Investing.com Weekly Wrap-Up 31 October 2014

Dow, S&P 500 end at record highs; BoJ move adds fuel to rally

by Investing.com Staff, Investing.com

The Dow and S&P 500 ended at record highs on Friday and other indexes posted strong gains for a second week after the Bank of Japan’s surprise move to ramp up its stimulus program.

Major indexes also posted gains for the month, putting in a sharp recovery from their recent selloff that almost drove the S&P 500 into correction territory. The benchmark index is now up 8.4 percent from its Oct. 15 low and up 9.2 percent for the year so far.

The Nasdaq finished at its highest since March 2000, while for the week the Dow rose 3.5 percent, its best percentage weekly gain since January 2013. The S&P 500 posted its best two-week gain since December 2011.

Stock Market Details

At the close of U.S. trading, the Dow 30 rose 1.13%, the S&P 500 index rose 1.17%, while the NASDAQ Composite index rose 1.41%.

The CBOE Volatility Index index, which measures the outlook for market volatility, was down 2.48% at 14.16.

More Japanese money may soon be flowing into U.S. stock markets.

The Bank of Japan said earlier it would raise its monetary base target to an annual increase of ¥80 trillion from ¥60-70 trillion, a preemptive move to steer the economy away from deflationary decline while improving the chances of reaching inflation goals.

Adding to the rally, a Japanese government panel overseeing the Government Pension Investment Fund approved plans on Friday for the fund to raise its holding of foreign stocks to 25% of its portfolio from 12%.

Strong data out of the U.S. also bolstered stock prices.

The Thomson Reuters/University of Michigan final consumer sentiment index rose to a seven-year high of 86.9 this month from 86.4 in September. Analysts had expected the index to remain unchanged.

In addition, industry data showed that the Chicago purchasing managers’ index rose to a three-and-a-half year high of 66.2 in October from 60.5 in September, confounding expectations for a reading of 60.0.

The reports overshadowed earlier data showing that personal spending fell 0.2% last month, disappointing expectations for a 0.1% rise, after an increase of 0.5% in August.

U.S. personal income rose 0.2% in September, less than the expected 0.3% gain, after a 0.3% advance the previous month.

Leading Dow Jones Industrial Average performers included Intel Corporation (NASDAQ:INTC), up 4.34%, Chevron Corporation (NYSE:CVX), up 2.27%, and Exxon Mobil Corporation (NYSE:XOM), up 2.25%.

The Dow Jones Industrial Average’s worst performers included Wal-Mart Stores Inc (NYSE:WMT), down 0.27%, Nike Inc (NYSE:NKE), down 0.08%, and International Business Machines (NYSE:IBM), down 0.04%.

European indices, meanwhile, ended the day higher.

After the close of European trade, the DJ Euro Stoxx 50 rose 2.55%, France’s CAC 40 rose 2.22%, while Germany’s DAX rose 2.33%. Meanwhile, in the U.K. the FTSE 100 rose 1.28%.

Forex

The dollar shot up against most major currencies on Friday after the Bank of Japan surprised markets by beefing up its stimulus program, while strong U.S. data also fueled demand for the currency.

In U.S. trading on Friday, the dollar was up against the yen, with USD/JPY up 2.73% at 112.20.

The dollar was up against the euro, with EUR/USD down 0.64% at 1.2531, and up against the Swiss franc, with USD/CHF up 0.66% at 0.9623.

The yen came under broad selling pressure after the BOJ said it would raise its monetary base target to an annual increase of ¥80 trillion from ¥60-70 trillion, a preemptive move to steer the economy away from deflationary decline while improving the chances of reaching inflation goals.

Adding to pressure, a Japanese government panel overseeing the Government Pension Investment Fund approved plans on Friday for the fund to raise its holding of foreign stocks to 25% of its portfolio from 12%.

Friday’s changes to Japanese monetary policy caught many investors off guard and sent the dollar soaring over the yen and most other currencies as well.

Elsewhere, official data showed that household spending in Japan rose 1.5% in September, disappointing expectations for an increase of 1.9%, after a 0.3% slip the previous month.

Year-on-year, household spending fell 5.6% last month, more than the expected 4.3% decline, after a 4.7% drop in August.

Data also showed that Tokyo’s consumer price inflation rose at an annualized rate of 2.5% this month, missing expectations for a 2.7% rise, after an increase of 2.9% in September.

Tokyo’s core CPI, which excludes fresh food, rose at an annualized rate of 2.5% in October, in line with expectations and down from 2.6% the previous month.

Strong data out of the U.S. also bolstered the greenback.

Meanwhile in the euro zone, official data revealed that consumer price inflation rose at an annualized rate of 0.4% this month, in line with expectations and up from 0.3% in September.

The rate has now been below 1% for 13 straight months, well under the European Central Bank’s target of near but just under 2%.

Core CPI, which excludes food, energy, alcohol, and tobacco, rose at an annualized rate of 0.7% in October, down from 0.8% from the previous month and shy of market expectations for a 0.8% reading.

A separate report showed that the euro zone’s unemployment rate remained unchanged at 11.5% last month, as markets had anticipated.

Data also showed that German retail sales dropped 3.2% last month, compared to expectations for a 1.0% fall. The August figure was revised to a 1.5% increase from a previously estimated 2.5% rise.

The greenback was up against the pound, with GBP/USD down 0.03% at 1.5996.

The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.78% at 1.1275, AUD/USD down 0.42% at 0.8795 and NZD/USD down 0.76% at 0.7786.

The loonie took a hit earlier after Statistics Canada reported that the country’s gross domestic product contracted 0.1% in September, missing expectations for an unchanged reading.

The US dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.90% at 87.02.

Gold

Gold prices plummeted to four-year lows on Friday after strong U.S. data and a Bank of Japan decision to expand its stimulus programs sparked hefty demand for the dollar, which tends to trade inversely from the yellow metal.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery were down 2.30% at $1,171.00, up from a session low of $1,161.00 and off a high of $1,202.40.

The December contract settled down 2.15% at $1,198.60 on Thursday.

Futures were likely to find support at $1,158.70 a troy ounce, the low from July 29, 2010, and resistance at $1,235.50, Tuesday’s high.

Friday’s changes to Japanese monetary policy caught many investors off guard and sent the dollar firming broadly, which came at gold’s expense.

Meanwhile, silver for December delivery was down 1.96% at $16.098 a troy ounce, while copper futures for December delivery were down 0.52% at $3.047 a pound.

Oil

Crude oil futures dropped on Friday after upbeat U.S. data and a Bank of Japan move to expand its stimulus programs sparked hefty demand for the dollar.

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

In the New York Mercantile Exchange, West Texas Intermediate crude oil futures for delivery in December traded down 1.08% at $80.24 a barrel during U.S. trading, up from a session low of $79.56 a barrel and off a high of $81.26 a barrel.

The December contract settled down 1.31% at $81.12 a barrel on Thursday.

Support for the commodity was seen at $79.44 a barrel, Monday’s low, and resistance at $82.88 a barrel, Wednesday’s high.

Separately, on the ICE Futures Exchange in London, Brent oil futures for December delivery were down 1.23% at US$85.18 a barrel, while the spread between Brent and U.S. crude contracts stood at $4.94.

Natural Gas

Natural gas prices shot up on Friday on expectations that a blast of colder weather making its way across the U.S. will drive demand for heating and prompt thermal power producers to burn more of the commodity to meet demand.

On the New York Mercantile Exchange, natural gas futures for delivery in December were up 1.82% at $3.897 per million British thermal units during U.S. trading. The commodity hit a session low of $3.836, and a high of $3.955.

The December contract settled up 1.03% on Thursday to end at $3.827 per million British thermal units.

Natural gas futures were likely to find support at $3.620 per million British thermal units, Tuesday’s low, and resistance at $4.184, the high from Oct. 1.

A strong cold front is pushing deep into the eastern U.S. and will bring temperatures 10-20F colder than normal over many regions, which should drive demand for heating even in the otherwise warmer Southeast, where temperatures could dip into the mid 30s.

While milder temperatures will return, reinforcing blasts of cold air could sustain demand for heating, which sparked a rally in natural gas markets. Natgasweather.com reported in its Friday midday update.

“Next week will bring a milder pattern to much of the U.S., but it won’t be perfect as there will still be chilly Canadian weather systems tracking across the far northern U.S., particularly late in the week for the upper Midwest and the Northeast. There will also be a slow moving mild weather system over Texas that will bring showers and slightly cooler than normal temperatures.”

The heating season from November through March is the peak demand period for U.S. gas consumption.

Investors continued to digest Thursday’s weekly inventory data.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ending Oct. 24 rose by 87 billion cubic feet, above expectations for an increase of 85 billion and compared to a gain of 94 billion in the previous week.

Inventories rose by 45 billion cubic feet in the same week a year earlier, while the five-year average change is a build of 59 billion cubic feet.

Injections of gas into storage have surpassed the five-year average for 28 consecutive weeks, alleviating concerns over tightening supplies.

Total U.S. natural gas storage stood at 3.480 trillion cubic feet. Stocks were 294 billion cubic feet less than last year at this time and 310 billion cubic feet below the five-year average of 3.790 trillion cubic feet for this time of year.