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posted on 03 June 2016

Investing.com Weekly Wrap-Up 03 June 2016

Written by , Investing.com

Late Wall Street rally falls short as dismal jobs data sinks Bank stocks

U.S. stocks pared sharp losses late in Friday's session after a disappointing domestic jobs report for the month of May dampened investors sentiment for a June interest rate hike from the Federal Reserve.

The Dow Jones Industrial Average lost 31.50 or 0.18% to 17,807.06, while theNASDAQ Composite index fell 28.84 or 0.58% to 4,942.52, halting a seven-day winning streak. At session-lows, the Dow dropped by as much as 148 points. The S&P 500 Composite index, meanwhile, dipped by 6.13 or 0.29% to 2,099.13, as six of 10 sectors closed in the red.

Stocks in the Financials sector lagged, while stocks in the Utilities industry led. Stocks in the Utilities sector, which are generally viewed as interest rate-sensitive investments, soared by more than 1.5% on the session.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) said nonfarm payrolls in May rose by 38,000, less than a quarter of analysts' expectations for monthly job gains of 158,000. It marked the slowest monthly job growth since September, 2010, and triggered alarm bells on the broader strength of the U.S. economy. Shortly after, billionaire real estate mogul Donald Trump, the presumptive Republican nominee for the 2016 U.S. presidential election, called the surprising figure a "bombshell".

the SPDR XLF Financial Sector ETF tumbled more than 1% as yields on the U.S. 10-Year plunged 11 basis points to an intraday-low of 1.697%, their lowest level in three weeks. Yields on 10-year U.S. Treasuries have crashed approximately 50 basis points since the Fed raised short-term interest rates in mid-December.

Consequently, top financial stocks on Wall Street fell precipitously as the prospect of a delayed rate hike intensified concerns of declining profits in the fixed income business. Shares in Goldman Sachs Group Inc (NYSE:GS), the worst performer on the Dow, fell 3.61 or 2.27% to 155.67. In total, losses from Goldman Sachs, AXP and JPM shaved roughly 40 points off the Dow. The top performer was Caterpillar Inc (NYSE:CAT), which added 1.42 or 1.93% to 75.04. Caterpillar, the world's largest manufacturer of construction equipment, received a boost from a 2% surge in gold prices on the session.

The biggest gainer on the NASDAQ was Broadcom (NASDAQ:AVGO), which jumped 7.97 or 5.14% to 162.88 after the California-based semiconductor company topped analysts' quarterly earnings forecasts and hiked their dividend on Friday. Broadcom sales continue to surge in anticipation of AAPL's iPhone 7 launch later this fall. The worst performer wasJd.Com Inc Adr (NASDAQ:JD), which lost 0.76 or 3.21% to 22.90. Shares in the Chinese e-commerce website fell by roughly 7% on the week, due primarily to weak manufacturing data in Asia.

The top performer on the S&P was Newmont Mining Corporation (NYSE:NEM), which soared 3.08 or 9.52% to 35.43. Shares in Newmont Mining (NYSE:NEM) popped on Friday, as Gold erased two weeks of losses with its massive surge. The worst performer was TheCharles Schwab Corporation (NYSE:SCHW), which fell 1.58 or 5.12% to 29.26. A host of top financial stocks also struggled on Friday, as Bank of America Corporation (NYSE:BAC),Citigroup Inc (NYSE:C) and E-TRADE Financial Corporation (NASDAQ:ETFC) all fell by more than 3%.

On the New York Stock Exchange, advancing issues outnumbered declining ones by a 1,637-1,398 margin.

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

Forex

EUR/USD enjoyed its strongest one-day move in more than a month, as the dollar erased three weeks worth of gains on Friday after disappointing U.S. jobs data likely pushed a June interest rate hike from the Federal Reserve off the table.

The currency pair traded in a tight range between 1.1137 and 1.1374 before settling at 1.1367, up 1.93% on the session. With the sharp gains, the euro closed above 1.13 against the dollar for the first time since May 17. Previously, the euro closed higher against its American counterpart in just seven of 23 sessions over the last month. Since opening the year at 1.08, the euro is up by nearly 5% against the dollar year to date.

EUR/USD likely gained support at 1.1055, the low from March 15 and was met with resistance at 1.1616, the high from May 3.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) said nonfarm payrolls in May rose by 38,000, less than a quarter of analysts' expectations for monthly job gains of 158,000. It marked the slowest monthly job growth since September, 2010 and raises questions on the strength of the broader economy following a downwardly revised total of 123,000 in April. As a result, the three-month average which hovered near 200,000 early this spring, crashed to 116,000.

The losses were concentrated among the information sector, which fell by 34,000, reflecting the six-week strike involving Verizon union workers that was settled last week. The manufacturing industry remained weak, losing 10,000 positions on the month, while jobs in the construction sector fell by 15,000, one month after spending in the industry dipped by the largest amount in five years. In addition, jobs in the temporary help services category, a leading indicator of future job growth, fell by 21,000.

At the same time, the unemployment rate dropped by 0.2% to 4.7%, as an estimated 500,000 Americans left the workforce last month. The labor force participation rate inched down 0.2% to 62.6%, while average hourly wages rose by 0.2% on the month. The average work week held steady at 34.4 hours.

The Federal Open Market Committee (FOMC) has left the target range of its benchmark Federal Funds Rate unchanged at a range between 0.25 and 0.50% in each of its first three meetings this year. Last December, the FOMC abandoned a seven-year zero interest rate policy by raising interest rates for the first time in nearly a decade.

Shortly after the jobs release, Fed governor Lael Brainard called the results of the employment report "sobering", and warned her colleagues against moving too fast by approving a premature rate hike. Last Friday, Fed chair Janet Yellen sent strong indications that the FOMC could raise rates in the coming months barring an unexpected economic setback. The FOMC meets next on June 14-15, ahead of a controversial Brexit referendum on the U.K.'s status in the European Union. Brainard said in a speech before the Council of Foreign Relations in Washington:

"In this environment, prudent risk management implies there is a benefit to waiting for additional data to provide confidence that domestic activity has rebounded strongly and reassurance that near-term international events will not derail progress toward our goals."

Yellen could address the state of the U.S. labor market and its implications on the Fed's monetary policy decisions when she delivers a speech to the World Affairs Council of Philadelphia on Monday.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, crashed more than 1.5% to a three-week low of 93.97. The index has tumbled more than 6% since early-December.

Yields on the U.S. 10-Year tumbled 11 basis points to an intraday-low of 1.697%, their lowest level in three weeks, before settling at 1.70%. Meanwhile, yields on the Germany 10-Year fell more than five basis points to an all-time record low of 0.068%.

Elsewhere, USD/JPY fell more than 2% to an intraday-low of 106.51, its lowest level in nearly a month. GBP/USD gained 0.73% to 1.4529, while USD/CAD fell 1.19% to 1.2942, suffering its worst one-day loss in nearly two months.

CTFC Commitment of Traders

This week speculators became less bullish on the S&P 500, gold and the yen .

Note: This data closes on Wednesday so the last two days of trading are not reflected. The big moves in all markets today (Friday) will undoubtedly produce some shifts in trader sentiment.

cot.2016.jun.01

Gold

Gold surged more than 2%, amid a broadly weaker dollar, as markets largely ruled out a summer interest rate hike from the Federal Reserve following a dismal U.S. jobs report on Friday morning.

On the Comex division of the New York Mercantile Exchange, Gold for August delivery traded between $1,209.50 and $1,245.75 an ounce, before settling at $1,241.95, up $29.35 or 2.42% on the session. With the sharp gains, Gold enjoyed its strongest one-day rally in more than two months, erasing most of its losses from a recent rout. Previously, Gold tumbled approximately 5% since May 18, closing lower in 11 of 12 sessions. Nevertheless, Gold is still up by more than 15% since the start of the year, holding onto gains from the strongest first quarter of a year in more than a decade.

Gold likely gained support at $1,125.00, the low from February 3 and was met with resistance at $1,304.40, the high from May 2.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) saidnonfarm payrolls in May rose by 38,000, less than a quarter of analysts' expectations for monthly job gains of 158,000. It marked the slowest monthly job growth since September, 2010 and raises questions on the strength of the broader economy following a downwardly revised total of 123,000 in April. As a result, the three-month average which hovered near 200,000 early this spring, crashed to 116,000.

The losses were concentrated among the information sector, which fell by 34,000, reflecting the six-week strike involving Verizon union workers that was settled last week. The manufacturing industry remained weak, losing 10,000 positions on the month, while jobs in the construction sector fell by 15,000, one month after spending in the industry dipped by the largest amount in five years. In addition, jobs in the temporary help services category, a leading indicator of future job growth, fell by 21,000. Meanwhile, the unemployment ratedropped by 0.2% to 4.7%, as an estimated 500,000 Americans left the workforce last month. The labor force participation rate inched down 0.2% to 62.6%, while average hourly wages rose by 0.2% on the month. The average work week held steady at 34.4 hours.

The Federal Open Market Committee (FOMC) has left the target range of its benchmark Federal Funds Rate unchanged at a range between 0.25 and 0.50% in each of its first three meetings this year. Last December, the FOMC abandoned a seven-year zero interest rate policy by raising interest rates for the first time in nearly a decade.

Over the last year, Fed chair Janet Yellen has consistently reiterated that the FOMC will take a data dependent approach with the timing of its first interest rate hike this year. A cautious Fed may err on the side of leaving interest rates low at its next meeting on June 14-15, before reconsidering a rate hike in July. Complicating matters, voters in the U.K. could rattle the global economy later this month if they approve a referendum enabling Britain to depart from the European Union on June 23.

The CME Group's (NASDAQ:CME) Fed Watch tool lowered the probability of a June rate hike to 3.8% on Friday from 20.6% a day earlier. The CME Group also placed the odds a rate hike by the Fed in July at 34.6%, down from 48.6% on Thursday.

Investors who are bullish on Gold are in favor of a gradual tightening of monetary policy by the Fed. Gold, which is not attached to interest rates, 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, crashed more than 1.5% to a three-week low of 93.97. The index has tumbled more than 6% since early-December.

Silver for July delivery gained 0.320 or 2.00% to $16.345 an ounce.

Copper for July delivery rose 0.041 or 1.98% to $2.111 a pound.

Oil

Crude futures fell considerably on Friday, one day after OPEC failed to agree on a deal for a new output ceiling, thrusting concerns related to global oversupply back into focus.

On the New York Mercantile Exchange, WTI crude for July delivery traded in a broad range between $48.34 and $49.41 a barrel before settling at $48.69, down 0.48 or 0.98% on the session. On the Intercontinental Exchange (ICE), brent crude for August delivery wavered between $49.31 and $50.33 a barrel, before closing at $49.74, down 0.30 or 0.60% on the day. Oil prices remain near 7-month highs from late-May when WTI crude surged above $50 a barrel for the first time in 2016. Since falling to 13-year lows at $26.05 a barrel in mid-February, U.S. crude has surged by approximately 80%.

On Thursday, officials from OPEC's 13-member bloc broke off talks at their semi-annual meeting in Vienna without reaching a deal to cap its production ceiling. Although Saudi Arabia attempted to appease smaller members such as Venezuela, Ecuador and Nigeria by pledging to avoid major output increases in the coming months, Iran held firm on its plan to ramp up production to pre-sanction levels from 2007. Any coordinated attempts for a comprehensive production freeze likely will not occur until at least late-November when OPEC is scheduled to meet again.

Still, there is some optimism that Saudi Arabia and Iran have mended some fences in light of laudatory comments by Iranian oil minister Bijan Zanganeh on new Saudi counterpart Khalid al-Falih. Last month, the Saudi kingdom replaced longtime oil minister Ali al-Naimi with Al-Falih, the head of state-owned oil firm Aramco. Al-Falih told reporters in Vienna:

"Saudi Arabia realizes that price is a key part of the oil-market formula -- it balances supply and demand. We realize that a long time under lower prices doesn't bring enough supply to meet the rise in demand."

Elsewhere, oil services firm Baker Hughes said in its Weekly Rig Count report that U.S. oil rigs rose by nine to 325 for the week ending May 27, the largest weekly increase since last December. As a result, the combined oil and gas rig count rose by four to 407, representing only its second weekly increase this year. Any gains in the weekly rig count typically send lagging indications that crude production is about to increase.

Crude prices also fell slightly on Friday in spite of a massive decline in the dollar. The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, crashed more than 1.5% to a three-week low of 93.97. The index has tumbled more than 6% since early-December.

It came on the heels of a dismal May jobs report, released on Friday morning, which showed that the U.S. labor market added 38,000 jobs on the month, the slowest monthly gains in jobs since September, 2010. The downbeat report may also lower the odds that the Federal Reserve could lift short-term interest rates when it meets next on June 14-15. Any rate hikes by the Fed this year are viewed as bullish for the dollar, as market players pile into the greenback in order to capitalize on higher yields.

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

Natural Gas (Thursday Report)

U.S. natural gas futures rallied to a new five-month high in North America trade on Thursday, after data showed that natural gas supplies in storage in the U.S. rose less than expected last week.

Natural gas for delivery in July on the New York Mercantile Exchange climbed to an intraday peak of $2.411 per million British thermal units, the most since January 11. It last stood at $2.409 by 14:34GMT, or 10:34AM ET, up 2.6 cents, or 1.09%. Prices were at around $2.377 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 May 27 rose by 82 billion cubic feet, below forecasts for an increase of 85 billion.

That compares with a gain of 71 billion cubic feet in the prior week and a five-year average increase of around 98 billion cubic feet.

Total U.S. natural gas storage stood at 2.907 trillion cubic feet, 24.5% higher than levels at this time a year ago and 25.9% above the five-year average for this time of year.

Unless intense summer heat boosts demand from power plants, stockpiles will test physical storage limits of 4.3 trillion cubic feet at the end of October.

A day earlier, prices jumped 9.3 cents, or 4.06%, after updated weather forecasting models showed that temperatures across the central and southern U.S. will be above normal through June 14.

Demand for natural gas tends to rise in the summer months as warmer temperatures increase the need for gas-fired electricity to power air conditioning.

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