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posted on 08 April 2016

Investing.com Weekly Wrap-Up 08 April 2016

Written by , Investing.com

U.S. stocks cap one of worst weeks in 2 months, ahead of earnings season

U.S. stocks capped one of their worst weeks since early-February with slight gains on Friday, as investors braced for a barrage of weak earnings from prominent banks next week at the start of first quarter earnings season.

The major indices closed relatively flat in Friday's session despite a 6% surge in crude futures prices, providing further signals of a decoupling between oil and equity markets. With the sharp gains, U.S. crude futures closed just below $40 a barrel, reaching their highest level in two weeks. Earlier in the first quarter of 2016, the two traded in virtual lockstep as a major upswing in oil prices triggered a rally in the Dow Jones Industrial Average and the S&P 500 Composite index.

On Friday, the Dow ticked up 35.00 or 0.20% to 17,576.96, while the NASDAQ Composite index gained 2.32 or 0.05% to 4,850.69, ending a difficult week moderately higher on the session. It came one day after U.S. stocks suffered one of their worst sessions in two months, as renewed fears of deflation in Japan created a spike in the yen fueling a sell-off in global equities. The S&P 500, meanwhile, inched up 5.69 or 0.28% to 2,047.60, as eight of 10 sectors closed in the green. Stocks in the Energy and Basic Materials industry led, while stocks in the Health Care sector lagged. Buoyed by the considerable gains in oil, Energy stocks surged more than 2% on the session.

Since mid-March the S&P 500 has been virtually flat, following a 12% rally over the previous six weeks.

Shares in a host of banking stocks could tumble next week when JPMorgan Chase & Co (NYSE:JPM), Bank of America Corporation (NYSE:BAC) and Citigroup Inc (NYSE:C) release their earnings from the first quarter of Fiscal Year 2016. The earnings are expected to be subdued, as net interest margins remain flat while Wall Street executives anticipate a period of "lower rates for longer" from the Federal Reserve.

For the year as a whole, the S&P SPDR Bank ETF (KDE) has fallen nearly 10%, while ranking among the worst-performing ETFs on the broader S&P.

The top performer on the Dow was Chevron Corporation (NYSE:CVX), which added 1.54 or 1.62% to 96.33, as oil futures rallied due primarily to further declines in U.S. rigs last week and increased speculation of an OPEC-Non OPEC production freeze at a closely-watched meeting on April 17 in Doha. Shares in Chevron (NYSE:CVX) are still down more than 13% over the last year. The worst performer was Nike Inc (NYSE:NKE), which fell 0.88 or 1.46% to 59.42. Nike (NYSE:NKE) shares fell slightly on Friday after chief rival UA effectively issued a 2-for-1 stock split by offering Class C shares to existing shareholders.

The biggest gainer on the NASDAQ was Liberty Global PLC (NASDAQ:LBTYA), which rose 0.90 or 2.37% to 38.88. Despite the strong gains, shares in the media company are still down more than 23% over the last 52 weeks. The worst performer was Bed Bath & Beyond Inc (NASDAQ:BBBY), which fell 2.01 or 4.10% to 46.96. Shares in Bed, Bath & Beyond fell back on Friday after the popular merchandiser and home furnishing retailer declared its first-ever quarterly dividend earlier in the week.

The top performer on the S&P 500 was Southwestern Energy Company (NYSE:SWN) which jumped 0.67 or 8.36% to 8.68. Energy stocks dominated the S&P 500 in Friday's session, as Murphy Oil Corporation (NYSE:MUR), Anadarko Petroleum Corp (NYSE:APC) and Range Resources Corporation (NYSE:RRC) also surged by more than 5%. The worst performer was Gap Inc (NYSE:GPS), which plummeted 3.83 or 13.84% to 23.85. On Thursday after the bell, Gap reported disappointing same-store sales last month in the latest setback for the struggling retailer. For the month, comparable store sales at its Banana Republic segment plunged 14% while same-store revenues at Old Navy swung to a loss.

On the New York Stock Exchange, advancing issues outnumbered declining ones by a 2,327-757 margin.

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

Forex

EUR/USD closed above 1.14 for the first time since mid-October, as the dollar remained near five-month lows on Friday, after the Federal Reserve Bank of Atlanta said on Friday that U.S. GDP hardly grew during the first quarter.

The currency pair traded between 1.1338 and 1.1454, before closing at 1.1402, up 0.22% on the session. The euro ended the week slightly higher against the dollar, closing above 1.13 for the eighth consecutive session. Since the Fed elected to lower its long-term interest rate forecast on March 16, the euro has soared by more than 2.6% against its American counterpart.

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 Atlanta Fed said its GDPNow forecast model lowered estimates of first quarter growth to 0.1%, from previous forecasts of 0.4% earlier this week. The revisions were made following a report released by the U.S. Census Bureau earlier on Friday, which detailed sharp declines in wholesale trade inventories in February. For the month, wholesale sales dropped for the fourth straight period, while auto inventories plunged by 1.0%, suffering its largest decline since September, 2013. As a result, the forecast for the contribution of inventory investment to first-quarter real GDP growth fell from Minus - 0.4 percentage points to Minus - 0.7 percentage points, the Atlanta Fed said in a statement.

Federal Reserve chair Janet Yellen, meanwhile, attempted to reassure investors on Thursday evening that the U.S. economy remains on solid footing even as she has expressed hesitancy to raise interest rates due to increased global financial risks. Yellen made the comments at a panel discussion at the International House of New York alongside former Fed chairmen Ben Bernanke and Paul Volcker. Yellen said:

"This is an economy on a solid course, not a bubble economy. It has made tremendous progress from the damage of the financial crisis."

The Federal Open Market Committee (FOMC) has held its benchmark Federal Funds Rate steady at a targeted range between 0.25 and 0.50% in each of its first two meetings this year. In December, the FOMC abandoned a seven-year zero interest rate policy by approving its first interest rate hike in nearly a decade. At the same time, the European Central Bank enacted further easing measures last month by pushing its deposit rate deeper into negative territory. Yellen also said today:

"There is accommodation in the monetary policy that we have. But we think the gradual path of rate increases will be appropriate. We remain on a reasonable path and I don't think December was a mistake."

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.30% to an intraday low of 94.09, before rallying slightly to 94.22 at the close. The index remains near five-month lows from Thursday's session.

Any rate hikes by the Fed this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in an effort to capitalize on higher yields.

Elsewhere, USD/JPY stabilized above 108 one day after tumbling more than 1.5% to its lowest level in 17 months. It came as Japan finance minister Taro Aso attempted to reassure investors that the Bank of Japan will take the necessary steps to prevent sharp one-way moves in the yen.

Yields on the U.S. 10-Year gained nearly three basis points to 1.71%. Earlier this week, yields on U.S. 10-year Treasuries fell to a fresh 5-week low at 1.685%.

CTFC Commitment of Traders

Speculators had another week with little change of sentiment. The S&P 500 sentiment was slightly less bearish, while bullishness increased slightly for the yen and bearishness decreased slightly for the euro. Extreme bullishness continued for both oil and gold.

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

cot.2016.april.06

Gold

Gold inched up on Friday, extending gains from the previous session's surge, amid further indications of slowing economic conditions after the Federal Reserve Bank of Atlanta said U.S. GDP hardly grew during the first quarter.

On the Comex division of the New York Mercantile Exchange, gold for June delivery traded in a tight range between $1,231.20 and $1,243.80, before settling at $1,242.70, up 5.20 or 0.42% on the session. It came one session after gold futures surged more than 1.1%, bouncing off near five-week lows, amid broad signals of soft growth throughout the global economy. While gold is down by more than $40 an ounce since hitting 13-month highs last month, the precious metal is still up by more than 16% on the calendar year. For the week, gold posted modest gains after opening on Monday around $1,220 an ounce.

Gold likely gained support at $1,063.20, the low from January 4 and was met with resistance at $1,280.70, the high from Mar. 11.

On Friday morning, the Atlanta Fed said its GDPNow forecast model lowered estimates of first quarter growth to 0.1%, from previous forecasts of 0.4% earlier this week. The revisions were made following a report released by the U.S. Census Bureau earlier on Friday, which detailed sharp declines in wholesale trade inventories in February. For the month, wholesale sales dropped for the fourth straight period, while auto inventories plunged by 1.0%, suffering its largest decline since September, 2013. As a result, the forecast for the contribution of inventory investment to first-quarter real GDP growth fell from Minus - 0.4 percentage points to Minus - 0.7 percentage points, the Atlanta Fed said in a statement.

Elsewhere, Japan's Finance Minister Taro Aso attempted to soothe investors after the yen surged more than 1.5% against the dollar on Thursday to hit its highest level in 17 months. Investors in the U.S. and the euro zone continued to unwind their positions in equities and bonds from the yen carry trade, amid heightened concerns that the Bank of Japan is running out of options to stave off deflation. The yen has appreciated by approximately 3% against the dollar this week and 10% since the start of the year.

In February, the Bank of Japan rattled global markets with an unexpected move to lower interest rates into negative territory for the first time in its history. Aso told reporters after the dollar fell under 108 against the yen for the first time since November, 2014:

"We are watching moves with a sense of tension. We will take necessary steps in accordance with circumstances."

Federal Reserve chair Janet Yellen, meanwhile, attempted to reassure investors on Thursday evening that the U.S. economy remains on solid footing even as she has expressed hesitancy to raise interest rates due to increased global financial risks. Yellen made the comments at a panel discussion at the International House of New York alongside former Fed chairmen Ben Bernanke and Paul Volcker.

Gold is viewed as a safe haven for investors in periods of heightened economic instability.

The U.S. Dollar Index remains near five-month lows. Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for May delivery added 0.202 or 1.33% to $15.360 an ounce.

Copper for May delivery gained 0.010 or 0.46% to $2.086 a pound.

Oil

Crude futures surged nearly 7% to reach fresh two-week highs on Friday, amid renewed hopes from top Kuwait officials that a comprehensive OPEC-Non OPEC production freeze can be completed without cooperation from Iran.

On the New York Mercantile Exchange, WTI crude for May delivery traded in a broad range between $37.46 and $39.84 a barrel, before settling at $39.75, up 2.49 or 6.65% on the session. It marked the second time this week that U.S. crude futures soared more than 5% in a single session. On Wednesday, WTI crude jumped more than $1 a barrel following reports of a significant draw in U.S. crude stockpiles last week. On the Intercontinental Exchange (ICE), brent crude for June delivery wavered between $39.63 and $42.00 a barrel, before closing at $41.92, up 2.49 or 6.25% on the trading day.

Both the international and U.S. domestic benchmarks of crude are down fractionally since hitting three-month highs in late-March.

Crude soared in overnight trading after Kuwait OPEC governor Nawal al-Fezaia predicted that a host of major producers will have few alternatives to freezing output when they meet at a highly-anticipated summit on April 17, due to persistently low oil prices. The discussions could be aimed at capping output at February levels and setting a floor for oil prices to limit further declines, Al-Fezaia suggested.

Oil prices have recovered nearly 40% since hitting 13-years lows in mid-February after Saudi Arabia, Russia and two other OPEC producers agreed in principle to limit production at January levels. Separately, Russian officials told Reuters earlier this week that they are working closely with OPEC to discuss the parameters of a production freeze and they are "on track" to reach an agreement.

"Oil producers have no option but to freeze their production as oil prices are low and hurting everyone," Al-Fezaia told Bloomberg. "All early signs before the meeting point to this conclusion."

In addition, the Kuwait OPEC governor emphasized that a comprehensive production freeze between the parties can be accomplished without the support of Iran, which has resisted such an accord as it attempts to ramp up output to 2007 pre-sanction levels. Last week, oil prices fell sharply after Saudi Arabia deputy crown prince Mohammed Bin Salman insisted that the kingdom will resist any agreement to cap its output unless the pact is also signed by their Iranian rivals. Investors on Friday mostly shrugged off reports from Bloomberg that Iran will sell its Forozan Blend crude to countries in Asia at a discount to its Saudi counterparts for a third consecutive month in an effort to dominate market share.

Despite the recent upswing, oil prices are down sharply from their peak of $115 a barrel in June, 2014, amid a glut of excessive supply on global energy markets. Crude futures have also fallen by more than 40% from their level 17 months ago when OPEC rattled markets with a strategic decision to maintain its production level at 30 million barrels per day.

Elsewhere, oil pared some of its gains early Friday afternoon after Baker Hughes said U.S. oil rigs fell by eight last week to 354, its lowest level since November, 2009. The total U.S. rig count decreased by seven to 443, falling to fresh 41-year lows. Any reductions in U.S. rig counts provide lagging indications that domestic production is about to level off. Last week, U.S. output fell to near 9.0 million barrels per day, its lowest level since November, 2014.

The declines, however, were short-lived as crude closed on Friday near session-highs.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.30% to an intraday low of 94.09, before rallying slightly to 94.23 in U.S. afternoon trading. The index remains near five-month lows.

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 held on to sharp gains in North America trade on Thursday, despite data showing that natural gas supplies in storage in the U.S. rose more than feared last week.

Natural gas for delivery in May on the New York Mercantile Exchange surged 6.1 cents, or 3.19%, to trade at $1.971 per million British thermal units by 14:35GMT, or 10:35AM ET. Prices were at around $1.969 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 April 1 rose by 12 billion cubic feet, compared to expectations for a gain of 8 billion.

That compares with a withdrawal of 25 billion cubic feet in the prior week and a five-year average decline of around 15 billion for this time of year.

Total U.S. natural gas storage stood at 2.480 trillion cubic feet, 40.6% higher than levels at this time a year ago and 35.3% above the five-year average for this time of year.

Some market experts worry that stockpiles at the end of March will hit at an all-time high of around 2.5 trillion cubic feet, topping the end-of-withdrawal-season high of 2.472 set at the end of March in 2012.

Meanwhile, updated weather forecasting models pointed to a burst of chillier-than-normal weather across most parts of the U.S. in the coming days.

Midwestern and Northeastern temperatures are expected to fall below normal in the first week in April amid a late season cold front, while a fast warm-up in the west is expected to drive cooling demand.

Natural gas prices have closely tracked weather forecasts in recent weeks, as traders try to gauge the impact of shifting outlooks on late-winter heating demand.

Gas use typically hits a seasonal low with spring's mild temperatures, before warmer weather increases demand for gas-fired electricity generation to power air conditioning.

The heating season from November through March is the peak demand period for U.S. gas consumption. However, a warmer-than-normal winter due to the El Niño weather pattern has limited the amount of heating days and reduced demand for the fuel.

Natural gas futures are up almost 19% since hitting a 20-year low of $1.611 in early March. Despite recent gains, prices are still down nearly 10% so far this year as weak winter heating demand, near-record production and record-high storage levels dragged down prices.

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