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posted on 05 February 2016

Investing.com Weekly Wrap-Up 05 February 2016

Written by , Investing.com

U.S. stocks plunge as NASDAQ crashes 3%, amid massive tech romp

U.S. stocks fell precipitously on Friday, amid a romp in technology stocks and the release of a relatively optimistic U.S. jobs report, which increased the possibility that the Federal Reserve could increase the pace of its tightening cycle this year.

The Dow Jones Industrial Average fell 211.75 or 1.29% to 16,204.83, while theNASDAQ Composite index crashed 146.42 or 3.25% to 4,363.14, as its IBB Biotechnology Index plummeted as much as 4% on the session.

LinkedIn Corporation (N:LNKD) plunged nearly 45%, wiping out approximately $11 billion in market capitalization, after the social networking site for professionals finished with slumping revenues and offered weak forecasts with its fourth quarter results. With the sharp declines, the NASDAQ nearly fell to its lowest level since September, 2014.

The S&P 500 Composite index, meanwhile, lost 35.43 or 1.85% to 1,880.02, as eight of 10 sectors closed in the red. Stocks in the Technology, Consumer Services and Energy sectors lagged, each falling by more than 2% on the session. Stocks in the Utilities and Telecommunications industries led. For the week, the S&P 500 tumbled by more than 3% extending considerable losses from the start of the year.

A modest increase in nonfarm payrolls for the month of January masked an otherwise strong January employment report, when average hourly earnings surged to their highest monthly level in a year and the unemployment rate dropped to 4.9%, its lowest rate since February, 2008. The unexpected wage gains could boost sluggish inflation and strengthen the case for the Fed to raise interest rates a handful times this year.

Any rate hikes by the Fed this year are viewed as bearish for U.S. equities, as investors exit their positions and pile into Treasuries and other bonds in an effort to capitalize on higher yields.

The top performer on the Dow was Merck & Company Inc (N:MRK), which added 0.79 or 1.63% to close the week at 49.38. Shares in the pharmaceutical giant rebounded on Friday, two days after the company offered a cautious full-year outlook for 2016 amid fears of lagging sales among its top performing drugs. The worst performer was Nike Inc (N:NKE), which tumbled 3.00 or 4.99% to 57.17. Shares in the athletic apparels giant are down nearly 15% from their four-month high in November when they traded above $67. Nike (N:NKE) was victimized on Friday by a growing trend from investors to abandon high-valuation stocks in favor of smaller-caps with stronger dividend yields.

The biggest gainer on the NASDAQ was Symantec Corporation (O:SYMC), which added 0.58 or 3.00% to 19.76. Shares in the California-based semiconductor company are still down nearly 25% over the last year. The worst performer was TripAdvisor Inc (O:TRIP), which lost 5.47 or 8.57% to 58.34. A trio of prominent companies also weighed on the NASDAQ, as Facebook Inc (O:FB), Amazon.com Inc (O:AMZN) and Netflix Inc (O:NFLX) all closed down by more than 5%.

The top performer on the S&P 500 was Tyson Foods Inc (N:TSN), which surged 5.04 or 9.70% to 56.99. Shares in Tyson Foods jumped on Friday after the nation's largest meat processor reported stronger than expected earnings, amid declining costs. The worst performer was Hanesbrands Inc (N:HBI), which slumped 4.43 or 15.07% to 24.96. On Thursday after the close, Hanes reported weaker than expected quarterly earnings amid poor international sales and weaker than expected online traffic growth.

Elsewhere, crude futures fell more than 2% on Friday to close the session near $30 a barrel. Crude prices have slid more than 70% over the last 18 months, dragging down oil,natural gas and drilling stocks.

On the New York Stock Exchange, declining issues outnumbered advancing ones by a 2,332 to 720 margin.

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

Forex

EUR/USD retreated from three-month highs on Friday while halting a four-day winning streak, as a relatively strong U.S. jobs report shifted market expectations for the Federal Reserve's next interest rate hike into 2016.

The currency pair traded between 1.1109 and 1.1246 before settling at 1.1159, down 0.0048 or 0.43% on the session. Previously, EUR/USD surged more than 2.5% since Wednesday completing its strongest two-day rally since the August flash crash. After falling approximately 10% against its U.S. counterpart in 2015, the euro is now up nearly 3% versus the dollar over the first five weeks of the year.

EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.

On Friday morning, the U.S. Department of Labor said nonfarm payrolls increased by 151,000 in January, falling considerably from a downwardly revised 262,000 in December. The sharp declines were blamed in large part to unseasonably warm temperatures over the previous month, which created an unanticipated demand for labor in the construction industry. After two months of robust gains, the headline dipped under 200,000 for the first time since September.

The unemployment rate, meanwhile, inched down 0.1% to 4.9%, falling to its lowest level since February, 2008. The U-6 unemployment rate, a broader gauge of the national employment situation, remained unchanged at 9.9%, one-tenth above its November low when it fell its lowest level since May, 2008. The reading, which measures the total level of unemployed workers plus those marginally attached to the labor force, stood at 11.1% last October. The indicator also accounts for workers who are no longer looking for a job, but have looked for one over the last 12 months.

By comparison, the alternative measure of underemployment peaked at 18% in January, 2010, as the nation continued to recover from the Financial Crisis. The U-6 rate is a preferred measure of unemployment by Fed chair Janet Yellen as she assesses the strength of the U.S. labor market.

The strength in the report lies in the average wages category where hourly earnings jumped by 0.5%, amid major increases in state minimum wage floors in numerous regions throughout the country. On an annual basis, wages are up by 2.5% from their January, 2015 level.

An increase in wage-push inflation could be viewed as a signal from the Fed that prices throughout the economy are ready to move upward. Last month, Core PCE inflation came in at 1.4%, significantly below the U.S. central bank's targeted objective of 2%. The Core PCE Index, which strips out volatile food and energy prices, is the Fed's preferred gauge for inflation.

As sluggish inflation remains low, the Fed is wary of potentially triggering a deflationary spiral by approving further rate hikes. In December, the Federal Open Market Committee (FOMC) abandoned a seven-year zero interest rate policy by raising short-term interest rates for the first time in nearly a decade. While the Fed had signaled that it could hike rates as much as four times this year, the U.S. central bank indicated last month that it could proceed more gradually if the global economy continued to struggle and long-term inflation projections remained far below its target.

Following the release, the CME Group's (O:CME) Fed Watch lowered the probability that the FOMC will leave interest rates unchanged this year to 56.6%. A day earlier, investors believed there was a 66.1% chance the Fed would not approve a single rate hike in 2016.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.60% to an intraday high of 97.29. Previously, the index had slumped over 3% this week as investors braced for a disappointing employment report. The dollar was on pace for its worst week since 2009, before Friday's rebound.

Major central banks have several weeks to examine incoming global data before the European Central Bank holds its next monetary policy meeting on March 10. Another positive U.S. employment report in February could compel the ECB to refrain from pushing its deposit rate deeper into negative territory.

USD/JPY closed slightly higher on Friday at 116.89, ending a four-day skid. The greenback had tumbled nearly 3.50% against the yen, after reaching a 2016-yearly high last Friday in the wake of a shocking decision by the Bank of Japan to launch a negative rate policy.

CTFC Commitment of Traders

Speculators were less bearish on the euro and less bullish on the yen this week. Bullishness increased for gold and bearishness increased for the S&P 500.

Note: This data closes on Wednesday so the last two days of trading are not reflected.

cot.2016.feb.03

Gold

Gold was relatively flat on Friday amid a resurgent dollar, as a relatively optimistic U.S. jobs report provided hawkish members of the Federal Reserve with more ammunition to push for further interest rate hikes as it judges whether economic conditions are strong enough to support continued financial tightening.

On the Comex division of the New York Mercantile Exchange, gold for April delivery traded in a broad range between $1,145.60 and $1,163.40 an ounce, before settling at $1,157.60, down 0.10 or 0.01%. At session highs, gold reached a fresh three-month high for the third consecutive trading day. Despite the slight declines, the precious metal posted its strongest week of the year surging more than 3.3%.

Since falling to six-year lows in early-December, gold has gained more than $100 an ounce.

Gold likely gained support at $1,046.20, the low from December 3 and was met with resistance at $1,182.70, the high from Oct. 28.

On Friday morning, the U.S. Department of Labor said nonfarm payrolls increased by 151,000 in January, falling considerably from a downwardly revised 262,000 in December. The sharp declines were blamed in large part to unseasonably warm temperatures over the previous month, which created an unanticipated demand for labor in the construction industry. After two months of robust gains, the headline dipped under 200,000 for the first time since September.

The unemployment rate, meanwhile, inched down 0.1% to 4.9%, dropping to its lowest level since February, 2008. The U-6 unemployment rate, a broader gauge of the national employment situation, remained unchanged at 9.9%, one-tenth above its November low when it fell its lowest level since May, 2008. The reading, which measures the total level of unemployed workers plus those marginally attached to the labor force, stood at 11.1% last October. The indicator also accounts for workers who are no longer looking for a job, but have looked for one over the last 12 months.

By comparison, the alternative measure of underemployment peaked at 18% in January, 2010, as the nation continued to recover from the Financial Crisis. The U-6 rate is a preferred measure of unemployment by Fed chair Janet Yellen as she assesses the strength of the U.S. labor market.

The strength in the report lies in the average wages category where hourly earnings jumped by 0.5%, amid major increases in state minimum wage floors in numerous regions throughout the country. On an annual basis, wages are up by 2.5% from their January, 2015 level.

An increase in wage-push inflation could be viewed as a signal from the Fed that prices throughout the economy are ready to move upward. Last month, Core PCE inflation came in at 1.4%, significantly below the U.S. central bank's targeted objective of 2%. The Core PCE Index, which strips out volatile food and energy prices, is the Fed's preferred gauge for inflation.

As sluggish inflation remains low, the Fed is wary of potentially triggering a deflationary spiral by tightening its cycle too abruptly. In December, the Federal Open Market Committee (FOMC) abandoned a seven-year zero interest rate policy by raising short-term interest rates for the first time in nearly a decade. While the Fed signaled in early-January that it could hike rates as much as four times this year, the FOMC said in its monetary policy statement last month that it could proceed more gradually if the global economy continued to struggle and long-term inflation projections remained far below its target.

Any rate hikes this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.60% to an intraday high of 97.29. Previously, the index had slumped over 3% this week as investors braced for a disappointing employment report.

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

Silver for March delivery fell 0.065 or 0.44% to 14.755 an ounce.

Copper for March lost 0.027 or 1.27% to 2.104 a pound.

Oil

U.S. crude futures fell by more than 2% amid a recovering dollar, as a late sell-off pushed domestic oil prices back toward $30 a barrel.

On the New York Mercantile Exchange, WTI crude for March delivery traded between $30.80 and $32.42 a barrel, before settling at $30.88, down 0.84 or 2.66% on the day. In spite of a massive spike of 8% on Wednesday, WTI crude still ended the week down by nearly $3 a barrel. On the Intercontinental Exchange (ICE), brent crude for April delivery wavered between $33.81 and $35.12 a barrel, before closing at $34.02, down 0.44 or 1.28% on the session. Brent suffered less damage than their U.S. counterpart on the week, falling approximately 2.75% from its opening level on Monday.

Both the international and U.S. benchmarks of crude remain near 12-year lows from last month, when WTI traded at $26.19 on Jan. 20 and brent nearly dipped below $27. Over the last 18 months, crude futures have crashed more than 70% amid a massive supply glut worldwide.

Although Friday's session lacked the sudden, unpredictable fluctuations that have defined the oil trade since the start of the new year, investors anticipate that volatility will remain high in the near-term. Analysts from Jeffries said on Friday that investors should expect "elevated volatility" over the next week on "upward moves from short covering." Earlier this week, net short positions in WTI crude rose to a fresh 30-month high.

When the International Energy Agency (IEA) released its December oil market report this week, the Paris-based group said Non-OPEC oil supply slipped by 0.6 million barrels per day to 57.4 million on the month, lending support for sharp production declines this year. For 2016, the IEA expects Non-OPEC supply to fall dramatically by an average of 0.7 million bpd.

More troubling, may be the unexpected declines in demand growth by Non-OPEC members at the end of last year. During the fourth quarter, Non-OPEC demand growth decelerated to a one-year low of 1.0 million bpd, down from near five-year highs of 2.1 million bpd over the previous three months. Consumer demand evaporated in the final months of 2015, in the face of weak economic sentiment among major world powers such as Russia, China and Brazil.

Investors are cautiously optimistic that demand can remain steady this year, as global supply hovers near record-highs. Oil prices rallied this week after reports surfaced that OPEC could hold an emergency meeting later this month to discuss potential production cuts. The rebound, however, was short-lived, as a group of six OPEC members clamoring for the meeting reportedly have been unable to win support from Saudi Arabia, the world's largest exporter.

Markets in China will be closed for the majority of next week due to the Lunar New Year holiday. China is the world's largest consumer of oil behind the U.S.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.60% to an intraday high of 97.29. Previously, the index had slumped over 3% this week as investors braced for a disappointing employment report.

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 were sharply lower on Thursday, extending losses after data showed U.S. natural gas supplies in storage fell less than expected last week.

Natural gas for delivery in March on the New York Mercantile Exchange tumbled 4.5 cents, or 2.21%, to trade at $1.993 per million British thermal units by 14:35 GMT, or 9:35AM ET. Prices were at around $1.996 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 29 fell by 152 billion cubic feet, compared to expectations for a decline of 158 billion.

That compares with draws of 211 billion cubic feet in the prior week, 115 billion cubic feet in the same week last year and a five-year average of 178 billion.

Total U.S. natural gas storage stood at 2.934 trillion cubic feet, 16.7% higher than levels at this time a year ago and 15.1% above the five-year average for this time of year.

Natural gas is down 13% so far this week as milder weather forecast for the last eight weeks of the U.S. November-March winter heating season dampened demand hopes.

Bearish speculators are betting on the mild winter weather to reduce demand for the heating fuel. The heating season from November through March is the peak demand period for U.S. gas consumption.

Prices sank to $1.684 in mid-December, a level not seen in almost 17 years, as an unusually mild start to winter due to the El Niño weather phenomenon limited the amount of heating days.

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