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posted on 06 May 2016

Investing.com Weekly Wrap-Up 06 May 2016

Written by , Investing.com

U.S. stocks rise slightly as weak job gains lower rate hike expectations

U.S stocks inched up on Friday, as nonfarm payrolls in the U.S. rose in April by its lowest level in seven months, potentially lowering the probability that the Federal Reserve could raise interest rates before the end of the first half.

The Dow Jones Industrial Average gained 79.79 or 0.45% to 17,740.50, while the S&P 500Composite index added 6.53 or 0.32% to 2,057.16, capping a relatively flat 5-day stretch when both indices closed fractionally lower for the week. The NASDAQ Composite index, meanwhile, rose 19.07 or 0.40% to 4,736.16, withstanding a sharp decline in the biotech sector.

On the S&P 500, seven of 10 sectors closed higher as stocks in the Basic Materials, Industrials and Consumer Services industries led. For the week, Energy, Basic Materials and Industrials sectors closed lower.

Although three top Wall Street firms lowered their expectations for the pace of the Fed's current tightening cycle, there were other indications on Friday that the U.S. central bank could leave a June rate hike on the table. In an interview with the New York Times following the jobs release, New York Fed president William Dudley said he is still reasonably confident that the Fed could raise rates up to two times this year. Any tightening by the Fed is viewed as bearish for U.S. equities, as investors depart their positions in stocks for yield-bearing assets in bonds and U.S. Treasuries.

The top performer on the Dow was Wal-Mart Stores Inc (NYSE:WMT), which added 1.04 or 1.55% to 68.25. Earlier this week, the world's largest retailer announced plans to fill 9,000 front-of-the-store greeter positions throughout the U.S. Over the last two years, Wal-Mart (NYSE:WMT) has spent billions dollars to raise the wages for thousands of employees, amid nationwide calls for an increased federal minimum wage. The worst performer was Merck & Company Inc (NYSE:MRK), which fell 0.49 or 0.91% to 53.60. For the week, the iShares NASDAQ Biotech Index ETF slumped approximately 3%.

The biggest gainer on the NASDAQ was Activision Blizzard Inc (NASDAQ:ATVI), which surged 2.96 or 8.48% to 37.87, after the Southern California-based video game maker trounced first quarter earnings estimates and lifted its full-year guidance. It came on the back of stellar Call of Duty Back OPS sales on the period. The worst performer was Endo International, which plunged 10.42 or 39.19% to 16.17. Endo extended 25% losses from Thursday night's after-hour session after the specialty drug maker announced plans to slash its full-year guidance 23%, amid widespread pricing pressure among multiple drug classes.

The top performer on the S&P 500 was Teradata Corporation (NYSE:TDC), which soared 1.87 or 7.12% to 28.14 after the Miami Township-based company notified the U.S. Securities and Exchange Commission of CEO Michael Kohler's resignation on Friday. Kohler, who will be paid $2.7 million under a severance deal reached with the company, will be replaced immediately by board member Victor Lund. Endo International was also the worst performer on the S&P 500, just below Chesapeake Energy Corporation (NYSE:CHK) which tumbled 1.02 or 17.86% to 4.69.

On the New York Stock Exchange, advancing issues outnumbered declining ones by a 1,951-1,071 margin.

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

Forex

EUR/USD ended Friday's session virtually flat in spite of a soft U.S. monthly jobs report that pushed back market expectations for the Federal Reserve's next interest rate beyond the first half of 2016.

The currency pair traded in a broad range between 1.1387 and 1.1480, before settling at 1.1404, down 0.0001 or 0.01% on the session. With the miniscule losses, the euro fell for the fourth straight session against the dollar, continuing its pullback from 9-month highs in Tuesday's session when it eclipsed 1.16 for the first time since August. Over the last month, the euro is up fractionally against its American counterpart by 0.18%.

EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1713, the high from Aug. 24.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) said domestic nonfarm payrolls in April increased by 160,000, considerably below a downwardly revised gain of 209,000 in March and the lowest monthly total since last September. Analysts expected to see an increase of 200,000, in line with March's three-month average of 202,000. The losses were concentrated in mining, government and retail, partially offset by improved conditions in the Professional and Business Services industry.

The unemployment rate, meanwhile, remained unchanged at 5%, slightly above consensus forecasts for a 0.1% decline to 4.9%. In January, the unemployment rate in the U.S. fell to its lowest level in eight years. The U-6 unemployment rate, which also measures workers that are marginally attached to the labor market, fell 0.1 to 9.7%, sharply below last April's rate of 10.4%. By comparison, the Fed's preferred gauge of U.S. unemployment, peaked at 18% in 2010 at the end of the Financial Crisis.

Meanwhile, average hourly wages increased by 0.3% last month, in line with consensus estimates. The Labor Force Participation Rate fell by 0.2% to 62.8%, while the average workweek stayed unchanged at 34.5 hours per week.

While the Fed has voiced concern with the sluggish pace of inflation over the last several months, the U.S. central bank had expressed optimism with the broad improvement in the labor market prior to Friday's report.

In April, the FOMC said in its monetary policy statement that it will take a data-driven approach with the timing of its next interest rate hike. The FOMC's benchmark Federal Funds Rate has remained at its current level between 0.25 and 0.50% at each of the Fed's three meetings this year. In December, the Fed ended a seven-year zero interest rate policy by approving its first rate hike in nearly a decade.

Although three top Wall Street firms lowered their expectations for the pace of the Fed's current tightening cycle, there were other indications on Friday that the U.S. central bank could leave a June rate hike on the table. In an interview with the New York Times following the jobs release, New York Fed president William Dudley said he is still reasonably confident that the Fed could raise rates as much as twice year.

Elsewhere, Retail PMI in the euro area slumped 1.3 points to 47.9, considerably below consensus' expectations for a 49.6 reading. Yields on the U.S. 10-Year rose three basis points to 1.73%, while yields on the Germany 10-Year gained three basis points to 0.14%. It came one day after the benchmark for global bond yields fell to 1.287%, percentage points from hitting all-time lows, according to Bloomberg.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.20% to an intraday low of 93.22, before rallying in the afternoon session to settle at 93.83, up 0.10% on the day. The index continues to hover near 9-month lows.

CTFC Commitment of Traders

This week speculators were less bearish on the euro and the British pound; they were more bullish on on the Canadian dollar and gold; and less bullish on oil, yen and Australian dollar.

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

cot.2016.may.04

Gold

Gold surged more than $20 an ounce on Friday resuming its push back to multi-year highs, as nonfarm payrolls in the U.S. rose in April by its lowest level in seven months, placing a June interest rate hike by the Federal Reserve firmly in doubt.

On the Comex division of the New York Mercantile Exchange, gold for June delivery wavered between $1,276.00 and $1,296.55 an ounce, before settling at $1,296.50, up 24.20 or 1.92% on the session. Gold has closed higher in seven of the last 10 sessions and has soared more than 4% since the Federal Open Market Committee (FOMC) held interest rates steady at its two-day April meeting last week. Over the first four months of the year, the previous metal has surged more than 21% and is on pace for one of its strongest first halves in more than a decade.

Gold likely gained support at $1,063.20, the low from January 4 and was met with resistance at $1,322.10, the high from August 8, 2014.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) said domestic nonfarm payrolls in April increased by 160,000, considerably below a downwardly revised gain of 209,000 in March and the lowest monthly total since last September. Analysts expected to see an increase of 200,000, in line with March's three-month average of 202,000. The losses were concentrated in mining, government and retail, partially offset by improved conditions in the Professional and Business Services industry.

The unemployment rate, meanwhile, remained unchanged at 5%, slightly above consensus forecasts for a 0.1% decline to 4.9%. In January, the unemployment rate in the U.S. fell to its lowest level in eight years. The U-6 unemployment rate, which also measures workers that are marginally attached to the labor market, fell 0.1 to 9.7%, sharply below last April's rate of 10.4%. By comparison, the Fed's preferred gauge of U.S. unemployment, peaked at 18% in 2010 at the end of the Financial Crisis.

Elsewhere, average hourly wages increased by 0.3% last month, in line with consensus estimates. The Labor Force Participation Rate fell by 0.2% to 62.8%, while the average workweek stayed unchanged at 34.5 hours per week.

While the Fed has voiced concern with the sluggish pace of inflation over the last several months, it had expressed optimism with the broad improvement in the labor market prior to Friday's report. In April, the FOMC said in its monetary policy statement that it will take a data-driven approach with the timing of its next interest rate hike. The FOMC's benchmark Federal Funds Rate has remained at its current level between 0.25 and 0.50% at each of the Fed's three meetings this year. At the Fed's final meeting of 2015, the U.S. central bank ended a seven-year zero interest rate policy by approving its first rate hike in nearly a decade.

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, fell more than 0.20% to an intraday low of 93.22, before rallying to 93.63 early in the afternoon session. The index is down more than 6% since early-December. Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for May delivery soared 0.253 or 1.46% to $17.580 an ounce.

Copper for March closed at $2.154 a pound, finishing flat for the session.

Oil

Crude futures pared some gains on Friday, as the dollar softened in response to weaker than expected U.S. jobs data and the domestic rig count slid to fresh all-time record low, providing further signals of sharp declines in production over the next several months.

On the New York Mercantile Exchange, WTI crude for June delivery traded in a broad range between $43.55 and $45.33 a barrel, before settling at $44.59, up 0.27 or 0.61% on the session. WTI closed the week with back-to-back winning sessions, to recoup some losses from a three-day losing streak when the front month contract for U.S. crude opened the month by slumping nearly 6%. On the Intercontinental Exchange (ICE), brent crude for July delivery wavered between $44.20 and $46.11 a barrel, before closing at $45.30, up 0.30 or 0.67% on the session.

Both Brent and WTI ended the week down by approximately 2%, suffering one of their worst weekly performances since mid-February. Last week, the international and U.S. domestic benchmarks ended April by hitting fresh 2016-yearly highs.

On Friday afternoon, oil services firm Baker Hughes said in its weekly rig count report that oil rigs in the U.S. fell by four to 328 for the week ending on April 29. The rig count has moved lower in each of the last seven weeks. At the same time,combined oil and gas rig count declined by five to 415, touching down to a fresh all-time low. Major reductions among U.S. oil rigs typically provide lagging indications that domestic production is about to level off.

Earlier this week, the U.S. Department of Energy reported that nationwide production fell by 113,000 barrels per day for the week ending on April 29, marking the strongest weekly decline since last July. Domestic output in the U.S. has now fallen in 11 consecutive weeks, dropping to 8.825 million bpd, its lowest level since September, 2014. It comes amid reports that OPEC production in April surged to 32.64 million bpd, just 0.1 million bpd from all-time record highs four months ago. OPEC production is expected to remain relatively steady until the world's largest oil cartel convenes for a highly-anticipated meeting on June 2 in Vienna.

Although U.S. crude futures have bounced off mid-February lows of $26.05 a barrel, oil prices are still down by more than 60% from their peak of $115 in June, 2014.

Elsewhere, investors continued to monitor production levels throughout Canada, as wildfires continued to rage throughout Alberta. On Friday, Canadian energy company Suncor told UPI that it closed down operations at its plant in Fort McMurray as the town's 88,000 residents evacuated the area. Oil prices worldwide gained 1% a day earlier, amid reports that the disaster forced approximately 640,000 barrels offline. In total, as much as 1 million barrels of Canadian oil could be taken offline temporarily, the Wall Street Journal reported.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.20% to an intraday low of 93.22 after the Labor Department reported that nonfarm payrolls last month rose by its slowest pace in seven months. The index is down more than 6% since early-December.

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 losses in North America trade on Thursday, after data showed that natural gas supplies in storage in the U.S. rose more than feared last week.

Natural gas for delivery in June on the New York Mercantile Exchange shed 2.2 cents, or 1.03%, to trade at $2.119 per million British thermal units by 13:35GMT, or 09:35AM ET. Prices were at around $2.115 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 29 rose by 68 billion cubic feet, compared to expectations for a gain of 64 billion.

That compares with a gain of 73 billion cubic feet in the prior week, an increase of 77 billion cubic feet in the same week a year earlier and a five-year average rise of around 64 billion cubic feet.

Total U.S. natural gas storage stood at 2.625 trillion cubic feet, 32.8% higher than levels at this time a year ago and 31.9% above the five-year average for this time of year.

A day earlier, gas futures climbed 5.5 cents, or 2.64%, amid speculation hotter weather will increase spring cooling demand.

Updated weather forecasting models showed that temperatures may be warmer than normal on the U.S. East Coast from May 9 to May 13 after a cold spell this week.

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

Natural gas futures are up almost 25% since hitting a 20-year low of $1.611 in early March amid indications the flood of production from shale formations is beginning to subside.

Despite recent gains, natural gas prices are still down nearly 5% so far this year as weak winter heating demand and record-high storage levels dragged down prices.

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