Investing.com Weekly Wrap-Up 11 September 2015

September 11th, 2015
in contributors, syndication, forex

U.S. stocks post strongest week in two months, ahead of key Fed meeting

by Investing.com Staff, Investing.com

U.S. stocks ended the week broadly higher on Friday, as relatively strong producer inflation data combined with weak consumer sentiment provided investors with further uncertainty on if the Federal Reserve will raise interest rates next week.

The Dow Jones Industrial Average and the NASDAQ Composite index and S&P Composite index all posted modest gains, as investors prepare for the Federal Open Market Committee's highly-anticipated two-day meeting beginning on Wednesday. Nearly a decade has passed since the FOMC has raised its benchmark Federal Funds Rate. The Dow gained 102.69 or 0.63% to 16,433.09, ending the week up by roughly 2% while the NASDAQ added 26.09 or 0.54% to close on Friday at 4,822.34.

Follow up:

The S&P 500, meanwhile, gained 8.76 or 0.45% to 1,961.05, as eight of 10 sectors closed in the green. Stocks in the Consumer Services, Health Care and Utilities sectors led, each closing up by more than 0.70% on the session. Stocks in the Energy and Basic Materials industries lagged. The Dow and S&P 500 both posted their best weekly performances in two months.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) said its headline Producer Price Index for August remained unchanged in August, following a 0.2% gain a month earlier. The reading came in substantially higher than low end of consensus estimates of a 0.6% decline.

Meanwhile, the Core PPI-FD, which strips out food and energy prices, ticked up by 0.3%, marking the third consecutive month of considerable gains. On a yearly basis, the core reading has increased by 0.9%, providing support to hawkish views for an imminent rate hike.

The top performer on the Dow was McDonald's Corporation (NYSE:MCD), which gained 2.16 or 2.27% to 97.41, one day after one of the world's largest fast-food chains announced a plan to switch exclusively to cage-free eggs at its restaurants in the U.S. and Canada. The worst performer was Merck & Company Inc (NYSE:MRK), which fell 0.63 or 1.19% to 52.09.

The biggest gainer on the NASDAQ was Illumina Inc (NASDAQ:ILMN), after the San Diego-based biotechnology company surged 6.46 or 3.23% to 206.41. The worst performer was Wynn Resorts Limited (NASDAQ:WYNN), amid a report that its Macau casino allegedly lost more than $250 million due to a recent theft. Shares in Wynn Resorts fell 1.95 or 2.80% to 67.72.

The top performer on the S&P 500 was Kroger Company (NYSE:KR), which jumped 1.89 or 5.34% to 37.29, after its second quarter revenues soared by 25%. The worst performer was CONSOL Energy Inc (NYSE:CNX), which fell 0.68 or 5.15% to 12.53, as crude futures dipped by nearly 2% on the session. A handful of energy stocks were among the laggards on the S&P.

On the New York Stock Exchange, advancing issues outnumbered declining ones by a 1,675 to 1,441 margin.

Additional stock news from Reuters at Investing.com.

Forex

EUR/USD surged to its highest level for the month of September on Friday, as currency traders gear up for the possibility of divergent monetary policies on each side of the Atlantic as early as next week if the Federal Reserve raises interest rates at Thursday's FOMC meeting.

The currency pair traded in a broad range between 1.1255 and 1.1350, before settling at 1.1338, up 0.0058 or 0.51%. The euro has now closed higher against its American counterpart for seven consecutive sessions, to enjoy one of its longest winning streaks of the year. EUR/USD ended Friday's session at its highest closing level since August 25.

EUR/USD gained support at 1.1088, the low from Sept. 4 and was met with resistance at 1.1562 the high from Aug. 26.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) said its headline Producer Price Index for August remained unchanged in August, following a 0.2% gain a month earlier. The reading came in substantially higher than low end of consensus estimates of a 0.6% decline.

Meanwhile, the Core PPI-FD, which strips out food and energy prices, ticked up by 0.3%, marking the third consecutive month of considerable gains. On a yearly basis, the core reading has increased by 0.9%, providing support to hawkish views for an imminent rate hike.

While the Federal Open Market Committee (FOMC) would like to see long-term inflation reach its targeted goal of 2% before it lifts its benchmark interest rate for the first time in nearly a decade, vice chair Stanley Fischer has indicated that the U.S. central bank could normalize policy before it reaches the threshold. Long-term inflation has remained under 2% in every month for the last three years.

Next week, the Labor Department will release the Consumer Price Index for August on Wednesday, which coincides with the start of the FOMC's two-day September meeting. The Fed's benchmark Federal Funds Rate has remained at its current level of zero to 0.25% since December, 2008. When the economy is growing at a high rate, the U.S. typically increases the Fed Funds Rate to encourage people to save more and spend less. As a result, the action is meant to slow the economy and reduce inflationary pressures.

On Thursday, Bank of Finland governor Erkki Liikanen, a member of the European Central Bank Governing Council, said the ECB was committed to continue making asset purchases as part of its €60 billion a month quantitative easing program until the end of September, 2016. The ECB started the comprehensive initiative in March in an effort to stimulate a flagging economy throughout the euro zone.

The spread between U.S. 10-Year Treasuries and German 10-Year Bunds slightly widened on Friday to 154 basis points, reaching a fresh three-week high. Bond yields on the U.S. 10-year fell three basis points to 2.19%, while yields on the Germany 10-year fell four basis points to 0.65%.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.40% on Friday to an intraday low of 95.11, its lowest level in more than a week. The index closed at 95.20, down 0.36 or 0.37%.

CTFC Commitment of Traders

Speculators this week were more bearish on the euro and the S&P 500.

cot.2015.sep.11

Gold (Thursday Report)

Gold futures fell considerably on Friday amid stronger than expected inflationary pressures for domestic producers last month, bolstering arguments for an interest rate hike by the Federal Reserve next week.

On the Comex division of the New York Mercantile Exchange, gold for December delivery wavered between $1,097.80 and $1,111.90 an ounce, before settling at $1,104.20, down 5.20 or 0.47% for the session. A recent downturn has pushed the precious metal below $1,100 an ounce for the first time in nearly a month. Gold has now closed lower in 13 of the last 17 sessions. For the week, gold futures fell more than $15 an ounce or roughly 1.6%.

Gold likely gained support at $1,081.70, the low from August 7 and was met with resistance at $1,144.70, the high from Sept. 1.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) said its headline Producer Price Index for August remained unchanged in August, following a 0.2% gain a month earlier. The reading came in substantially higher than low end of consensus estimates of a 0.6% decline. Meanwhile, the Core PPI-FD, which strips out food and energy prices, ticked up by 0.3%, marking its third consecutive month of significant gains. On a yearly basis, the core reading has increased by 0.9%, providing support to hawkish views for an imminent rate hike.

While the Federal Open Market Committee (FOMC) would like to see long-term inflation reach a targeted goal of 2% before the Fed lifts its benchmark interest rate for the first time in nearly a decade, vice chair Stanley Fischer has indicated that the U.S. central bank could normalize policy before it reaches the threshold. Long-term inflation has remained under 2% in every month for the last three years.

Next week, the Labor Department will release the Consumer Price Index for August on Wednesday, which coincides with the start of the FOMC's two-day September meeting. The Fed's benchmark Federal Funds Rate has remained at its current level of zero to 0.25% since December, 2008. When the economy is growing at a high rate, the U.S. Central Bank typically increases the Fed Funds Rate to encourage people to save more and spend less. As a result, the action can slow the economy and reduce inflationary pressures.

Gold, which is not attached to interest rates or dividends, struggles to compete with high-yield bearing assets in periods of rising rates.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.35% on Friday to an intraday low of 95.28, its lowest level in more than a week. With several hours left in Friday's session, the index was on pace to lose more than 1% for the week.

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

Silver for December delivery lost 0.190 or 1.30% to close at $14.455 an ounce.

Copper for December delivery gained 0.009 or 0.34% to end the session at $2.456 a pound.

Oil

U.S. crude futures fell roughly 2% after influential bank Goldman Sachs (NYSE:GS) lowered its forecast for oil prices in 2016 on Friday.

On the New York Mercantile Exchange, WTI crude for October delivery traded in a tight range between $44.17 and $45.87 a barrel, before closing at $44.72, down 1.17 or 2.56% on the session. During a volatile week, Texas Long Sweet futures moved at least 2% in a positive or negative direction on every day throughout the five day stretch. For the week, U.S. crude futures were relatively flat down by approximately 1%.

On the Intercontinental Exchange (ICE), brent crude for October delivery wavered between $47.17 and $48.94 a barrel, before settling at $48.20, down 0.69 or 1.39% on the day. The spread between the international and U.S. domestic benchmarks of crude stood at 3.48, below Thursday's level of 4.01 at the close.

Citing persistent oversupply on the global markets and weakness in the Chinese economy, Goldman Sachs slashed its estimates for the price of U.S. crude in 2016 to $45 from a previous level of $57. The prominent bank also downgraded its 2016 forecast for brent from $62 to $49.50.

"The oil market is even more oversupplied than we had expected and we forecast this surplus to persist in 2016," Goldman Sachs said in a note to investors.

U.S. crude futures are still down roughly 45% since OPEC rattled global energy markets last November with a strategic decision to keep its production ceiling above 30 million barrels per day. The strategy was aimed at driving down the price of oil to undercut U.S. shale producers, which can drill more efficiently when crude prices are more expensive. If Saudi Arabia can regain market share by driving U.S. shale producers out of the market, some analysts believe that crude prices can regain upward momentum. U.S. crude production continues to dip, as output fell by 83,000 barrels last week to 9.135 million barrels per day.

In the meantime, Goldman suggested that the current stalemate between the U.S. and Saudi Arabia could push prices down to $20 a barrel.

"Net, while we are increasingly convinced that the market needs to see lower oil prices for longer to achieve a production cut, the source of this production decline and its forcing mechanism is growing more uncertain, raising the possibility that we may ultimately clear at a sharply lower price with cash costs around $20/bbl Brent prices, on our estimates," Goldman Sachs said in the note.

Elsewhere, oil services firm Baker Hughes (NYSE:BHI) said in its weekly rig count that U.S. oil rigs last week fell by 10 to 652 for the week ending on Sept. 4. A week earlier the rig count dropped by 10 to 652, its sharpest decline in three months. It was preceded by six consecutive weeks of weekly builds.

Natural Gas (Thursday Report)

Natural gas futures extended gains on Thursday, after data showed that U.S. natural gas supplies rose less than expected last week.

Natural gas for delivery in October on the New York Mercantile Exchange jumped 6.4 cents, or 2.4%, to trade at $2.715 per million British thermal units during U.S. morning hours. Prices were at around $2.681 prior to the release of the supply data.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended September 4 rose by 68 billion cubic feet, below expectations for an increase of 75 billion.

That compared with builds of 86 billion cubic feet in the prior week, 90 billion cubic feet in the same week last year, while the five-year average change for the week is an increase of 63 billion cubic feet.

Total U.S. natural gas storage stood at 3.261 trillion cubic feet as of last week. Stocks were 473 billion cubic feet higher than last year at this time and 127 billion cubic feet above the five-year average of 3.134 trillion cubic feet for this time of year.

A day earlier, natural gas prices lost 5.9 cents, or 2.18%, as market players weighed shifting weather forecasts to assess the outlook for U.S. demand and supply levels.

Updated weather forecasting models showed that most parts of the southern U.S. will be engulfed by hot temperatures in the coming days.

However, cooler weather was expected across most parts of the Great Lakes, Northeast and Midwest-regions as the week progresses.

Summer heat has waned and cooler temperatures beckon with the approach of autumn. Natural gas accounts for about a quarter of U.S. electricity generation.









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