by Investing.com Staff, Investing.com
Stocks on the U.S. equities markets took a nosedive on Friday, posting one of their sharpest daily losses of the year as Chinese regulators roiled global markets by cracking down on margin trading and loosening regulations on short selling.
The Dow Jones Industrial Average plunged more than 275 points on the session to retreat to 17,826.30, nearly erasing all of its gains for the year. The NASDAQ Composite index and the S&P 500 Composite index also fell by more than 1% for the session, as lags in the Technology and Industrial sectors sent stocks crashing lower.
All 10 sectors on the S&P 500 closed in the red, as it fell 23.81 or 1.13% to 2,081.18. The NASDAQ also lost 75.97 or 1.52% to 4,931.82, as Apple Inc (NASDAQ:AAPL) dragged on large-cap stocks.
Continuing tension between Greece and its euro zone creditors also spooked global markets. The Stoxx Europe 600 index and the German Dax index moved broadly lower, as investors sought safety in government bonds. As a result, yields onGermany 10-Year bunds fell to a record-low at 0.051% before rebounding slightly to 0.08%.
Although General Electric Company (NYSE:GE) finished the session as the top performer on the Dow, it still finished in the red after dropping 0.04 or 0.15% to 27.24. The worst performer was American Express Company (NYSE:AXP), which fell 3.56 or 4.40% to 77.35 after the multinational credit card and financial services company reported poor first quarter earnings tamped down by a strong dollar.
The CBOE Volatility Index (VIX) was up 1.29 (+10.24%) to 13.89.
The biggest gainer on the NASDAQ was Mattel Inc (NASDAQ:MAT), which gained 1.47 or 5.82% to 26.74, continuing its rally from earlier this week after posting stronger than expected earnings. Mylan Inc . (NASDAQ:MYL) also rose 3.04 or 4.54% to 69.87 after the Pennsylvania-based pharmaceutical denied a possible merger with Teva Pharma Industries Ltd (ARCA:TEVA). The worst performer, meanwhile, was VimpelCom (NASDAQ:VIP) which fell 0.27 or 4.54% to 5.90.
Mattel was also the top performer on the S&P 500, ahead of Mylan and Southwestern Energy Company (NYSE:SWN), which gained 0.76 or 2.88% to 27.16. The worst performer was Time Warner Cable Inc. (NYSE:TWC), which fell 8.59 or 5.43% to 149.61.
Bristol Myers-Squibb Co. also moved higher, amid an announcement Friday that it is ending its large study on Opdivo after the drug proved to be effective in treating lung cancer. The New York-based pharmaceutical company rose 1.67 or 2.62% to 65.35.
The euro capped the week by extending its rally against the dollar, as stronger than expected U.S. consumer data and concerns related to the Greek debt crisis remained in focus.
EUR/USD gained 0.0046 or 0.49% to 1.0811 in U.S. afternoon trading. Earlier in European trading, the pair reached 1.0849, its highest level since April 8, before wavering throughout a choppy session. For the week, the euro increased by roughly 2% against its U.S. counterpart. Since the start of March, the pair has rarely been outside of a range of 1.05 to 1.10.
The dollar pared earlier losses in U.S. morning trading following the release of stronger than expected consumer data. The U.S. Bureau of Labor Statistics in its monthly report said its Consumer Price Index rose 0.2% for March, slightly below forecasts of a 0.3% increase. A closer reading indicated that prices swung upward in medical care, used car and truck sales and household furnishing, while airlines fares declined for the fourth time and five months.
Soon after, the University of Michigan said its Consumer Sentiment index for the middle of April ticked up to 95.9, up from 93.0 at the end of March. The index reached an eight-year high in January at 98.1 before declining a month later.
Despite the strong indicators, there were still signs of sluggish growth throughout the economy within the report. Low levels for energy prices led to a downward revision in inflation expectations to 2.5% for the remainder of the year, down from an earlier projection of 3.0. The modest inflation expectations may increase the risk that consumers will curb spending while awaiting lower prices.
In addition, the subdued inflation expectations may also fuel speculation that the Federal Reserve could wait until the fall before it decides to raise interest rates.
On Thursday, Federal Reserve Bank of Atlanta president Dennis Lockhart provided little indication that the Fed could institute a highly-anticipated interest-rate hike in June. The Fed is taking a data-driven approach to the timing of its first rate hike in more than five years, as it awaits increases in wage and GDP growth, as well as steady rises in inflation before it raises its benchmark Fed Funds rate. Lockhart said during a speech in St. Petersburg, Fla.:
“The data available for the first quarter of this year have been notably weak…giving rise to heightened uncertainty about the track the economy is on.”
Elsewhere, Italian prime minister Matteo Renzi attempted to assuage fears of a Greek default on its sovereign debt with reassuring comments in Washington. Speaking at a joint press conference with U.S. president Barack Obama at the White House, Renzi indicated that the euro zone is better prepared to react to a possible departure by Greece from the EU than it was during other economic crises over the last decade. Renzi said:
“The situation in Greece is not the same situation as 2011, its not the same as 2008. We must absolutely achieve an agreement.”
Renzi’s comments came two days after German finance minister Wolfgang Schaeuble warned that practically no one expects Greece to make a series of key repayments at a critical meeting of euro zone finance ministers next week in Latvia or anytime in the near future. Athens officials have also denied a report from the Financial Times that it approached the International Monetary Fund to request a delay on a loan payment due later next month.
Stocks on equities markets on both sides of the Atlantic plunged, as the Dow Jones Industrial Average, The Stoxx Europe 600 index and the German Dax index all fell by more than 1% on the session. In Europe, investors sought safety in government bonds as yields on German 10-Year bunds fell to a record-low at 0.051% before rebounding slightly to 0.08%. A plethora of government bonds in Europe have turned negative since the European Central Bank launched an ambitious quantitative easing program last month.
While the €60 billion a month bond buying program has been responsible for a steady depreciation in the euro over the last several weeks, French finance minister Michel Sapin indicated on Friday that it could be unwise to allow it to fall any lower. In comments to the
International Monetary Fund (IMF):
“I think that if we had wanted, or gave the impression that we wanted, to go further in the decline in the value of the euro we would be entering a dangerous zone.”
The euro is still down roughly 10% against the dollar this year.
In spite of the strong move by the euro the dollar was little changed against a basket of other major currencies on Friday, as a strong U.S. consumer sentiment report helped ease concerns over the timing of a U.S. rate hike continued to weigh.
The greenback has remained under pressure as disappointing U.S. data published throughout the week fuelled speculation that the Federal Reserve could delay hiking interest rates until late 2015, instead of tightening midyear.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 97.87.
The euro found support after revised data showed that euro zone consumer price inflation rose 1.1% last month, in line with expectations and up from a preliminary estimate of 0.6%. Euro zone inflation declined by 0.3% in February.
The rate grew closer to the European Central Bank’s target of near but just below 2%.
Core CPI, which excludes food, energy, alcohol, and tobacco costs rose 1.4% in February, up from an initial estimate of 0.6%.
The pound was higher, with GBP/USD up 0.31% to 1.4981, even as the Office for National Statistics said that the U.K. claimant count dropped 20,700 last month, compared to expectations for a 29,500 decline.
A separate report showed that the U.K. unemployment rate ticked down to 5.6% in February from 5.7% the previous month, in line with expectations.
Meanwhile, USD/CAD was little changed at 1.2187, off 3-month lows of 1.2089 hit earlier.
Data on Friday showed that Canada’s retail sales rose 1.7% in February, beating expectations for a 0.2% gain and after a revised 1.4% decline the previous month.
Data also showed that Canadian consumer prices ticked up 0.7% last month, compared to expectations for an increase of 0.5%, after 0.9% rise in February.
Except for a swing toward bullishness for the Mexican peso, there was little change in speculator sentiment from a week ago.
Gold rose slightly on Friday, as increasing concerns related to the Greek debt crisis and a sell-off in China outweighed stronger than expected U.S. consumer data.
On the Comex division of the New York Mercantile Exchange, Gold futures for June delivery gained 5.50 or 0.46% to 1,203.50 a troy ounce. Gold reached a high of 1,207.80 in European afternoon trading, up from a low of $1,197.00. Gold futures are up roughly 5%, since reaching a low of 1,149.00 on March 17.
Gold futures moved higher after the CPI and University of Michigan said its Consumer Sentiment index data were announced. Despite the strong indicators, there were still signs of sluggish growth throughout the economy within the report. Low levels for energy prices led to a downward revision in inflation expectations to 2.5% for the remainder of the year, down from an earlier projection of 3.0. The modest inflation expectations may increase the risk that consumers will curb spending while awaiting lower prices.
In addition, the subdued inflation expectations may also fuel speculation that the Federal Reserve could wait until the fall before it decides to raise interest rates. Federal Reserve Bank of Atlanta president Dennis Lockhart made remarks on Thursday that sounded quite dovish (see Forex section).
Gold, which is not attached to dividends or interest rates, struggles to compete with high yield-bearing assets in higher interest rate environments.
In China, futures fell more than 5% after regulators from the Securities Association of China increased the volume of shares available for short sellers. On Monday, China announced that exports last month fell by 15% on a year-over-year basis, while import declined by 12.7%. China is the largest producer of gold in the world and the second-largest purchaser.
Meanwhile, silver for May delivery fell 0.066 or 0.41% to 16.21 an ounce.
Copper for May delivery rose 0.006 or 0.21% to 2.78 a pound.
Crude oil futures moved slightly lower on Friday, as energy traders locked in profits from earlier this week when prices rose sharply to reach its highest level for the year.
On the New York Mercantile Exchange, WTI crude futures for May delivery fell 1.00 or 1.76% to 55.71 a barrel to snap a six-day winning streak. On Thursday, Texas Light Sweet futures peaked at $57.37 continuing an extended rally that began last week when crude plunged near $50 a barrel following record inventory buildup. WTI crude still moved higher for the fifth consecutive week.
On the Intercontinental Exchange (ICE), brent crude futures for June delivery hovered near Thursday’s high of $64.95, when prices reached its highest level of the year, before falling slightly during a late sell-off. Brent crude dropped 0.53 or 0.83% in U.S. afternoon trading to settle at 63.45.
The spread between the international and U.S. domestic benchmarks of crude rose to $7.74, up from $7.20 on Thursday.
WTI crude prices fell roughly a dollar on Friday afternoon after oil services firm Baker Hughes (NYSE:BHI) said the number of oil rigs in the U.S. last week fell by 26 to 734, its lowest level since November, 2010. The rig total has now decreased for 20 consecutive weeks, since exceeding a level of 1,600 last October. Meanwhile, Oil and gas rigs combined declined 34 to 954, the lowest amount since July, 2009.
While the rig count has declined steadily since last fall, the pace of decline appears to be slowing. Last week for instance, Baker Hughes said its weekly oil rig count decreased by 42 – drastically lower in comparison with a two-week period in mid-February when the rig total was slashed by more than 80 for two consecutive weeks.
Energy traders remain focused on U.S. production levels, which currently stand at approximately 9.3 million barrels per day. On Thursday, Opec said it expects U.S. crude production to exceed 13 million bpd later this quarter before leveling off for the remainder of the year.
In the Middle East, tribal fighters loyal to Yemen president Abdurabuh Mansur Hadi said they regained control of the Masila oil fields in the southern province of Hadramaut. One day earlier, the oil terminal was reportedly captured by Al Qaeda.
While Yemen is considered a minor exporter of crude, it is strategically located on one of the world’s largest chokepoints of oil. The country has been ravaged by frequent Saudi-airstrikes against Shiite-led Houthi rebels since late-March.
Oil traders are sensitive to any risky geopolitical news involving Saudi Arabia.
Natural Gas (Wednesday Report)
U.S. natural gas prices rose for the second consecutive session on Wednesday, as market participants looked ahead to fresh weekly information on U.S. gas inventories to gauge the strength of demand for the fuel.
On the New York Mercantile Exchange, natural gas for delivery in May tacked on 3.4 cents, or 1.32%, to trade at $2.564 per million British thermal units during U.S. morning hours. Prices touched an intraday peak of $2.572, the most since April 9.
A day earlier, natural gas rose 1.9 cents, or 0.76%, to close at $2.530. Prices fell to $2.475 on Monday, a level not seen since June 2012.
Futures were likely to find support at $2.475 per million British thermal units, the low from April 13, and resistance at $2.646, the high from April 9.
The U.S. Energy Information Administration’s next storage report due on Thursday is expected to show a build of approximately 45 billion cubic feet for the week ending April 10.
Supplies rose by 22 billion cubic feet in the same week last year, while the five-year average change is an increase of 35 billion cubic feet.
Total U.S. natural gas storage stood at 1.476 trillion cubic feet as of April 3, 79% above year-ago levels and 10.5% below the five-year average for this time of year.
Last spring, supplies were 55% below the five-year average, indicating producers have made up for most of last winter’s unusually strong demand.
Natural gas prices have been under heavy selling pressure in recent weeks 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.