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posted on 08 July 2016

Investing.com Weekly Wrap-Up 08 July 2016

Written by , Investing.com

U.S. stocks surge amid strong jobs report, as S&P nears all-time high

The Dow Jones Industrial Average soared 250.86 or 1.40% to 18,146.74, erasing all of its post-Brexit losses from late-June when the index plunged approximately 850 points over the span of two sessions. The NASDAQ Composite index also added 79.95 or 1.64% to 4,956.76, while the S&P 500 Composite index gained 32.00 or 1.53% to 2,129.90, moving fractions from its all-time record closing high of 2,130.82. On the S&P 500, all 10 sectors closed in the green as stocks in the Basic Materials, Industrials and Financials industries led.

U.S. stocks rose sharply on Friday after robust job gains last months bolstered investor sentiment on the strength of the economy, while financial stocks remained supported by an uncertain interest rate outlook amid widespread concerns abroad.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics said nonfarm payrolls rose by 287,000 in June, defying expectations for gains of 180,000 and posting the highest monthly increase in eight months. While the unemployment rate inched up 0.2 to 4.9%, a broader measure of workers marginally attached to the labor market continued to tick lower, providing economists with optimism following a disappointing employment report in May. At last month's Federal Open Market Committee's (FOMC) June meeting, the Fed singled out a weakening labor market for prompting participants to lower the trajectory of their long-term rate path.

The SPDR XLF Financial Sector ETF surged more than 1.9% to 22.92, as JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC) both rose sharply for the session. While Goldman Sachs Group Inc (NYSE:GS) said on Friday there is a 66% chance the Fed could raise interest rates this year, Fed futures rates from the CME Group (NASDAQ:CME) were still drastically lower following the report. Any rate hikes by the Fed this year are viewed as bearish for financial stocks, as higher rates depress a bank's net interest margin. It sets the stage for the start of a critical earnings period next week when a host of prominent Wall Street banks are scheduled to report results for the second quarter.

The top performer on the Dow was CAT, which added 2.37 or 3.16% to 77.42. Caterpillar(NYSE:CAT) finished just above EI du Pont de Nemours and Company (NYSE:DD), which gained 1.86 or 3.00% to 63.78. Earlier on Friday, a Federal jury in Columbus, Ohio awarded limited punitive damages of $500,000 to a man who developed testicular cancer from drinking water contaminated by the company's Teflon chemicals. The verdict came one day after attorneys for the plaintiff argued that DuPont (NYSE:DD) should pay an additional $1.2 billion in fines for dumping Teflon from a West Virginia plant into nearby waters. On Wednesday, the same jury awarded the plaintiff $5.1 million for negligence. Johnson & Johnson (NYSE:JNJ) finished as the worst performer on the Dow, gaining 0.30 or 0.24% to 122.81.

The biggest gainer on the NASDAQ was Viacom B Inc (NASDAQ:VIAB), which jumped 2.20 or 5.11% to 45.24. Viacom shares popped after Reuters reported that Mario Gabelli, the company's second-largest shareholder, believes it could be increasingly more difficult for CEO Phillipe Dauman to retain his position. Dauman is embroiled in a prolonged battle with majority owner Sumner Redstone for control of the media giant. The worst performer was Baidu Inc (NASDAQ:BIDU), which fell 3.89 or 2.38% to 159.53. In total, only three companies on the NASDAQ 100 closed lower in Friday's session.

On the New York Stock Exchange, advancing issues outnumbered declining ones by a 2,679-347 margin.

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

Forex

GBP/USD posted modest gains on Friday to post a rare winning session, as the dollar wavered throughout a choppy day of trading after reports showed that the U.S. labor market added the highest number of jobs in June in nearly 10 months.

The currency pair wavered between 1.2881 and 1.3018, before settling at 1.2952, up 0.0046 or 0.36% on the session. With the slight gains, the British Pound recorded just its fourth winning session since voters in the U.K. surprisingly backed a referendum last month paving the way for a departure from the E.U. Since eclipsing 1.50 in the hours before the final vote was tallied, the Pound has tumbled nearly 13% over the last two weeks. On Wednesday, the Pound Sterling extended previous losses against the Dollar to slide below 1.28 for the first time in 31 years.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics said nonfarm payrolls rose by 287,000 in June, defying expectations for an increase of 180,000 and posting the highest monthly gains in eight months. The struggling labor market demonstrated broad signs of improvement last month following downwardly revised gains of 11,000 in May, providing indications that the weak hiring period in late-Spring could have been an anomaly. Nevertheless, the three-month moving average fell sharply to 147,300, in line with the Fed's expectations, down from 195,700 over the first quarter.

Within the report, the gains were concentrated in leisure and hospitality, health care and social assistance and financial assistance. The leisure and hospitality category added 58,000 positions for the month after remaining relatively flat in May. The telecommunications industry also experienced a snapback, adding 28,000 positions as thousands of Verizon workers returned to work following a labor dispute the previous month. At the same time, the struggling manufacturing sector reported a rare gain, adding 14,000 jobs on the month. Notably, approximately 90% of the job increases in June went to workers aged 55 or above.

Meanwhile, the unemployment rate rose moderately by 0.2 to 4.9%, remaining below the Fed's objective of 5%, while the labor force participation rate inched up by 0.1 to 62.7%. The U-6 Unemployment Rate, which measures workers who are marginally attached to the labor force and are no longer looking for full-time work, fell 0.1 on the month to a seasonally-adjusted 9.6%. By comparison, the Fed's preferred gauge for unemployment, stood at 10.5% a year ago at this time and peaked at 18.0% at the height of the Great Recession.

Earlier this week, the minutes from the Federal Open Market Committee's (FOMC) June meeting depicted a divided Fed on the long-term outlook for future interest rate hikes. At last month's FOMC monetary policy meeting, participants cited a slowing labor market and the threat of a British exit from the EU as main factors for holding interest rates steady. While Goldman Sachs Group Inc (NYSE:GS) said on Friday there is a 66% chance the Fed could raise interest rates this year, Fed futures rates from the CME Group (NASDAQ:CME) were still drastically lower following the report.

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

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, hit a session-high of 96.71 before falling back to 96.31 at the close, down 0.02% on the session.

CTFC Commitment of Traders

This week bearishness increased on the pound and euro. Bullishness increased for gold and the yen. Bullishness decreased for the S&P 500 and oil.

Note: This data closes on Wednesday so the last two days of trading are not reflected. There were was very little change in investor sentiment this week.

cot.2016.jul.06

Gold

Gold pared considerable losses amid high volatility in credit and currency markets, as the prospects for a 2016 interest rate hike from the Federal Reserve increased on Friday following reports of robust domestic job gains last month.

On the Comex division of the New York Mercantile Exchange, Gold for August delivery traded between $1,336.50 and $1,371.35 an ounce, before settling at $1,358.10, down 4.00 or 0.29% on the session. Gold closed lower for the second consecutive session, retreating from 28-month highs of $1,374.90 from earlier this week. Despite the mild losses, the precious metal is still up nearly 7% since voters in the U.K. approved a referendum paving the way for Britain's departure from the European Union late last month. Since opening the year around $1,075 an ounce, Gold has surged more than 28% amid indications of a potential global recession.

Gold likely gained support at $1,323.50, the low from June 8 and was met with resistance at $1,391.40 the high from March 17, 2014.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics said nonfarm payrolls rose by 287,000 in June, defying expectations for an increase of 180,000 and posting the highest monthly gains in eight months. The strength in the U.S. labor market put in the background the possibility of a Fed rate cut and that put downward pressure on gold.

On Wednesday, the minutes from the Federal Open Market Committee's (FOMC) June meeting depicted a divided Fed on the long-term outlook for future interest rate hikes. At last month's FOMC monetary policy meeting, participants cited a slowing labor market and the threat of a British exit from the EU as main factors for holding interest rates steady. Following the release of Friday's job report, analysts from Goldman Sachs Group Inc (NYSE:GS) said there is roughly a 66% chance that the FOMC will raise its benchmark Federal Funds Rate at some point 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, stood at 96.37 in U.S. afternoon trading, up 0.04% on the session. Earlier, the index hit an intraday high of 96.71, in response to the employment situation.

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

Silver for August delivery jumped 0.219 or 1.10% to $20.57 an ounce. On Monday, the front month contract for silver futures surged above $21.20 an ounce to hit fresh two-year highs.

Copper for September delivery fell 0.003 or 0.12% to $2.121 a pound.

Oil

Crude futures rose moderately on Friday afternoon, extending slight gains from earlier in the session after a closely-watched report showed that U.S. oil rigs crept up last week, providing some signals that dormant shale producers nationwide may be on the verge of ramping up output.

On the New York Mercantile Exchange, WTI crude for August delivery traded between $44.78 and $45.96 a barrel before closing at $45.30, up 0.16 or 0.35% on the session. The front month contract for U.S. crude bounced off near two-month lows, one day after sliding below $45 a barrel for the first time since early-May. On the Intercontinental Exchange (ICE), brent crude for September delivery wavered between $46.15 and $47.23 a barrel, before settling at $46.67, up 0.27 or 0.58%.

On Friday afternoon, oil services firm Baker Hughes reported that U.S. oil rigs rose by 10 to 351 last week for the week ending on July 1. It marked the fifth weekly increase in the domestic rig count over the last six weeks. The combined Oil and Gas count, meanwhile, increased by nine to 440 as gas rigs last week inched down by 1 to 89. Over the first week of June, the overall count moved higher for the first time in 2016 ending a 41-week drought.

While Baker Hughes said the average oil rig count increased by about 2% in June on a monthly basis, it still fell by approximately 50% from its level 12 months earlier. Although U.S. shale producers have been forced to slash drilling due to persistently low oil prices, many have responded by shutting down their least efficient rigs.

Oil prices recovered somewhat in Friday's session after a government report a day earlier showed a lower than expected crude inventory draw last week. Though the the U.S. Energy Information Administration (EIA) reported a decline of 2.23 million barrels on the week, analysts expected a sharper decease following estimates of a 6.7 million barrel drawdown from the American Petroleum Institute on Wednesday evening.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, stood at 96.37 in U.S. afternoon trading, up 0.04% on the session. Earlier, the index hit an intraday high of 96.71, in response to a robust U.S. jobs report for the month of June.

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

U.S. crude futures are up more than 60% from their level on February 11 when they slumped to 13-year lows at $26.05 a barrel. Crude futures have still fallen precipitously over the last two years when they peaked at $115 a barrel in June, 2014.

Natural Gas (Thursday Report)

U.S. natural gas futures extended gains 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 August on the New York Mercantile Exchange jumped 4.4 cent, or 1.58%, to trade at $2.830 per million British thermal units by 14:33GMT, or 10:33AM ET. Prices were at around $2.810 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 July 1 rose by 39 billion cubic feet, below forecasts for an increase of 43 billion.

That compared with builds of 37 billion cubic feet in the prior week, 87 billion a year earlier and a five-year average of 77 billion cubic feet.

Total U.S. natural gas storage stood at 3.179 trillion cubic feet, 16.9% higher than levels at this time a year ago and 18.8% above the five-year average for this time of year.

Meanwhile, updated weather forecasting models showed that temperatures may be mostly normal in the lower 48 states from July 15 through July 19.

Prices are up nearly 50% since late May as expectations have grown that hot summer weather will lead to heavy demand.

Gas futures jumped to $2.998 last week, the highest since May 2015, as hot summer temperatures across most parts of the U.S. raised expectations for power generation demand to meet air conditioning needs.

A rally for natural gas this time of year isn't unusual. 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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