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posted on 13 May 2016

Investing.com Weekly Wrap-Up 13 May 2016

Written by , Investing.com

U.S. stocks fall sharply as Financials, Consumer Staples weigh

U.S. stocks fell sharply on Friday, ending the week with a whimper, as Financials and Consumer Staples, as well as a flattening of the yield curve weighed on the major indices.

The Dow Jones Industrial Average lost 185.18 or 1.05% to 17,535.32, while theNASDAQ Composite index fell 19.65 or 0.41% to 4,717.68, continuing its recent downturn. At session-lows, the Dow tumbled by as much as 208 points. The S&P 500 Composite index, meanwhile, dropped 17.50 or 0.85% to 2,046.61, as all 10 sectors closed in the red. Stocks in the Energy, Industrials and Financials industries lagged, each falling by more than 1% on the session. The S&P 500 is virtually flat year-to-date.

The volatile week ended on a down note, as JC Penney Company Inc Holding (NYSE:JCP) capped a horrendous earnings period for top retailers by reporting weak quarterly earnings and sales for the first quarter. For the three-month period, JC Penney reported revenues of $2.81 billion on losses of 0.32 per share, topping earnings' forecasts but missing out on sales' expectations. The downbeat results followed weaker-than-expected earnings from Macy's Inc (NYSE:M), Nordstrom Inc (NYSE:JWN) and Kohl's Corporation (NYSE:KSS) earlier this week, exacerbating fears on the acceleration of the demise of the brick-and-mortar industry. As a result, the SPDR XRT Retail ETF extended losses from last month and has now fallen by as much as 11% since the start of April.

Separately, investors reacted to a flattening in the yield curve between short-termU.S. 2-Year Treasuries and longer-term 10-Year government bonds. At session-highs, the 2-year surged to 0.786%, its highest level in 10 days. Around the same time, government bond yields on the 10-year fell to a one-month low at 1.705%. A flattening of the yield curve typically sends indications of a slowdown in short-term economic activity.

The top performer on the Dow was Intel Corporation (NASDAQ:INTC), which added 0.17 or 0.57% to 29.93. Intel entered Friday's session with a Price-to-Earnings ratio of 12, a level regarded as relatively undervalued by Wall Street analysts. By comparison, the average PE ratio of a company listed on the S&P 500 currently hovers around 21. The worst performer was WMT, which fell 1.86 or 2.78% to 64.99. On Thursday, Wal-Mart (NYSE:WMT) launched a two-day shipping subscription service aimed at taking on Amazon.com Inc (NASDAQ:AMZN) Prime. In total, only three Dow components closed in the green in Friday's session.

The biggest gainer on the NASDAQ was NVIDIA Corporation (NASDAQ:NVDA), which soared 5.39 or 15.15% to 40.96 after the chipmaker topped analysts' forecasts for the first quarter. On an annual basis, Nvidia saw its revenues surged 46% amid increased demand among video game enthusiasts to pay for higher-quality graphics. The worst performer wasDollar Tree Inc (NASDAQ:DLTR), which fell 2.70 or 3.36% to 77.59. Shares in Dollar Tree are relatively flat over the last 52-weeks.

Nvidia was also the top performer on the S&P 500, just ahead of Endo International PLC (NASDAQ:ENDP), which added 0.63 or 4.68% to 14.08. Shares in Endo rallied after hitting a 52-week low at 12.56 in the previous session. It came amid multiple reports that the U.S. Attorney's Office for the Southern District of New York has approached a host of leading drug makers for information about their contracts with pharmacy benefit managers. The worst performer was Nordstrom, which plunged 6.15 or 13.60% to 39.08. Shares in Nordstrom fell to fresh 1-year lows on Friday, one day after the Seattle-based retailer badly missed earnings forecasts amid declining same-store sales.

On the New York Stock Exchange, declining issues outnumbered advancing ones by a 2,030-1,008 margin.

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

Forex

EUR/USD fell sharply on Friday, as the dollar continued its rally from 9-month lows amid an unexpected surge in U.S. consumer sentiment.

The currency pair traded in a broad range between 1.1283 and 1.1379, before settling at 1.1313, down 0.0061 or 0.56% on the session. At session-lows, the euro fell below 1.13 against the dollar for the first time in the month of May. The euro has now closed lower versus the dollar in eight of the last nine sessions. Despite the recent downturn, the euro is still up against American counterpart by more than 4% since the start 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 University of Michigan's Consumer Survey Center said itsConsumer Sentiment Index soared nearly seven points in its mid-May flash reading to 95.8, significantly above consensus expectations of 89.7. It came weeks after consumer sentiment slumped to 89.0 in the final April reading, dropping to its lowest level since last September. In the May reading, though, the expectations component surged nearly 10 points to 87.5, pulling up the general index. Over the last year, the sluggish expectations component has dragged down consumer sentiments overall.

Earlier on Friday, the U.S. Census Bureau said retail sales last month jumped by 1.3%, above consensus expectations of 0.9%, rebounding from a 0.3% decline in March. The overall reading received a lift from auto sales, which surged 3.2% on the month. Still, core retail sales, which discounted the effects of auto purchases, increased by 0.8% above analysts' forecasts for gains of 0.5%.

Investors also continued to react to a letter from Federal Reserve chair Janet Yellen to a member of the House Financial Services Committee on Thursday afternoon regarding the Fed's remote possibility likelihood of adopting a negative interest rate policy in the near future. In the letter addressed to Rep. Brad Sherman, Yellen said the Fed would not rule out the possibility of lowering rates into negative territory if an extremely adverse scenario arises in the coming months. Over the Federal Open Market Committee's (FOMC) first three meetings of 2016, the U.S. central bank has held its benchmark interest rate steady while central banks in Japan and the euro area have adopted negative interest rate regimes.

Market players also reacted to a flattening in the yield curve between short-termU.S. 2-Year Treasuries and longer-term 10-Year government bonds in Friday's session. At session-highs, the 2-year surged to 0.786%, its highest level in 10 days. Around the same time, government bond yields on the 10-year fell to a one-month low at 1.705%. A flattening of the yield curve typically sends indications of a slowdown in short-term economic activity.

In the euro area, Eurostat said on Friday morning that second quarter GDP in the zone is growing at a rate of 1.5% on an annual basis, slightly below analysts' forecasts of 1.6%. On a quarterly basis, second quarter growth is up by 0.5%, just below expectations of 0.6%.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, jumped more than 0.65% to an intraday-high of 94.71, before settling at 94.60. The index is still down more than 4% since early-December.

CTFC Commitment of Traders

No major sentiment changes in this week's report. This week speculators were slightly less bullish on gold and oil.

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

cot.2016.may.11

Gold

Gold was relatively flat on Friday, in spite of a broadly strongly dollar pushed higher by the most robust monthly improvement in consumer sentiment in a decade.

On the Comex division of the New York Mercantile Exchange, gold for June delivery wavered between $1,264.900 and $1,277.65 an ounce, before settling at $1,272.35, up $1.15 or 0.09%. After two weeks rife with extreme volatility on global commodity markets, the precious metal has declined by roughly 1.7% from 15-month highs near $1,300 an ounce at the start of the month. Despite the recent downturn, gold is still up by more than 17% since the start of the year 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 University of Michigan's Consumer Survey Center said itsConsumer Sentiment Index soared nearly seven points in its mid-May flash reading to 95.8, significantly above consensus expectations of 89.7. It came weeks after consumer sentiment slumped to 89.0 in the final April reading, dropping to its lowest level since last September. In the May reading, though, the expectations component surged nearly 10 points to 87.5, pulling up the general index. Over the last year, the sluggish expectations component has dragged down consumer sentiments overall.

Earlier on Friday, the U.S. Census Bureau said retail sales last month jumped by 1.3%, above consensus expectations of 0.9%, rebounding from a 0.3% decline in March. The overall reading received a lift from auto sales, which surged 3.2% on the month. Still, core retail sales, which discounted the effects of auto purchases, increased by 0.8% above analysts' forecasts for gains of 0.5%.

Investors also continued to react to a letter from Federal Reserve chair Janet Yellen to a member of the House Financial Services Committee on Thursday afternoon regarding the Fed's remote possibility likelihood of adopting a negative interest rate policy in the near future. In the letter addressed to Rep. Brad Sherman, Yellen said the Fed would not rule out the possibility of lowering rates into negative territory if an extremely adverse scenario arises in the coming months. Over the Federal Open Market Committee's (FOMC) first three meetings of 2016, the U.S. central bank has held its benchmark interest rate steady while central banks in Japan and the euro area have adopted negative interest rate regimes.

Any rate hikes by the Fed this year are viewed as bearish for gold, which struggles to compete against 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, jumped more than 0.65% to an intraday-high of 94.71. The index is still down more than 4% since early-December.

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

Silver for July delivery added 0.007 or 0.04% to $17.110 an ounce.

Copper for July delivery inched down 0.001 or 0.02% to $2.074 a pound.

Oil

U.S. crude futures retreated from six-month highs on Friday, as a slight uptick in OPEC production in April reinforced long-term concerns related to the excessive supply glut on global energy markets.

On the New York Mercantile Exchange, WTI crude for June delivery traded in a broad range between $45.76 and $46.48 a barrel before settling at $46.16, down 0.54 and 1.16% on the session. It came one session after U.S. crude futures surged above $47 a barrel for the first time since early-November, as energy traders continued to react to sharp declines in domestic production and a surprising draw in crude inventories last week. WTI crude remains up by approximately 60% from its level three months ago when it touched 13-year lows at $26.05 a barrel.

On the Intercontinental Exchange (ICE), brent crude for July delivery wavered between $47.28 and $48.10, before closing at $47.74, down 0.34 or 0.71% on the day. North Sea brent futures approached 2016-yearly highs on Thursday after the influential Paris-based International Energy Agency (IEA) predicted a significant narrowing in the global supply-demand imbalance over the course of the year.

On Friday, though, OPEC said in it Monthly Oil Report for May that crude oil production last month rose by 188,000 barrels per day to average 32.44 million bpd, according to secondary sources. It came amid considerable increases in Iran, Iraq and Angola, partially offset by declines in Nigeria and Kuwait. Saudi Arabia, the largest producer in the 13-member cartel, saw its production fall slightly by 8,000 bpd to 10.125 million bpd. Output in the Saudi kingdom still remains near all-time record highs. Overall, OPEC production reached its highest level since the peak of the Financial Crisis.

Still, the value of OPEC's Reference Basket moved higher for the third consecutive month, gaining $3.21 per barrel to $37.86. OPEC credited an accelerated decline of US crude production, a weaker dollar, a wave of supply disruptions worldwide and forecasts for a sharp fall in non-OPEC production for the latest price gains.

"Record bullish bets on higher futures prices by speculators also helped once more this month," OPEC said in the report. "Nevertheless, fundamentally, oversupply still persists, and oil output remains high."

Elsewhere, oil services firm Baker Hughes said in its weekly rig count report that oil rigs last week fell by 10 to 318, dropping to the lowest level since October, 2009. Oil rigs throughout the U.S. have now fallen in eight consecutive weeks. The combined oil and gas rig count, meanwhile, decline by nine to 406, hitting a new 69-year low.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, jumped more than 0.65% to an intraday-high of 94.71. The index is still down more than 4% since early-December.

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

Natural Gas (Thursday Report)

Natural gas futures rose on Thursday after data showed that U.S. natural gas supplies rose less than expected last week and as forecasts for early next week remained cooler, boosting near-term demand expectations for the heating fuel.

On the New York Mercantile Exchange, natural gas for delivery in June was up 0.46% to $2.181 per million British thermal units. Prices were around $2.171 prior to the release of the supply data.

In its weekly report the Energy Information Administration said natural gas storage in the week ended May 6 rose by 56 billion cubic feet, compared to expectations for an increase of 58 bcf.

Total U.S. natural gas storage stood at 2,681 bcf the EIA said. Stocks were 816 bcf higher than last year at this time and 813 bcf above the five-year average of 1,868 bcf for this time of year.

A weather system with heavy showers and thunderstorms is tracking through the central U.S. with slightly cool conditions expected to last through May 16. Another weather system is grazing New England also with cooling. Forecasts originally called for mild weather during the period.

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.

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