Written by Investing.com Staff, Investing.com
U.S. stocks hit lowest levels in months as Dow closes down almost 400
U.S. stocks fell sharply on Friday extending its worst start to a year on record, as the major indices were besieged by further declines in oil, continued signals of weakening growth in China and a fresh batch of soft economic data which exacerbated fears of a potential recession.
At one point, the Dow Jones Industrial Average fell as much as 537 points to a five-month low, while the NASDAQ Composite index and the S&P 500 Composite index each dropped to their lowest levels since October, 2014 on a jittery day for investors. In spite of a late rally, the Dow still closed at 15,988.08, down 390.97 or 2.39%, while the NASDAQ lost 126.58 or 2.74% to 4,488.42, as biotech and semiconductor stocks weighed.
The S&P 500, meanwhile, fell by 41.55 or 2.16% to 1,880.29, as stocks in all 10 sectors closed in the red. Stocks in the Technology, Energy and Basic Materials industries lagged, each falling by more than 2.25% on the session. The NASDAQ has tumbled by roughly 10% on the new year, while the Dow and S&P have each fallen by approximately 8% respectively.
A historic downturn in oil prices continued to drag down global stocks, as both the U.S. and international benchmarks of crude dipped below $30 a barrel to hit fresh 12-year lows. Over the first two weeks of 2016, crude futures have plummeted by approximately 20%. A wave of weak economic reports also provided significant downside pressure on U.S. stocks and weighed on the dollar. U.S. producers prices and retail sales both fell slightly last month, falling below analysts’ expectations, while industrial and manufacturing production also moved lower in December, underscoring long-term concerns related to the global commodity rout.
In addition, a sell-off in financial stocks contributed to Friday’s crash, as shares in CitigroupInc (N:C) and Wells Fargo & Company (N:WFC) both fell by more than 3%. The major Wall Street banks both suffered poor sessions, despite reporting solid fourth quarter revenues and earnings on Friday. The banks’ exposure to slumping Emerging Markets and a host of struggling commodities prompted the decline, analysts said.
After finishing as the worst performer on the Dow in each of the previous two sessions,Home Depot Inc (N:HD) rebounded on Friday to top the index. Home Depot (N:HD) still lost 0.87 or 0.73% to 118.75, as all 30 components closed in the red. Intel Corporation (O:INTC) fell 2.93 or 8.73% to 29.82, closing as the Dow’s worst performer, in the wake of disappointing fourth quarter results and a weak forward guidance.
The biggest gainer on the NASDAQ was Electronic Arts Inc (O:EA), which added 1.56 or 2.42% to 66.04, after receiving an upgrade from analysts at BA. Intel (O:INTC) was also the worst performer, just below Micron Technology Inc (O:MU), which dropped 0.95 or 7.90% to 11.07. Intel and Micron pulled down the Philadelphia Semiconductor Index, which fell by approximately 4.5% on the session.
The top performer on the S&P 500 was Wynn Resorts Limited (O:WYNN), which gained 7.01 or 13.61% to 58.51, amid signals that its struggling Macau casino could be on the verge of stabilizing. The oil rout continued to drag down Williams Companies Inc (N:WMB), the session’s worst performer. Williams, a Tulsa, Oklahoma based oil and gas company, ended a rough week at 16.09, down 2.20 or 12.03% on the session.
On the New York Stock Exchange, declining issues outnumbered advancing ones by a 2,564 to 542 margin .
Additional stock news from Reuters at Investing.com with more details on U.S. markets.
The dollar remained broadly lower against the other major currencies on Friday, as mostly downbeat U.S. economic reports weighed on the greenback and as concerns over declining oil prices continued to support demand for the safe-haven yen and Swiss franc.
USD/JPY tumbled 0.94% to 116.93.
The University of Michigan said its consumer sentiment index rose to 93.3 this month from 92.6 in December, beating expectations for a rise to 93.0.
The report came after the U.S. Census Bureau said retail sales fell 0.1% in December, compared to expectations for a 0.1% rise.
Core retail sales, which exclude automobiles, slipped 0.1% last month, disappointing expectations for a 0.2% gain.
A separate report showed that the U.S. producer price index slipped 0.2% in December, in line with expectations. Core PPI, which excludes food and energy, inched up 0.1% last month, in line with expectations.
In addition, the Federal Reserve of New York said its Empire State manufacturing index deteriorated to minus 19.37 this month from a revised reading of minus 6.21 in December. Analysts had expected the index to improve to minus 4.00 in January.
Data also showed that U.S. industrial production declined by 0.4% in December, compared to expectations for a 0.2% downtick, while manufacturing production fell 0.1% after a 0.1% slip.
Meanwhile, the yen remained supported as Brent crude, the global benchmark, fell below the $30 per barrel threshold on Friday, the lowest level since 2004, pressured by concerns over a global supply glut.
The ongoing oil rout weighed heavily on the commodity-related Australian, Canadian and New Zealand dollars.
AUD/USD plummeted 1.39% to nearly six-year lows of 0.6887 and NZD/USD dropped 0.69% to three-month lows of 0.6433, while USD/CAD climbed 0.78% to an almost 13-year peak of 1.4477.
Meanwhile, EUR/USD advanced 0.85% to trade at 1.0957.
Elsewhere, the dollar was higher against the pound, with GBP/USD down 0.43% to fresh five-and-a-half year lows of 1.4351, and was lower against the Swiss franc, with USD/CHFdeclining 0.66% to 0.9983.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.50% at 98.61.
Speculators were less bearish on the euro and more bullish on the yen this week. Bearishness increased on the Australian and Canadian dollars. Bearishness also increased on both oil and the S&P 500.
Gold surged on Friday enjoying its strongest one-day move in six weeks, as a batch of soft U.S. economic data and further signals of weakness in China sent investors scurrying toward the safe-haven asset.
On the Comex division of the New York Mercantile Exchange, gold for February delivery traded in a broad range between $1,076.00 and $1,097.20 an ounce before settling at $1,090.00, up 15.80 or 1.47% on the session. Gold still ended the week relatively flat, down less than 1%, in spite of a choppy, volatile stretch of trading. In three of the five sessions, gold fluctuated considerably as investors kept a close eye on developments in China, where economic growth last year is projected to slow at the slowest rate in a quarter-century.
Gold concluded Friday’s session down approximately 1.5% from last week’s highs near $1,110 an ounce, when the precious metal hit a nine-week high. Gold is also up by more than 3% from its level in early-December when it fell below $1,045 to hit a fresh six-year low.
Gold likely gained support at $1,046.20, the low from December 3 and was met with resistance at $1,162.00, the high from Oct. 29.
On Friday morning, the University of Michigan’s Consumer Survey Center said in its mid-monthly flash report that U.S.consumer sentiment increased 0.7 points from the December final reading to 93.3, slightly above analysts’ expectations of 93.0. Shortly after, the U.S. Census Bureau said retail sales fell 0.1% last month, below analysts’ forecasts for a flat reading. It came one month after retail sales nationwide surged by 0.4% in November.
Within the report, sales in the general merchandise category fell sharply as apparel sales slumped by 0.9%. Sales in Electronics and Appliances also demonstrated weakness, pulling down the core reading. Retail sales, minus the volatile auto and gas category, remained unchanged, finishing far below consensus estimates for a 0.3% gain.
Separately, the U.S. Producer Price Index fell 0.2% in December nearly erasing a 0.3% gain from a month earlier. The Core PPI, which strips out food and energy prices, inched up 0.1%, in line with consensus estimates. Also on Friday, the Federal Reserve Bank of New York said its Empire State Manufacturing Index plummeted to negative 19.37, extending losses from December’s revised reading of minus 6.21. The index fell to its lowest level since April, 2009. Industrial production, meanwhile, slipped 0.4%, while manufacturing production fell by 0.1% last month. Weakness in vehicle production, which fell by at least 1.5% for the second straight month, pulled down the overall reading.
The downbeat data could persuade the Federal Reserve to delay its next interest rate beyond the first quarter. On Friday morning, San Francisco Fed president John Williams said in a speech at the Economic Forecast Conference that further rate hikes by the U.S. central bank should be gradual. It came one day after St. Louis Fed president James Bullard cited lower inflation expectations and weakness in China as factors for why an imminent rate hike could be difficult to justify.
Any rate hikes this year are viewed as bearish for gold, which struggles to compete with high yield bearing assets in rising rate environments.
In overnight trading, the Shanghai Composite Index tumbled 3.6% to 2,900, moving near its August level of 2,850 when the People’s Bank of China scrambled to devalue the yuan in an effort to stimulate the nation’s flagging economy. Investors reacted to reports that Chinese banks extended $597.8 billion in new yuan loans in December, sharply below lending in November of $708.9 billion. After suffering an 8.8% loss on the week, the Shanghai index returned to correction territory.
Silver for March delivery gained 0.127 or 0.92% to 13.885 an ounce.
Copper for March delivery lost 0.031 or 1.58% to 1.944 a pound.
Crude fell more than 5% on Friday slipping below $29 a barrel, as investors braced for Iran’s return to global energy markets ahead of the release of a report that could pave the way for a group of Western powers to ease longstanding economic sanctions against the Persian Gulf state.
With the sharp losses, the international and U.S. benchmarks of crude both plunged to fresh 12-year lows, extending a massive downturn that has persisted over the last 19 months. On the New York Mercantile Exchange, WTI crude for February delivery traded between $29.15 and $31.22 a barrel before settling at $29.44, down 1.76 or 5.66% on the session. Since closing 2015 around $37, Texas light, sweet futures have plummeted more than 21%.
On the Intercontinental Exchange (ICE), brent crude for March delivery wavered between $28.86 and $31.16 a barrel, before closing at $28.95, down 1.93 or 6.23% on the day. The sell-off erased all of the gains from the previous trading day when North Sea brent futures ended a nine-day losing skid with its first winning session of the new year. On Friday, brent futures fell to its lowest level since July, 2004.
A report from the International Atomic Energy Agency (IAEA) which could confirm that Iran has met the requirements of a historic nuclear deal reached last summer is expected to come out on Saturday, sources told Reuters. Iran foreign minister Mohammad Javad Zarif and European Commission vice president Federica Mogherini are also expected to issue a statement over the weekend, Reuters reported, which could include a timetable for sanction relief.
Meanwhile, Iran has nearly two dozen large crude carriers floating off its coast ready for delivery as soon as the sanctions are lifted, according to multiple reports. The tankers couldbe headed to India, where oil is in high demand in its rapidly expanding market. Iran expects to boost oil exports by 500,000 barrels per day when sanctions are initially eased, 200,000 bpd of which could be delivered to India.
The surge in Iranian exports is viewed as bearish for crude, which has fallen approximately 75% from its peak of $115 two summers ago, amid a glut of oversupply on markets worldwide. Crude ended last year down more than 30%, after OPEC triggered a prolonged battle with U.S. shale producers for market share by keeping its production ceiling above 30 million bpd in an unforeseen move in November, 2014.
Elsewhere, investors reacted to a slight drop in U.S. oil rigs last week as production remained relatively high, above 9.2 million barrels on the week. Oil services firm Baker Hughes said Friday that U.S. oil rigs fell by one to 515 for the week ending on January 8, marking the fourth consecutive week of weekly draws. The rig total, which has declined in eight of the last nine weeks, has fallen sharply from its level 14 months ago, when it hovered around 1,600.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, lost more than 0.40% to an intraday low of 98.42. The index remains near 12-month highs from December, when it eclipsed 100.00.
Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.
Natural Gas (Thursday Report)
Natural gas futures plunged to a more than two-week low on Thursday, after data showed U.S. natural gas supplies in storage fell less than expected last week, despite cold weather conditions.
Natural gas for delivery in February on the New York Mercantile Exchange slumped 10.6 cents, or 4.68%, to trade at $2.170 per million British thermal units by 15:35GMT, or 10:35AM ET. Prices were at around $2.224 prior to the release of the supply data after falling to a session low of $2.167, the cheapest since December 28. A day earlier, natural gas inched up 1.2 cents, or 0.53%.
The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended January 8 fell by 168 billion cubic feet, below expectations for a decline of 178 billion.
That compared with a drawdown of 113 billion cubic feet in the prior week, while the five-year average change for the week is a withdrawal of 178 billion cubic feet.
Total U.S. natural gas storage stood at 3.475 trillion cubic feet, 16.9% higher than levels at this time a year ago and 13.7% above the five-year average for this time of year.
Meanwhile, updated weather forecasting models for the end of January turned milder. Forecasts originally pointed to freezing temperatures in the U.S. east coast until the end of the month.
Bearish speculators are betting on the warm weather reducing winter demand for the heating fuel. The heating season from November through March is the peak demand period for U.S. gas consumption.
