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posted on 29 January 2016

Investing.com Weekly Wrap-Up 29 January 2016

Written by , Investing.com

U.S. stocks surge as Bank of Japan jolts markets with surprise rate cut

U.S. stocks surged on Friday after the Bank of Japan provided a jolt to global equity markets worldwide with a surprise decision to lower interest rates into negative territory for the first time in the history of the central bank.

The Dow Jones Industrial Average gained 393.92 or 2.45% to 16,463.56, while theNASDAQ Composite index added 107.27 or 2.38% to 4,613.95 on a bullish day for stocks. The S&P 500 Composite index, meanwhile, rose 46.75 or 2.47% to 1,940.18, as all 10 sectors closed in the green. Stocks in the Technology, Industrials and Financials sectors led, each gaining more than 3% on the session.

During the U.S. and European overnight hours, the Japanese central bank lowered its rate charged to commercial banks that park excess reserves at the central bank to negative 0.1% in a somewhat shocking moved aimed at helping its economy stave off threats of deflation. The move likely increases the possibility that the Federal Reserve could delay its next interest rate hike in the face of weak economic conditions abroad. Any signals of further tightening from the U.S. central are viewed as bearish for U.S. stocks, as investors pile into bonds to take advantage of higher yields.

Despite Friday's rally, the major indices still ended January with one of their worst months to start a year on record.

The top performer on the Dow was Visa Inc (N:V), which added 4.81 or 6.94% to 74.14. In Thursday's session, Visa narrowly topped analysts' forecasts with its fourth quarter earnings in spite of facing strong currency headwinds. The worst performer was PFE, which added 0.11 or 0.36% to 30.31. Pfizer finished just below Chevron Corporation (N:CVX), which gained 0.48 or 0.56% to 86.40. Earlier on Friday, Chevron (N:CVX) posted its first losing year in terms of annual earnings since 2002.

The biggest gainer on the NASDAQ was Micron Technology Inc (O:MU), which added 1.14 or 11.48% to 11.02. Previously, Micron shares had slumped more than 30% over the last month and 65% over the last 52 weeks. The worst performer was Amazon.com Inc (O:AMZN) which plunged 49.71 or 7.82% to 585.64, after reporting worse than expected earnings on Thursday afternoon. While Amazon finished with its strongest earnings period in its 20-year history, the online giant saw its shares plunge after failing to meet the high expectations of analysts. With the massive sell-off over the last two sessions, Amazon has lost more than $30 million in market capitalization.

The top performer on the S&P 500 was CONSOL Energy Inc (N:CNX), which gained 1.18 or 17.48% to 7.93. It came as crude futures ended the week up more than 8% after finishing with their fourth straight winning session. Amazon was also the worst performer on the S&P, just below Electronic Arts Inc (O:EA) which fell 5.08 or 7.28% to 64.71. A day earlier, the video game giant beat analysts' estimates with its earnings and revenues, but failed to meet expectations with its forward guidance.

On the New York Stock Exchange, advancing issues outnumbered declining ones by a 2,763-341 margin.

Additional stock news from Reuters at Investing.com with more details on U.S. markets.

Forex

USD/JPY surged as much as 2.1% before paring early gains late in the U.S. afternoon session, as the Bank of Japan jolted global markets by approving a negative interest rate policy for the first time in its history.

The currency pair traded in a broad range between 118.53 and 121.68, before closing at ¥121.12 per dollar, up 2.31 or 1.95% on the session. At Friday's highs, the dollar reached its strongest level against the yen since December 18, when it soared above 123.50. The dollar has closed higher against the yen in each of the last four sessions and six of the last seven. With Friday's sharp gains, the dollar is on pace to close the month slightly higher versus the yen by approximately 0.75%.

USD/JPY likely gained support at 116.45, the low from January 21 and was met with resistance at 123.69, the high from Nov. 18.

On Friday, the Bank of Japan lowered its rate charged to commercial banks that park excess reserves at the central bank to negative 0.1% in a somewhat shocking moved aimed at helping its economy stave off threats of deflation. By pushing rates into negative territory, the BOJ is in effect penalizing commercial banks for not lending aggressively by charging the institutions for holding excessive reserves at the central bank. After the unexpected decision, two of the top three central banks in the world are now offering rates in negative territory for the first time ever. The BOJ's unprecedented move follows a similar policy implemented by the European Central Bank in 2014.

Many economists view the move as a desperate attempt by the BOJ to bolster persistently sluggish inflation. While Japan's annual Core CPI rose modestly by 0.1% in November, it marked the first time the figure increased in five months. Japanese Core CPI, which strips out fresh food prices, remains significantly below the BOJ's price target.

The BOJ is currently pumping ¥80 trillion into the Japanese economy ($674 million) through a large-scale quantitative easing program that has achieved varying amounts of success over the last three years. In explaining his decision, Bank of Japan governor Haruhiko Kuroda cited increased risks related to the Chinese and Emerging Markets slowdown, as well as widespread volatility in global financial markets at the start of the year. Kuroda indicated that the BOJ will extend the negative rate policy "as long as necessary."

As a result of the Bank of Japan's surprising announcement, yields on both theJapan 2-Year and the Japan 5-Year plunged to their lowest level on record. Yields fell into negative territory for Japanese government bonds with a duration of three months through eight years.

In the U.S., bond prices moved to the upside as yields on 10-Year Treasuries tumbled 5.4 basis points to 1.931%, their lowest closing level in nine months.

The dovish stance from the Japanese Central Bank could persuade the Federal Reserve to delay further tightening measures, as other top global economies continue to show signs of weakness. On Wednesday, the Federal Open Market Committee (FOMC) left its benchmark Federal Funds Rate unchanged between 0.25 and 0.50%.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, soared more than 1% to an intraday high of 99.88. The dollar remains near a 12-month high from December, when the index eclipsed 100.00.

EUR/USD settled at 1.0893, down 0.98% on the session, while USD/CAD lost 0.40% to settle at 1.3973.

CTFC Commitment of Traders

Speculators were less bearish on the euro and more bullish on the yen this week. Bearishness increased on the British pound decreased for the S&P 500. Bullishness for oil, gold and silver all increased.

Note: This data closes on Wednesday so the last two days are not reflected - the Bank of Japan action Thursday overnight undoubtedly will change some of this data when reported next week.

cot.2016.jan.27

Gold

Gold inched up on Friday in spite of a broadly stronger dollar, as the greenback surged against the yen after the Bank of Japan spooked global markets by approving a negative interest rate policy for the first time in its history.

On the Comex division of the New York Mercantile Exchange, gold for February delivery traded in a tight range between $1,108.80 and $1,118.60 an ounce before settling at $1,117.00, up 1.10 or 0.10% on the session. Gold remains near three-month highs from Thursday's session, when it surged above $1,125 to reach its highest level since November 3. The precious metal is on pace to end January up by approximately 5% on the month.

Gold likely gained support at $1,058.50, the low from December 31 and was met with resistance at $1,162.00, the high from Oct. 29.

On Friday, the Bank of Japan lowered its rate offered to commercial banks that park excess reserves at the central bank to negative 0.1% in a somewhat shocking move aimed at helping its economy stave off threats of deflation. By pushing rates into negative territory, the BOJ is in effect penalizing commercial banks for not lending aggressively by charging the institutions for holding excessive reserves at the central bank. With Friday's decision, two of the top three central banks in the world are now offering rates in negative territory for the first time ever. The BOJ's unprecedented move follows a similar policy implemented by the European Central Bank in 2014.

Many economists view the move as a desperate attempt by the BOJ to bolster persistently sluggish inflation. While Japan's annual Core CPI rose modestly by 0.1% in November, it marked the first time the figure increased in five months. Japanese Core CPI, which strips out fresh food prices, remains significantly below the BOJ's 2% price target.

Following Friday's announcement, the yen plummeted against the dollar falling by as much as 2.1% on the session. At session highs of ¥121.68, USD/JPY swelled to its highest level on the new year.

As a result, the U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, soared more than 1% to an intraday high of 99.88. The dollar remains near a 12-month high from December, when the index eclipsed 100.00.

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

From a long-term perspective, the policy move by the BOJ could prove to be bullish for gold. The dovish stance from the Japanese Central Bank could persuade the Federal Reserve to delay further tightening measures, as other top global economies continue to show signs of weakness. On Wednesday, the Federal Open Market Committee (FOMC) left its benchmark Federal Funds Rate unchanged between 0.25 and 0.50%.

After a historic rate hike by the Fed in December, the U.S. central bank has indicated it could raise short-term rates as much as four times this year.

Any rate hikes in 2016 are viewed as bearish for the precious metal, which struggles to compete with high-yield bearing assets in rising rate environments.

Elsewhere, the U.S. Commerce Department's Bureau of Economic Analysis said Friday that U.S. GDP in the fourth quarter grew at a rate of 0.7%, below consensus estimates of a 0.9% increase. Analysts expected the pace of economic growth to slow from 2.0% gains in the third quarter, amid soft holiday sales results.

Silver for March delivery gained 0.033 or 0.23% to 14.265 an ounce.

Copper for March delivery added 0.009 or 0.46% to close at 2.066 a pound.

Oil

Crude futures inched up on Friday extending their determined rally from a 12-year bottom hit earlier this month, as rumors continued to swirl that Russia and OPEC could work collaboratively to cut production as a means to stem a prolonged downturn in global energy markets.

On the New York Mercantile Exchange, WTI crude for March delivery wavered between $32.66 and $34.41 a barrel before settling at $33.66, up 0.44 or 1.31% on the session.U.S. crude posted its fourth straight winning session and its sixth in the last seven. Since slipping below $26.50 early last week, WTI crude has rallied approximately 25% to reach near three-week highs. In a volatile month marred by wild fluctuations, U.S. crude is on pace to end January down roughly 7%.

On the Intercontinental Exchange (ICE), brent crude for April delivery traded in a broad range between $34.58 and $36.11 a barrel, before closing at $36.02, up 1.22 or 3.48% on the day. On Thursday, North Sea brent crude surged more than 7% to an intraday high of $36.67, its highest level since Jan. 6. Brent crude futures have also rebounded 25% over the last week and are now on pace to finish virtually flat for the month.

Both the international and U.S. domestic benchmarks of crude posted their second consecutive weekly gain.

Investors continued to react to speculation that Russia and Saudi Arabia, two of the largest oil producers in the world, could agree to lower output as much as 5% in order to help reduce a massive supply glut throughout the world. Earlier this week, Russia energy minister Alexander Novak revealed that the two sides could meet later next month to hammer out a wide range of issues related to potential production cuts. Last month, output in Russia hit fresh post-Soviet records at above 10.8 million barrels per day.

"There are very many questions, on checking cuts, from what base to count from. In order to start working through these issues, we need general agreement, it's too early to talk about that. That's the subject of the meeting and discussion (in February)," Novak told reporters, according to news agency TASS.

A number of hurdles reportedly still need to be overcome for the agreement to be reached. Energy traders can be skeptical of any reports involving OPEC without receiving official comment from Saudi Arabia, the world's largest exporter of crude. On Thursday, four representatives from OPEC member states told Bloomberg they were unaware of such a meeting with non-OPEC members, while another representative had no knowledge of a considerable supply cut.

Elsewhere, oil services firm Baker Hughes said Friday that U.S. oil rigs declined for the sixth consecutive week last week falling by 12 to 498 for the week ending on Jan. 22. It marked the lowest level for the domestic rig count since March, 2010. Declining rig counts usually provide a lagging indicator that U.S. production is about to slow.

U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, soared more than 1% to an intraday high of 99.88. The dollar remains near a 12-month high from December, when the index eclipsed 100.00.

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

Natural Gas (Thursday Report)

U.S. natural gas futures pared losses on Thursday, after data showed U.S. natural gas supplies in storage fell by the most since February 2015 last week, as freezing weather conditions boosted demand.

Natural gas for delivery in March on the New York Mercantile Exchange dipped 3.0 cents, or 1.39%, to trade at $2.127 per million British thermal units by 14:35 GMT, or 9:35AM ET. Prices were at around $2.109 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 January 22 fell by 211 billion cubic feet, compared to expectations for a decline of 207 billion.

That compares with draws of 178 billion cubic feet in the prior week, 112 billion cubic feet in the same week last year and a five-year average of 174 billion.

Total U.S. natural gas storage stood at 3.086 trillion cubic feet, 17.2% higher than levels at this time a year ago and 14.0% above the five-year average for this time of year.

A day earlier, futures ended little changed as updated weather forecasting models called for less cold weather over the next two weeks. Forecasts originally called for frigid winter weather during the period.

The heating season from November through March is the peak demand period for U.S. gas consumption.

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