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posted on 12 February 2016

Investing.com Weekly Wrap-Up 12 February 2016

Written by , Investing.com

U.S. stocks end losing skid amid rallies in financials, energy sectors

U.S. stocks bounced on Friday halting a five-day losing streak, amid rallies in the banking and energy sectors, as hopes for production cuts by OPEC sparked one of the strongest one-day moves in crude prices since the Financial Crisis..

The Dow Jones Industrial Average gained 313.66 or 2.00% to 15,973.84, while theS&P 500 Composite index added 35.70 or 1.95% to 1,864.78, as both ended a massive sell-off which dated back to the end of last week. The NASDAQ Composite index, meanwhile, rose 70.67 or 1.66% to 4,337.51, driven by gains among telecommunications and pharmaceutical stocks.

On the S&P 500, all 10 sectors closed higher as stocks in the Financials, Energy and Basic Materials industries led. The Financial sector, the day's overperformer, surged 13.17 or 3.59% to 379.76, as a 4% spike in European bank stocks spilled over into U.S. markets. Stocks in the Utility industry lagged, falling 0.34% to 226.14.

Despite Friday's relief rally, all three major indices still remain near their lowest levels in more than a year.

The top performer on the Dow was JPMorgan Chase & Co (N:JPM), which surged 4.38 or 8.25% to 57.45. Shares in JP Morgan soared after reports surfaced that CEO Jamie Dimon increased his personal stake in the banking giant by 500,000 shares at a cost of $25 million. Dimon could be looking to inspire confidence in his company's fledgling stock, which has slumped more than 16% over the last three months.

The worst performer was Johnson & Johnson (N:JNJ), which dropped 0.02 or 0.02% to 101.68. Johnson & Johnson (N:JNJ) finished just ahead of Boeing Company (N:BA), which inched up 0.05% to 108.49. It came one day Boeing (N:BA) shares plunged nearly 7%, amid reports that the Securities and Exchange Commission (SEC) is investigating whether the jet manufacturer violated securities laws with its accounting for 787 Dreamliner and 747 jumbo aircraft sales. Johnson & Johnson ended the session as the lone Dow component to close in the red.

The biggest gainer on the NASDAQ was Baidu Inc (O:BIDU), which surged 11.46 or 8.12% to 152.67. Shares in the Chinese web services company jumped ahead of the reopening of stock markets nationwide on Monday after a five-day holiday. The worst performer was Activision Blizzard Inc (O:ATVI), which fell 2.16 or 7.08% to 28.36 after the video games publishing company posted disappointing earnings and forward guidance on Thursday.

The top performer on the S&P 500 was Wynn Resorts Limited (O:WYNN)which soared 9.49 or 15.90% to 69.18, after reporting a 4% increase in quarterly revenues on Thursday after the bell. Wynn Resorts CEO Steve Wynn also disclosed that the company increased its investment in a new project in Macau to $3.5 billion, even as its revenues in the Chinese casino tumbled 44% on the period. The worst performer was Chesapeake Energy Corporation (N:CHK), which fell 0.18 or 10.11% to 1.60.

On the New York Stock Exchange, advancing issues outnumbered declining ones by a 2,447-637 margin.

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

Forex

EUR/USD fell modestly on Friday, retreating from three-month highs reached in the prior session, as currency traders continued to assess the risks associated with negative interest rate policies one day after Sweden's Central Bank unexpectedly lowered their rates deeper below zero.

The currency pair traded in a broad range between 1.1214 and 1.1333 before settling at 1.1255, down 0.0061 or 0.54% on the session. Despite the slight losses, EUR/USD has still closed higher in seven of the last 10 sessions and 11 of the last 15. After nearly slipping below 1.08 at the end of last month, the euro is up by nearly 4% against its American counterpart in February.

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.

The euro posted a rare losing session, as banking stocks in the euro zone rallied more than 4% after Deutsche Bank (DE:DBKGn) AG NA O.N. (N:DB) announced that it will buy back $5.4 billion of its senior debt in an effort to reduce panic among investors. It came days after credit default swaps on the German bank's junior bonds surged more than 10% in a single session to reach its highest level on record. The European bond market has come under intense pressure in recent weeks from crashing oil prices, outflows from sovereign-wealth funds and strong indications that the European Central Bank will lower interest rates deeper into negative when its Governing Council holds its next monetary policy meeting in March. Entering Friday's session, banking stocks in the euro zone had crashed more than 25% since the start of the year.

Federal Reserve chair Janet Yellen capped a two-day appearance before Congress on Thursday by testifying that the U.S. central bank has not taken negative interest rates off the table, even as the prospects of cutting rates remains unlikely. Over the last several months, a host of central banks have adopted Negative Interest Rate Policies (NIRP) as a tool for staving off deflation and bolstering economic growth. Under the policy, central banks charge financial institutions for parking excessive reserves at their banks as a way of spurring lending. Critics of the practice argue that it may either severely restrain the profits of major banks or force them to pass the costs off to customers by increasing fees.

As banking stocks around the world have fallen steeply this week, investors have piled into safe-havens such as gold, U.S. treasuries and the Japanese yen.

In late-January, the Bank of Japan rattled global markets with a surprising decision to implement a negative interest rate policy for the first time in central bank history. With the European Central Bank's deposit rate already in negative territory, it marked the first time two of the world's top three central banks held rates below zero at the same time. Economists have also explored whether central banks in China, Australia and Norway could join Sweden and Denmark in adopting the policy.

EUR/USD is only down by 0.06% from its level last February, when investors geared up for the launch of the ECB's ambitious €60 billion a month asset purchasing program. In 2015, the euro fell by approximately 10% against the dollar.

Yellen also emphasized in her testimony that the Fed will not take a "preset path" for normalizing policy during its first tightening cycle in nearly a decade. Following the Federal Open Market Committee's historic rate hike in December, the FOMC sent strong indications that it could raise short-term interest rates as much as four times this year. While Yellen did not address whether the FOMC will hold short-term interest rates steady at its March meeting, there is a strong probability the Fed will raise rates fewer than two times in 2016, according to current market expectations.

Yields on the U.S. 10-Year surged more than 10 basis points to close at 1.746%. On Thursday, yields on 10-year U.S. government bonds fell as low as 1.53%, their lowest level since April, 2012.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.45% to an intraday high of 96.25, before closing at 95.99. The index is still down more than 3.7% since the BOJ's rate decision on January 29.

CTFC Commitment of Traders

Speculators were less bearish on the euro, British pound, Aussie dollar, Mexican peso and copper, while becoming more 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.10

Gold

Gold futures retreated from 12-month highs, one day after enjoying one of its strongest one-day moves since the Financial Crisis, as European banking stocks recovered on Friday, inspiring a rally among global equities.

On the Comex division of the New York Mercantile Exchange, gold for April delivery wavered between $1,233.30 and $1,248.70 an ounce, before closing at $1,237.50, down 10.60 or 0.85% on the session. On Thursday, gold surged as much as $60 an ounce, posting its highest one-day move since December 1, 2014 when it soared by nearly 7%. Despite Friday's losses, gold has still closed higher in six of the last eight and seven of the last 10 sessions. The precious metal is also up by nearly 16% on the new year, on pace for one of its strongest three-month periods in 30 years.

Gold likely gained support at $1,046.20, the low from December 3 and was met with resistance at $1,284.10, the high from February, 2, 2015.

In Europe, banking stocks rallied more than 4% after Deutsche Bank (DE:DBKGn) AG NA O.N. (N:DB) announced that it will buy back $5.4 billion of its senior debt in an effort to reduce panic among investors. It came days after credit default swaps on the German bank's junior bonds surged more than 10% in a single session to reach its highest level on record. The European bond market has come under intense pressure in recent weeks from crashing oil prices, outflows from sovereign-wealth funds and strong indications that the European Central Bank will lower interest rates deeper into negative territory when its Governing Council holds its next monetary policy meeting in March. Entering Friday's session, banking stocks in the euro zone had crashed more than 25% since the start of the year.

Federal Reserve chair Janet Yellen capped a two-day appearance before Congress on Thursday by testifying that the U.S. central bank has not taken negative interest rates off the table, even as the prospects of cutting rates remains unlikely. Over the last several months, a host of central banks have adopted Negative Interest Rate Policies (NIRP) as a tool for staving off deflation and bolstering economic growth. Under the policy, central banks charge financial institutions for parking excessive reserves at their banks as a way of spurring lending. Critics of the practice argue that it may either severely restrain the profits of major banks or force them to pass the costs off to customers by increasing fees.

As banking stocks around the world have fallen steeply this week, investors have piled into safe-havens such as gold, U.S. Treasuries and the Japanese yen.

Investors also piled into gold on Thursday after Yellen continued to reiterated that the Fed will not take a "preset path" for normalizing policy during its first tightening cycle in nearly a decade. Following the Federal Open Market Committee's historic rate hike in December, the FOMC sent strong indications that it could raise short-term interest rates as much as four times this year. While Yellen did not address whether the FOMC will hold short-term interest rates steady at its March meeting, there is a strong probability the Fed will raise rates fewer than two times in 2016, according to current market expectations.

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 0.45% to an intraday high of 96.25. Since the FOMC released its latest monetary policy statement on Jan. 27, the dollar has fallen by approximately 4%.

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

Silver for March delivery fell 0.019 or 0.12% to 15.775 an ounce.

Copper for March delivery added 0.023 or 1.12% to 2.028 a pound.

Oil

U.S. crude futures bounced from 12-year lows on Friday, completing one of their strongest one day moves on record, as investors digested reports that OPEC could be moving closer to convening for an emergency meeting that may result in sorely needed production cuts.

On the New York Mercantile Exchange, WTI crude for March delivery traded between $26.96 and $29.66 a barrel, before settling at $29.27, up 3.03 or 11.56% on the day. With the sharp gains, U.S. crude halted a six-day losing streak during which oil prices crashed more than 16%, to fall to its lowest level since May, 2003. At Friday's session-highs, WTI crude surged more than 12%, enjoying its best one-day moves since February, 2009.

On the Intercontinental Exchange (ICE), brent crude for April delivery wavered between $29.93 and $33.43 a barrel, before closing at $33.19, up 3.11 or 10.30% on the session. North Sea brent futures have responded to a massive four-day sell off from late last week by rallying more than $2 a barrel during its current three-day winning streak.

Despite Friday's rebound, both the international and U.S. benchmarks are down considerably in 2016 by more than 10 and 20% respectively.

Minutes after closing at its lowest in more than a decade on Thursday afternoon, U.S. crude prices received a boost following a report from the Wall Street Journal that OPEC members are preparing to cooperate on potential production cuts, according to United Arab Emirates' energy minister Suhail bin Mohammed al-Mazrouei. The UAE is regarded as a key cog for smaller OPEC members desperate for increases in oil prices, given its reluctance to slash output in recent months.

While Al-Mazrouei indicated that the persistent downturn had already forced most Non-OPEC members to reduce output, he emphasized that a potential deal could not be achieved unless OPEC received "complete cooperation" of all of its member states.

"Prices are not appropriate, I won't say for the majority only, but for all producers," Al-Mazrouei told Sky News Arabia.

Any deal requires the approval of Saudi Arabia, the world's largest exporter. Earlier this week, OPEC said in its monthly Oil Market Report that it increased production by 131,000 barrels per day to 32.33 million bpd in January, driven by increases from Saudi Arabia, Iraq, Iran and Nigeria. Output in Saudi Arabia rose by 44,000 bpd to 10.091 million bpd, near all-time record highs.

Over the last 15 months oil prices have plummeted more than 60% since OPEC rattled the energy industry with a strategic decision to leave its production ceiling above 30 million barrels per day at a meeting in November, 2014. The tactic triggered a prolonged battle between OPEC and U.S. shale producers for market share, resulting in a glut of oversupply on global energy markets.

Producers in the U.S. also stand to benefit tremendously from a production cap. On Wednesday, the U.S. Energy Information Administration reported that stockpiles at theCushing Oil Hub rose by 523,000 barrels to 64.7 million last week, moving closer to full capacity. Cushing, the main delivery point for NYMEX oil, reaches its storage limit at 73 million barrels.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.45% to an intraday high of 96.25. Since the FOMC released its latest monetary policy statement on Jan. 27, the dollar has fallen by approximately 4%.

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 declined on Thursday, reversing gains 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 sank 2.3 cents, or 1.15%, to trade at $2.023 per million British thermal units by 15:35 GMT, or 10:35AM ET. Prices were at around $2.050 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 February 5 fell by 70 billion cubic feet, compared to expectations for a decline of 82 billion.

That compared with draws of 152 billion cubic feet in the prior week, 160 billion cubic feet in the same week last year and a five-year average of around 162 billion.

Total U.S. natural gas storage stood at 2.864 trillion cubic feet, 20.0% higher than levels at this time a year ago and 19.0% above the five-year average for this time of year.

day earlier, futures fell 5.2 cents, or 2.48%, as forecasts calling for less cold weather over the next two weeks weighed. Forecasts originally called for cold winter weather during the period.

Bearish speculators are betting on the mild weather reducing winter 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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