the weeks ahead.

Spring usually sees the weakest demand for natural gas in the U.S, as the absence of extreme temperatures curbs demand for heating and air conditioning.

 









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