Investing.com Weekly Wrap-Up 27 March 2015

U.S. markets unaffected by Yellen’s speech, end four-day losing streak

by Investing.com Staff, Investing.com

Stocks on U.S. equities markets edged up on Friday to halt a four-day losing streak, as markets avoided their first streak of five consecutive daily losses since last March.

The Dow Jones Industrial Average gained 34.43 or 0.19% to 17, 712.66, but still remained down for the year after moving into negative territory for 2015 earlier in the week. The NASDAQ Composite index and the S&P 500 Composite index both closed the week on a strong note after experiencing significant losses in recent days. Although the NASDAQ rose 27.86 or 0.57% to 4,891.22, it still closed on Friday with one of its worst weekly performance since last October.

The S&P 500, meanwhile, rose 4.87 points or 0.24% to close the week at 2,061.02. Nevertheless, the majority of the 10 sectors on the S&P 500 ended the week in the red. On Friday, the S&P 500 was led by gains in the Health Care, Consumer Goods and Consumer Services sectors, while the Oil & Gas, Basic Materials and Financial sectors lagged.

All three markets remained relatively unchanged in the short period between the release of Janet Yellen’s notes of her prepared speech at the Federal Reserve Bank of San Francisco Conference and the markets’ close. In the minutes before Yellen’s speech at 3:45 EST, the Dow was only several points higher at 17,720. Yellen reiterated on Friday that an interest rate hike by the Fed may be warranted at some point this year.

The top performer on the Dow was Intel Corporation (NASDAQ:INTC), which gained 1.92 points or 6.38% after Dow Jones reported that the company has put in a bid to purchase California-based Altera Corporation (NASDAQ:ALTR) on Friday afternoon. Altera, a Silicon Valley manufacturer of reconfigurable complex digital circuits, rose 9.82 or 28.39% to 44.39. Altera was the top performer on the NASDAQ and the S&P 500.

The worst performer on the Dow was Chevron Corporation (NYSE:CVX), which fell 0.97 or 0.92% to 104.28.

The worst performer on the NASDAQ was Tesla Motors Inc (NASDAQ:TSLA), which fell 5.41 or 2.84% to 185.00. Transocean, one of the world’s largest offshore drillers, also had a rough day on Friday. The Swiss-based company was the worst performer on the S&P 500, falling 0.84 or 5.48% to 14.49.

Forex

The dollar remained moderately higher against a basket of other major currencies on Friday, after disappointing U.S. fourth quarter growth data and an upbeat report on consumer sentiment, as markets turned to an upcoming speech by Federal Reserve Chair Janet Yellen.

In a report, the U.S. Bureau of Economic Analysis said that fourth quarter gross domestic product rose 2.2%, in line with a preliminary estimate but below expectations for a growth rate of 2.4%.

Separately, the University of Michigan said that its consumer sentiment index rose to 93.0 this month from a reading of 91.2 in February, beating expectations for a rise to 92.0.

The University of Michigan also reported that its inflation expectations for the next 12 months remained unchanged at 3.0% in March.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.08% to 97.62.

EUR/USD was down 0.11% to 1.0872, just off session lows of 1.0801.

Sentiment on the euro remained vulnerable after Greece failed in a bid on Wednesday to secure a quick cash payment from the euro zone rescue fund to help stave off potential bankruptcy next month.

Athens had appealed for the European Financial Stability Facility to return €1.2 billion it said it had overpaid when it transferred bonds intended for bank recapitalization this month.

The Greek government is expected to present a detailed list of proposed reforms to its eurozone partners by next Monday.

The pound remained higher, with GBP/USD up 0.32% to 1.4897.

Demand for sterling strengthened after Bank of England Governor Mark Carney said that the central bank’s next move on interest rates would be upward.

Earlier Friday, the Nationwide Building Society reported that U.K. house prices rose 0.1% this month, disappointing expectations for a 0.2% gain, after a 0.1% downtick in February.

Elsewhere, the dollar was steady against the yen and the Swiss franc, with USD/JPY at 119.18 and with USD/CHF at 0.9624.

In Japan, official data earlier showed that household spending rose 0.8% in February, exceeding expectations for a 0.5% gain, after a 0.3% fall the previous month.

A separate report showed that consumer price inflation in Japan rose at an annualized rate of 2.0% in February, compared to expectations for 2.1% and down from 2.2% in January.

Data also showed that Japan’s retail sales dropped at an annualized rate of 1.8% last month, confounding expectations for a 1.5% decline, after a 2.0% drop in January.

The Australian and New Zealand remained broadly weaker, with AUD/USD tumbling 0.91% to 0.7757 and NZD/USD retreating 0.49% to 0.7562. Meanwhile, USD/CADgained 0.41% to 1.2535.

The commodity-linked loonie also weakened on the back of dropping oil prices, as upbeat U.S. data overshadowed concerns over a supply disruption in the Middle East following news Saudi Arabia launched air strikes in Yemen this week to counter Iran-backed Houthi rebels.

CTFC Commitment of Traders

Speculators were more bearish on the euro and less bearish on the S&P 500 this week. Bearisness decreased on the Mexican peso but sentiment was little changed for all other trades listed below.

Gold

Gold futures retreated on Friday afternoon amid a wavering dollar, as traders awaited comments from Federal Reserve chair Janet Yellen later in the session.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery fell 5.80% or 0.48% to $1,199 a troy ounce. The decline came one day after gold reached a three-week high at $1,205.10, capping a rally precipitated by relatively dovish comments from Ms. Yellen on Mar. 18.

Gold prices started trending downward on Mar. 6, after the release of a promising U.S. jobs report fueled speculation that the Fed could raise interest rates sooner than expected. Prices then dipped to a four-month low last week at 1,148.20 ahead of the Fed’s decision to remove its stance of remaining patient on the timing of a potential rate hike.

Though Ms. Yellen’s initial comments appeared hawkish, the Fed’s revised forecasts regarding slower long-term increases for inflation, interest rates and GDP signaled that the U.S. central bank could wait until September before increasing interest rates. Gold struggles to compete with high yield bearing assets in periods of rising interest rates.

While the timing of an initial rate hike has been widely anticipated, many analysts are paying closer attention to the frequency and duration of the Fed’s plan to tighten monetary policy. Earlier this week, Fed vice chairman Stanley Fischer said a “smooth path upward will almost certainly not be realized,” a position that runs contrary to Fed policy decisions in 2004 and 2007.

Ms. Yellen has not provided any indication on whether she will discuss the Fed’s long-term outlook for tightening during her speech at the Federal Reserve Bank of San Francisco Conference on Friday afternoon. Ms. Yellen is scheduled to deliver the speech entitled “The New Normal for Monetary Policy,” 15 minutes before U.S. equities markets close on the East Coast.

Meanwhile, disappointing economic data from the U.S. Commerce Department on Friday pared earlier gains from the dollar. On Friday morning, the Commerce Department said in a report that GDP for the fourth quarter expanded at a seasonally-adjusted rate of 2.2%. Economists had forecasted an upward revision of 2.4%.

On a year-over-year basis, economic output for the fourth quarter increased by 2.4% from the same period a year earlier. By comparison, U.S. GDP grew by 2.7% for the third quarter versus the same quarter during the prior year.

EUR/USD rose to 1.091 in U.S. afternoon trading, up from Friday’s low of 1.0802. TheU.S. Dollar Index, which measures the strength of the greenback vs. a basket of six other major currencies, fell 0.18 to 97.35.

Dollar-denominated commodities such as gold become less expensive for foreign purchasers in periods of a weaker dollar.

Elsewhere, silver futures for May delivery fell slightly by 0.48% or 0.083 to 17.057 a troy ounce.

Copper futures for May delivery dropped 1.52% or 0.043 to 2.768 a pound. Earlier this week, copper reached a three-month high at 2.945.

Palladium futures for June delivery fell to a five-month low, plunging 31.55 or 4.08% to 741.50.

Oil

While crude futures fell by more than $2 a barrel on Friday as supply concerns related to the crisis in Yemen diminished, oil prices still ended the week with one of its highest weekly gains in more than four years.

Although Saudi Arabian-led airstrikes against Shiite-backed Houthi rebels in Yemen continued on Friday, questions arose on the impact of the attacks on the nation’s oil supply. Yemen is strategically located on the Bab el-Mandeb, a strait that connects the Gulf of Aden with the Red Sea. Earlier this week, crude prices shot up amid heightened fears that the closure of the strait could limit oil exports out of the critical chokepoint.

Goldman Sachs (NYSE:GS), however, may have assuaged such fears with a contingency plan for oil tankers in the event that the strait is closed. In a note to investors, analysts from the bank raised the possibility that the tankers could be diverted to travel around Africa if the strategic pathway is unavailable. In addition, U.S. Army General Lloyd Austin told a Senate hearing that the military will work with its Gulf and European partners to ensure that the strait remains open in spite of the conflict.

As a result, WTI crude for May delivery on the New York Mercantile Exchange fell $2.69 or 5.22% to $48.75 a barrel. On Thursday, WTI crude surged more than 5%, its largest daily increase for the month of March, after Saudi Arabia and Egypt announced plans for launching a ground attack against the Houthi militants. For the week, WTI crude increased by approximately 6% or $2.20 a barrel, one of its top weekly increases since 2011.

Meanwhile, British Foreign Secretary Philip Hammond indicated that the two sides negotiating an Iranian Nuclear pact were more than “halfway to a deal.” An accord with Western powers could loosen sanctions against Iran, freeing up millions of barrels that are currently stored in reserves. Iran reportedly has 30 million barrels of stored oil ready for export once the sanctions are lifted. The added amounts could depress an oil market already inundated with a large supply glut.

Goldman Sachs downplayed the effects of both geopolitical events on crude prices.

“We expect both events to have negligible near-term supply impacts, with the build in crude inventories set to continue in the second quarter of 2015. Longer term, a deal with Iran could lead to greater OPEC supplies although the timing of the sanction relief remains uncertain,” the firm said in the investor note.

On the Intercontinental Exchange (ICE), Brent crude for May delivery fell $2.83 or 4.78% to $56.36 a barrel. Brent futures rose by nearly 45 cents for the week.

The spread between the international and U.S. domestic benchmarks for crude stood at 7.61 a barrel, down from 8.55 at the start of the week.

Oil services firm Baker Hughes (NYSE:BHI) said in its weekly rig count that the number of oil rigs nationwide last week fell by 12 to 813. A week earlier, the number of oil rigs in the U.S. decreased by 56. The reduction of 12 rigs marks the lowest weekly decline in nearly four months.

Natural Gas (Thursday Report)

Natural gas futures turned lower on Thursday, after data showed that U.S. natural gas supplies rose for the first time since last April, cutting the withdrawal season short.

On the New York Mercantile Exchange, natural gas for delivery in May tumbled 2.9 cents, or 1.06%, to trade at $2.711 per million British thermal units during U.S. morning hours. Prices were at around $2.745 prior to the release of the supply data.

Futures were likely to find support at $2.667 per million British thermal units, the low from March 9, and resistance at $2.833, the high from March 24.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended March 20 rose by 12 billion cubic feet, compared to expectations for an increase of 6 billion.

Supplies fell by 56 billion in the same week last year, while the five-year average change is a decline of 19 billion cubic feet.

Total U.S. natural gas storage stood at 1.479 trillion cubic feet as of last week. Stocks were 575 billion cubic feet higher than last year at this time and 194 billion cubic feet below the five-year average of 1.673 trillion cubic feet for this time of year.

On Wednesday, the May contract tumbled 7.0 cents, or 2.49%, to settle at $2.740 amid speculation the end of the winter heating season will bring warmer temperatures throughout the U.S. and cut into demand for the fuel.

Spring usually sees the weakest demand for natural gas in the U.S, as the absence of extreme temperatures curbs demand for heating and air conditioning.

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

Approximately 49% of U.S. households use natural gas for heating, according to the Energy Department.