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posted on 10 June 2016

Investing.com Weekly Wrap-Up 10 June 2016

Written by , Investing.com

U.S. stocks fall sharply as Brexit, government bond yield concerns weigh

U.S. stocks pared sharp losses on Friday but still closed broadly lower, as domestic crude futures dropped below $50 a barrel and a global bond yield crush spilled over into equity markets worldwide.

The Dow Jones Industrial Average fell 119.85 or 0.67% to 17,865.34, while the S&P 500 Composite index dropped 19.41 or 0.92% to 2,096.07, bouncing from session-lows. The Dow fell as much as 172 points during Friday's session.

On the S&P 500, nine of 10 sectors closed in the red, as stocks in the Energy, Financials and Technology industries lagged. Stocks in the telecommunications sector led, gaining more than 0.6% on the session. The NASDAQ Composite index, meanwhile, lost 64.07 or 1.29% to 4,894.55. Despite the sell-off over the last two sessions, the major indices are still up more than 10% from February's lows.

Investors continued to pile into safe-haven assets on Friday, as government bond yields throughout the world tumbled to fresh record lows. It came amid mounting fears of a potential collapse in credit markets, as yields on Japanese and Swiss 10-Year government bond yields dropped to their lowest level on record and yields on Japanese 30-Year bonds turned negative. In Germany, more than 75% of government bond yields hovered in negative territory, as the Germany 10-Year fell to all-time lows of 0.02. Consequently, equities in the euro area plunged 2% as financial stocks dragged down the major indices overall.

Yields have fallen precipitously over the last year amid a wide range of easing initiatives by top central banks worldwide. Earlier, this week the European Central Bank launched a comprehensive corporate bond buying program aimed at bolstering inflation. Investors also kept a close eye in developments in the U.K. after an ORB Brexit poll released on Friday showed that 55% of voters support a referendum to leave the European Union.

The top performer on the Dow was Verizon Holdings (SIX:VZN), which added 0.72 or 1.39% to 52.67. While the telecom giant reportedly increased its offer for Yahoo's (NASDAQ:YHOO) core assets in the second round of bidding to $3.5 billion, according to multiple outlets, the bid lags behind a reported $5 billion offer from top rival T. The worst performer was Goldman Sachs Group Inc (NYSE:GS), which lost 3.28 or 2.14% to 149.89. Goldman Sachs (NYSE:GS) finished just below Caterpillar Inc (NYSE:CAT), which fell 1.13 or 1.46% to 26.03. Caterpillar (NYSE:CAT) shares slumped on Friday, as the British pound fell sharply against the dollar weighing heavily on global commodities.

The biggest gainer on the NASDAQ was Walgreens Boots Alliance Inc (NASDAQ:WBA), which added 3.46 or 4.38% to 82.47. On Thursday, the New York Post reported that a proposed $17 billion merger between Walgreen's and Rite Aid could be on the verge of gaining regulatory approval from the U.S. Federal Trade Commission (FTC). The merger could unite two of the top three drug store chains in the country. The worst performer was Endo International, which fell 1.52 or 8.44% to 16.84. Shares in the specialty drug maker are down by more than 75% over the last year.

The top performer on the S&P 500 was HRB, which surged 2.69 or 12.49% to 24.23. Shares in H&R Block (NYSE:HRB) extended gains from Thursday's after-hours session, after the largest tax preparer in the U.S. topped analysts' earnings expectations and increased its quarterly dividend by 10%. The Kansas City-based tax giant hiked quarterly dividends, despite a 4.5% decrease in total returns over Tax Season 2016. The worst performer was Southwestern Energy Company (NYSE:SWN), which fell 1.59 or 10.79% to 13.15. Energy stocks weighed heavily on the index in Friday's session, as Devon EnergyCorporation (NYSE:DVN), Chesapeake Energy Corporation (NYSE:CHK), Murphy Oil Corporation (NYSE:MUR) and NRG Energy Inc (NYSE:NRG) also plummeted more than 6%.

On the New York Stock Exchange, declining issues outnumbered advancing ones by a 2,433-579 margin.

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

Forex

The dollar remained broadly higher against the other major currencies on Friday, after data showed that U.S. consumer sentiment deteriorated less than expected this month, adding to optimism over the strength of the economy.

USD/JPY was down 0.14% at 106.94.

In a preliminary report, the University of Michigan said its consumer sentiment index fell to 94.3 in June from 94.7 the previous month, compared to expectations for a decline to 94.0.

The positive data added to optimism over the strength of the economy after the U.S. Department of Labor said on Thursday that the number of individuals filing for initial jobless benefits in the week ending June 4 fell unexpectedly to 264,000.

The reports came after Federal Reserve Chair Janet Yellen said on Monday that interest rates won't rise until uncertainty over the economic outlook is resolved.

EUR/USD fell 0.27% to 1.1287, the lowest since June 3.

The euro remained under pressure after European Central Bank President Mario Draghi warned on Thursday that weak growth in the euro zone could cause "lasting damage" to the region.

The dollar moved higher against the pound, with GBP/USD down 0.88% at a seven-week low of 1.4331 and was steady against the Swiss franc, with USD/CHF at 0.9644.

The pound remained under broad selling pressure amid mounting fears of a potential Brexit victory at the U.K. referendum scheduled on June 23.

The Australian and New Zealand dollars were weaker, with AUD/USD down 0.38% at 0.7402 and with NZD/USD sliding 0.31% to 0.7081.

Elsewhere, USD/CAD was little changed at 1.2725.

The loonie strengthened briefly earlier, after Statistics Canada reported that the number of employed people rose by 13,800 in May, blowing past expectations for a 3,800 rise, after a 2,100 decline the previous month.

The report also showed that Canada's unemployment rate fell to 6.9% last month from 7.1% in April. Analysts had expected the unemployment rate to remain unchanged in May.

But commodity currencies remained under pressure as oil prices moved lower for a second consecutive session on Friday amid profit-taking following the previous session's crude rally to multi-month highs.

The U.S. dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, was up 0.28% at a fresh one-week high of 94.36.

CTFC Commitment of Traders

This week speculators turned bearish on the S&P 500, while bullishness increased for gold and the yen and bearishness increased for the euro and the British pound.

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.08

Gold

Gold inched up on Friday completing one of the strongest two-week rallies over the first six months of the year, as investors remained bullish on the precious metal while global bond yields and stocks continued to dip.

On the Comex division of the New York Mercantile Exchange, Gold for August delivery traded between $1,267.00 and $1,280.85 an ounce before settling at $1,274.05, up 1.35 or 0.11% on the day. Gold has closed higher in three consecutive sessions and five of the last seven. At session highs, the precious metal cleared $1,280 for the first time in three weeks. Gold, which has surged nearly 20% in 2016, remains near 15-month highs at $1,300.

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.

Investors continued to pile into safe-haven assets such as Gold, as government bond yields worldwide tumbled to fresh record lows. Yields on the Germany 10-Year fell as low as 0.02%, as more than 75% of German government bond yields hovered in negative territory. Throughout the euro zone, bond prices remained high as yields in the U.K, France,Italy and Spain provided unattractive options for investors. It came one day after Janus Capital's Bill Gross cautioned that a $10 trillion pile of negative yielding government bonds could amount to a "supernova that will explode one day."

In the last month alone, yields on each of the five aforementioned government bonds have plummeted at least 10 basis points. Since the start of last summer, German bund yields have crashed nearly 100 basis points, while yields on 10-year U.K. Gilts and France Oats have plunged approximately 90 basis points. In Japan, 10-Year government bond yields fell three basis points to Minus-0.17% on Friday. Over the last five months, Japanese 10-year bond yields have slumped more than 20 basis points since the Bank of Japan adopted a controversial negative interest rate policy in January.

Meanwhile, stocks in the euro zone fell sharply on Friday as concerns related to the German yield crush and an upcoming Brexit vote continued to fester. The German Daxplunged 2.52% to 9,834.62, while the broader Euro Stoxx 600 Index fell 2.3% in Friday's session, ending the week down by 2.4%. to 332.92. Earlier this week, the European Central Bank launched a comprehensive corporate bond buying program in its latest effort to bolster persistently sluggish inflation. On Thursday, ECB president Mario Draghi criticized top politicians for placing an undue burden on the central bank by delaying key fiscal reforms.

Across the Atlantic, the dollar extended Thursday's rally following a solid consumer sentiment report by the University of Michigan. In Friday's June flash report, Michigan's Consumer Survey Center said its consumer index fell by 0.4 to 94.3, remaining near one-year highs. Consumer sentiment has stabilized since May's robust flash report when the index soared nearly eight points, posting its best monthly reading in six years. At a closely-watched speech on Monday, Federal Reserve chair Janet Yellen credited a significant increase in consumer spending for helping bolster GDP growth expectations over the second quarter.

While the Federal Open Market Committee (FOMC) is not expected to raise short-term interest rates when it meets next week, Yellen has yet to rule out a summer interest rate hike. The FOMC has left the target range on its benchmark Federal Funds Rate at its current level between 0.25 and 0.50% at each of its three meetings this year.

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, rose by more than 0.35% to an intraday high of 94.46. The index is still down by more than 5% since early-December.

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

Silver for July delivery gained 0.032 or 0.19% to $17.300 an ounce.

Copper for July delivery inched down 0.009 or 0.44% to $2.030 a pound.

Oil

U.S. crude futures fell sharply from near-yearly highs on Friday retreating below $50, as the domestic oil rig count moved higher for a second consecutive week providing indications that producers are ready to ramp up output.

On the New York Mercantile Exchange, WTI crude for July delivery traded between $48.87 and $50.73 a barrel before closing at $49.07, down 1.48 or 2.93% on the session. With the sharp losses, the front month contract for U.S. crude closed below $50 for the first time in four sessions.

On the Intercontinental Exchange (ICE), brent crude for August delivery wavered between $50.37 and $52.10 a barrel, before closing at $50.54, down 1.41 or 2.71% on the day. At session-highs, North Sea brent futures eclipsed the $52 level for the first time since early-October. Both the international and U.S. benchmarks of crude hovered near 11-month highs earlier this week, as a longstanding conflict in Nigeria has raged on leading to widespread slowdowns among major producers throughout the Southern delta region of the nation.

U.S. crude futures have surged more than 85% since falling to 13-year lows at $26.05 a barrel on February 11.

WTI crude extended losses on Friday afternoon after oil services firm Baker Hughes said the U.S. oil rig count increased by three for the week ending on June 3 to 328. At the same time, the gas rig count rose last week by 3 to 85 boosting the overall count up six to 414. A week earlier, Baker Hughes reported that its weekly rig count moved higher for the first time since last August, providing drillers with some optimism that a prolonged two-year downturn might be on the verge of subsiding. The rig count is still down by 445 from the same week last year.

It came days after the U.S. Energy Information Administration (EIA) reported that crude production nationwide increased by 10,000 barrels per day to 8.745 million bpd last week, halting a 4-month streak of weekly declines. Over the last year, crude output in the U.S. has plummeted by nearly 1 million bpd. At this time last year, daily production hovered around 9.6 million barrels, its highest level in more than 40 years. High-cost U.S. shale producers are able to return online when the price of oil rises exponentially.

Elsewhere, energy traders continued to closely monitor activities in Southern Nigeria, an area besieged by constant attacks of sabotage on oil facilities in the region over the last month. On Friday morning, the Niger Delta Avengers, a local militant group, claimed responsibility for an attack in the wee hours of a pipeline operated by Italy's ENI (MI:ENI). The attack on the Obi Obi Brass Pipeline, which impacted Agip's major crude oil line, marks the latest attempt by the militants to cut crude production in the area to zero.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose by more than 0.35% to an intraday high of 94.46. The index is still down by more than 5% 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 rallied to a new eight-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 jumped 8.0 cents, or 3.24%, to trade at $2.548 per million British thermal units by 14:33GMT, or 10:33AM ET. Prices were at around $2.459 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 June 3 rose by 65 billion cubic feet, below forecasts for an increase of 78 billion.

That compared with builds of 82 billion cubic feet in the prior week, 117 billion a year earlier and a five-year average of 96 billion cubic feet.

Total U.S. natural gas storage stood at 2.972 trillion cubic feet, 22.2% higher than levels at this time a year ago and 24.3% 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.

Meanwhile, updated weather forecasting models continued to show above-normal temperatures across most parts of the U.S. over the next two weeks.

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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