Investing.com Weekly Wrap-Up 31 May 2013

by Investing.com Staff, Investing.com

U.S stocks fall on fresh talk of Fed stimulus ending; Dow drops 1.36%

U.S. stocks tanked on Friday after positive economic indicators rekindled talk that the Federal Reserve will soon scale back stimulus measures.

Monetary stimulus tools such as the Fed’s USD85 billion monthly bond-buying program push down interest rates and flood the economy with liquidity to spur recovery, a combination that sends stock prices rising as a side effect.

Stocks dropped particularly hard amid sentiments that a correction may be due for U.S. equities.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 1.36%, the S&P 500 index ended down 1.43%, while the Nasdaq Composite index fell 1.01%.  Positive economic data helped fuel a selloff on Wall Street Friday.

The Thomson Reuters/University of Michigan’s final consumer sentiment index rose to 84.5 in May from 83.7 in April.  Analysts were expecting the index to remain unchanged this month.

A separate report showed that the Chicago purchasing managers’ index climbed to 58.7 this month from 49.0 in April, beating expectations for a rise to 50.0.

Fed officials have said that they may scale down stimulus tools once economic indicators improve, and uncertainty surrounding Friday’s data sent investors selling stocks and chasing the safe-haven dollar, the beneficiary of growing sentiments that the days of ultra-loose policy may be ending.

The Federal Reserve has kept interest rates low since the downturn and has flooded the economy with liquidity under the current bond-buying program and with similar programs in the past, which have helped push up stock prices in recent years.

Concerns that monetary support may be ending soon sparked fears on Friday that U.S. equities may be headed for a correction, which fueled the selloff.  

Leading Dow Jones Industrial Average performers included Intel, up 0.37%, Alcoa, up 0.12%, and Microsoft, down 0.23%.

The Dow Jones Industrial Average’s worst performers included Pfizer, down 3.47%, Hewlett-Packard, down 3.21%, and UnitedHealth Group, down 3.05%.

European indices, meanwhile, finished lower.

After the close of European trade, the EURO STOXX 50 fell 1.06%, France’s CAC 40 fell 1.19%, while Germany’s DAX 30 finished down 0.61%. Meanwhile, in the U.K. the FTSE 100 finished down 1.11%.

Forex

The dollar strengthened against most major currencies on Friday after a widely-watched U.S. consumer sentiment gauge beat expectations and refueled expectations for the Federal Reserve to begin scaling back stimulus measures soon.

Stimulus programs such as the Fed’s monthly USD85 billion bond-buying program weaken the greenback to spur recovery, and talk of their winding down can send the dollar rising.

In U.S. trading on Friday, EUR/USD was down 0.51% at 1.2980.

Elsewhere, official data revealed that U.S. personal spending fell 0.2% in April, defying expectations for a 0.1% rise and following a 0.1% increase the previous month, though markets shrugged off the data.

Soft economic indicators in Europe boosted the safe-haven dollar’s appeal even more.

The eurozone’s unemployment rate hit a record high 12.2% in April, up from 12.1% the previous month and in line with expectations.

Separately, a preliminary report showed that the eurozone’s consumer price index rose to an annualized rate of 1.4% this month, from 1.2% in April, also in line with expectations.

In Germany, Destatits reported that retail sales in Europe’s largest economy fell 0.4% in April, disappointing expectations for a 0.2% rise after a 0.1% decline the previous month, which weakened the euro further.

The greenback, meanwhile, was up against the pound, with GBP/USD trading down 0.33% at 1.5184.

The dollar was flat against the yen, with USD/JPY down 0.01% at 100.72 in choppy trading, and up against the Swiss franc, with USD/CHF trading up 0.60% at 0.9590.

The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.69% at 1.0368, AUD/USD down 0.90% at 0.9576 and NZD/USD trading down 1.60% at 0.8077.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.43% at 83.41.

The dollar firmed against the yen on Friday after consumer sentiment data in the U.S. came in stronger than expected and rekindled speculation that the Federal Reserve may wind down stimulus measures very soon.

Stimulus measures such as the Fed’s monthly USD85 billion bond-buying program weaken the greenback to spur recovery.

In U.S. trading on Friday, USD/JPY was trading at 100.92, up 0.18%, up from a session low of 100.23 and off a high of 101.29.

The pair was likely to find resistance at 101.29, the earlier high, and support at 100.23, the earlier low.

Gold

Gold prices dropped on Friday after a better-than-expected consumer sentiment barometer sparked talk that the Federal Reserve may be closer to winding down stimulus programs.

Stimulus measures such as the Fed’s monthly USD85 billion bond-buying program weaken the greenback to spur recovery.

Gold and the dollar tend to trade inversely from one another.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery were down 1.41% at USD1,392.05 a troy ounce in U.S. trading on Friday, up from a session low of USD1,389.85 and down from a high of USD1,421.25 a troy ounce.

Gold futures were likely to test support USD1,373.25 a troy ounce, Tuesday’s low, and resistance at USD1,444.15, the high from May 14.

Elsewhere on the Comex, silver for July delivery was down 2.21% at USD22.188 a troy ounce, while copper for July delivery was down 0.26% and trading at USD3.307 a pound.

Oil

Oil prices fell on Friday after OPEC countries decided to leave global output quotas unchanged at 30 million barrels per day.

Solid U.S. economic indicators failed to bolster the growth-sensitive commodity.

On the New York Mercantile Exchange, light sweet crude futures for delivery in July traded down 0.83% at USD92.83 a barrel on Friday, off from a session high of USD93.85 and up from an earlier session low of USD92.26.

The OPEC decision to leave output levels unchanged sparked a selloff, as many market participants view the global economy as already awash in crude oil.

Better-than-expected economic indicators out of the U.S. failed to curb losses, as the numbers sparked demand for the dollar.

A stronger greenback tends to make oil a less attractive commodity in dollar-denominated exchanges, especially in the eyes of investors holding other currencies.

Elsewhere on the ICE Futures Exchange, Brent oil futures for July delivery were down 1.05% at USD101.12 a barrel, up USD8.29 from its U.S. counterpart.

Natural Gas

Natural gas prices rose in U.S. trading on Friday after bottom fishers snapped up nicely priced positions after Thursday’s selloff.

In the New York Mercantile Exchange, natural gas futures for delivery in July traded at USD4.033 per million British thermal units, up 0.25%.

The commodity hit a session low of USD3.999 and a high of USD4.064.

The U.S. Energy Information Administration said in its weekly report on Thursday that natural gas storage in the U.S. in the week ending May 24 rose by a healthy 88 billion cubic feet, broadly in line with market expectations.

Inventories rose by 72 billion cubic feet in the same week a year earlier, while the five-year average change for the week is a rise of 92 billion cubic feet.

Total U.S. natural gas storage stood at 2.141 trillion cubic feet as of last week. Stocks were 664 billion cubic feet less than last year at this time and 88 billion cubic feet below the five-year average of 2.229 trillion cubic feet for this time of year.

The numbers sparked a selloff of the commodity as did weather reports for below-normal temperatures in parts of the U.S. before bottom fishing kicked in on Friday.

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, though cooler temperatures even in parts of the U.S. can send prices dropping easily this time of year.