posted on 19 August 2016
U.S. stocks pared sharp losses on Friday, remaining near all-time record-highs amid wavering, volatile oil prices and diverging comments from key Federal Reserve policymakers on the possibility of a near-term interest rate hike.
The Dow Jones Industrial Average lost 45.13 or 0.24% to 18,552.57, while the S&P 500Composite index inched down by 3.15 or 0.14% to 2,183.87, both falling short of a positive close in spite of a late rally. At session-lows, the Dow fell as much as 100 points.
On the S&P 500, six of 10 sectors closed in the red as stocks in defensive Utilities and Telecommunications industries lagged. Stocks in the Technology, Industrials and Basic Materials sectors led, each gaining more than 0.10% on the session.
The NASDAQ Composite index, meanwhile, fell 1.77 or 0.03% to 5,238.38, amid declines in media and telecom stocks. Despite the slight losses, the NASDAQ completed its first 8-week winning streak since 2010.
Shares in Viacom B Inc (NASDAQ:VIAB) surged more than 1.5% to an intraday high of 44.16, amid reports of an impending settlement between chairman emeritus Sumner Redstone and CEO Philippe Dauman. As part of the settlement, Dauman could reportedly receive a severance package of as much $72 million, according to CNBC and other media reports. In addition, the two sides will end a protracted legal dispute and Dauman will reportedly be replaced by Tom Dooley as interim CEO through September.
The top performer on the Dow was Nike Inc (NYSE:NKE), which jumped 1.69 or 2.95% to 58.90. It came after the multinational athletic apparel giant agreed to form a supply-chain partnership with private equity firm Apollo Global Management. As part of the deal, the partnership agreed to acquire Pennsylvania-based apparel company New Holland, which maintains factories in two Central American countries. The worst performer was Wal-Mart Stores Inc (NYSE:WMT), which fell 1.49 or 2.01% to 72.81, amid heavy profit taking. On Thursday, Wal-Mart (NYSE:WMT) hit 1-year highs at 74.29 after achieving comparable store sales growth of 1.6% in the second quarter, representing its strongest quarterly gains in three years.
The biggest gainer on the NASDAQ was Applied Materials Inc (NASDAQ:AMAT), which surged 1.49 or 2.01% to 72.81. Shares in the Santa Clara, California-based semiconductor chip maker extended gains from Thursday's after-hours session after the company topped quarterly earnings forecasts amid a fresh record-high in new orders on the period. The worst performer was DISH Network Corporation (NASDAQ:DISH), which fell 1.13 or 2.19% to 50.40.
The top performer on the S&P 500 was Deere & Company (NYSE:DE), which surged 10.38 or 13.849% to 87.32. John Deere shares popped in spite of soft earnings over its third quarter, due primarily to continued weakness in the global agricultural economy. Earlier this week, billionaire investors Warren Buffett and Bill Gates reduced their stakes in the farm equipment manufacturer ahead of the earnings release. Investors, however, focused more intently on the company's forward guidance, as Deere increased its full-year earnings outlook from $1.2 to $1.35 billion. The worst performer was DaVita HealthCare Partners Inc (NYSE:DVA), which fell 3.17 or 4.69% to 50.42.
On the New York Stock Exchange, declining issues outnumbered advancing ones by a 1,759-1,191 margin.
Read additional news from Reuters at Investing.com.
The U.S. Dollar Index rallied on Friday from near two-month lows from the previous session, as investors digested a fresh batch of comments from key Federal Reserve policymakers on the possibility of a near-term interest rate hike by the U.S. central bank.
The index, which measures the strength of the greenback versus a basket of six other major currencies, rose as much as 0.40% on Friday before ending the U.S. afternoon session at 94.48, up 0.0029 on the day. With the sharp gains, the index is on pace to end a five-day losing streak. The index has plummeted more than 2.15% over the last month and has fallen by more than 4.3% since the start of the year.
Foreign exchange traders could be bracing for a period of cautious, sideways trading next week, ahead of Fed chair Janet Yellen's appearance at a closely-watched speech next Friday in Jackson Hole, Wyoming. The comments from the Fed chair could shed light on the U.S. central bank's opaque long-term monetary policy forecast, which has been clouded by diverging views from participants over the last few weeks on the timing of its next rate hike. When the minutes from the Federal Open Market Committee's (FOMC) July meeting were released on Wednesday, some participants felt that it could be appropriate to raise short-term rates in the coming months, while others were more hesitant due to below target inflation. The FOMC's benchmark Federal Funds Rate has remained at a range between 0.25 and 0.50% in each of their five meetings in 2016.
On Friday, Federal Reserve of Dallas president Rob Kaplan said the Fed's decision could be complicated by a low neutral rate, which takes into account the Federal Funds Rate minus a measure of inflation. Kaplan's comments counter a hawkish position laid out bySan Francisco Fed president John Williams on Thursday, who warned that delaying an interest rate hike could have detrimental effects for the economy. Earlier this week, New York Fed president William Dudley said the timing could be right to consider raising interest rates again, while St. Louis Fed president James Bullard reiterated a previous stance that the Fed may only need to approve a single rate hike of 25 basis points over the next three years. Skeptical of a possible head-fake from the Fed, numerous market players have shrugged off the hawkish minutes this week.
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.
Elsewhere, Downing Street officials said Friday that Britain prime minister Theresa May will not trigger formal proceedings to leave the European Union until at least the start of 2017.GBP/USD fell more than 0.70% to 1.3076.
Meanwhile, investors increased their short positions on the British Pound by 4,500, according to weekly Commitments of Traders data from the U.S. Commodity Futures Trading Commission (CFTC), to a record-high of 130,100. At the same time, short positions in the euro fell by 3,300 on the week against the U.S. Dollar to a gross of 195,600.EUR/USD fell by 0.26% to 1.1324, but remained near a 1-month high. USD/JPY rose by 0.32% to 100.21, hovering near 1-year lows.
Yields on the U.S. 10-Year rose by four basis points to 1.58%, while yields on the Germany 10-Year gained five basis points to Minus-0.04%. Yields on both 10-year government bonds are down by more than 50 basis points over the last year.
This week bearishness increased again on the pound to record levels of shorts. Bullishness increased for the significantly 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.
Gold fell sharply amid a resurgent dollar, as investors await a highly-anticipated appearance from Janet Yellen at next week's monetary policy symposium in Jackson Hole for more clarity on the Federal Reserve's uncertain interest rate outlook.
On the Comex division of the New York Mercantile Exchange, Gold for December delivery traded between $1,342.05 and $1,357.80 an ounce before settling at $1,346.25, down 10.95 or 0.81% on the session. Gold closed relatively flat for the week after failing to post a single move of 1% from the previous day's close in tight, range-bound trade. Since opening the year around $1,075 an ounce, the precious metal has soared approximately 25% over the first seven months of 2016 and is on pace for one of its strongest years in the last three decades.
Gold likely gained support at $1,312.80, the low from July 21 and was met with resistance at $1,374.90, the high from July 6.
Metal traders could be in store for another stretch of cautious, sideways trading next week, ahead of Yellen's appearance in Wyoming at a closely-watched speech next Friday. The comments from the Fed chair could shed light on the U.S. central bank's opaque long-term monetary policy forecast, which has been clouded by diverging views from participants over the last few weeks on the timing of its next rate hike. When the minutes from the Federal Open Market Committee's (FOMC) July meeting were released on Wednesday, some participants felt that it could be appropriate to raise short-term rates in the coming months, while others were more hesitant due to below target inflation. The FOMC's benchmark Federal Funds Rate has remained at a range between 0.25 and 0.50% in each of their five meetings in 2016.
On Friday, Federal Reserve of Dallas president Rob Kaplan said the Fed's decision could be complicated by a low neutral rate, which takes into account the Federal Funds Rate minus a measure of inflation. Kaplan's comments counter a hawkish position laid out bySan Francisco Fed president John Williams on Thursday, who warned that delaying an interest rate hike could have detrimental effects for the economy. Earlier this week, New York Fed president William Dudley said the timing could be right to consider raising interest rates again, while St. Louis Fed president James Bullard reiterated a previous stance that the Fed may only need to approve a single rate hike of 25 basis points over the next three years.
Investors who are bullish in gold are in favor of a gradual tightening cycle from the Fed. Gold, which is not attached to interest rates or dividends, struggles to compete with high-yield bearing assets in rising rate environments.
Skeptical of a possible head-fake from the Fed, numerous market players have shrugged off the hawkish minutes this week. As a result, the U.S. Dollar Index fell sharply on Thursday to an intraday low of 94.05, its lowest level in seven weeks. In Friday's session, the index recovered amid heavy profit taking, gaining more than 0.40% to an intraday-high of 94.60. The index, which measures the strength of the greenback versus a basket of six other major currencies, is on pace to halt a five-day losing streak.
Dollar-denominated commodities such as Gold become more expensive for foreign purchasers when the dollar appreciates.
Silver for September delivery fell 0.397 or 2.03% to 19.343 an ounce.
Copper for September delivery inched up 0.001 or 0.02% to 2.168 a pound.
Crude futures remained near seven-week highs following a choppy, volatile session on Friday, as energy traders largely shrugged off a considerable increase in U.S. oil rigs last week.
On the New York Mercantile Exchange, WTI crude for September delivery traded between $47.94 and $48.74 a barrel before closing at $48.45, up 0.23 or 0.48% on the session. At session-highs, the front month contract for U.S. crude hit its highest level since July 5. On the Intercontinental Exchange, Brent crude for October delivery wavered between $50.34 and $51.22 a barrel, before settling at $50.82, down 0.05 or 0.10% on the day. During the previous session, Brent futures eclipsed the $50 level for the first time since early-July.
For the week, both the international and U.S. benchmarks of crude surged by more than 8%.
On Friday afternoon, oil services firm Baker Hughes said that the U.S. weekly oil rig countrose by 10 to 406 last week. The number of oil rigs nationwide has increased in each of the last eight. Following last week's considerable gains, the oil rig count is now at its highest level since February 19. Any increases in the U.S. oil rig count typically provide lagging indication that domestic production could be on the verge of climbing. Earlier this week, the U.S. Energy Information Administration (EIA) said U.S. output surged by 152,000 barrels per day for the week ending on August 12, marking its strongest increase in 15 months.
Meanwhile, market players await the release of fresh weekly data from the U.S. U.S. Commodity Futures Trading Commission (CFTC) on Friday afternoon before the close of U.S. equity markets for further indications on current trading patterns from option investors. For the week ending on August 9, traders increased their short positions by 8,400 to a gross of 303,800, according to CFTC data, remaining near all-time highs.
It comes amid comments from Saudi Arabia oil minister Khalid Al-Falih on how record short positioning from traders of late has caused oil prices to overshoot. Saudi Arabia, the world's largest exporter, pumped a record 10.67 million barrels per day in July, its highest level on record. Oil prices have also rallied over the last week amid hopes for a comprehensive output freeze by several top Middle East producers at a meeting in Algeria in late-September.
/the U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, more than 0.40% to an intraday-high of 94.60. On Thursday, the index sunk to near two-month lows, amid declining investor sentiment regarding a near-term U.S. interest rate hike.
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 extended gains in North American 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 September on the New York Mercantile Exchange jumped 4.7 cents, or 1.79%, to trade at $2.666 per million British thermal units by 14:33GMT, or 10:33AM ET.
Futures were at around $2.635 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. rose by 22 billion cubic feet in the week ended August 12, while analysts had forecast an increase of 27 billion.
That compared with an advance of 29 billion cubic feet in the preceding week, 52 billion a year earlier and a five-year average of 57 billion cubic feet.
Total U.S. natural gas storage stood at 3.339 trillion cubic feet, 10.9% higher than levels at this time a year ago and 13.8% above the five-year average for this time of year.
A day earlier, prices inched forward 0.2 cents, or 0.08%, as traders waited for the fresh weekly storage data.
Meanwhile, updated weather forecasting models pointed to scorching heat along the U.S. east coast through August 21. The weather will then be hotter than normal in the Mid-Atlantic and Great Lakes region through August 26.
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 futures have been under pressure in recent days amid speculation that August heat won't prevent stockpiles from reaching a record before the winter.
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.
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