Written by Investing.com Staff, Investing.com
Dow Higher as Tech Eases From Lows, Cyclicals Shine
Wall Street eased from session highs on Friday as big tech eased from lows and cyclical sectors like financials and industrials climbed.
The Dow Jones Industrial Average rose 0.56% or 154 points, but had gained as much as 294 points at the highs of the day. The S&P 500 was up 0.08%, while the Nasdaq Composite slipped 0.70%.
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The tech wreck that began earlier this week continued, led by weakness in the Fab 5. Facebook (NASDAQ:FB) Alphabet (NASDAQ:GOOGL) Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) trading in the red.
Apple came under added pressure after JPMorgan raised concerns about slowing sales ahead of the tech giant’s 5G-enabled iPhone slated to launch later this year.
There was “a moderation in momentum” for the lower-end iPhone SE and a slow down in sales of the iPhone 11, JPMorgan (NYSE:JPM) analyst Samik Chatterjee said in a note, citing surveys from Wave7 Research.
Adding to worries over Apple’s growth, the company on Friday revised its App Store guidelines that will likely directly affect game streaming services ahead of a new iPhone software release later this month.
With tech taking a breather, investors appeared to turn to cyclical stocks, which tend to outperform in a growing economy.
With stimulus from the Federal Reserve expected to continue for a prolonged period, some investors have been making the case that value stocks are ripe for the picking.
“Ultimately, if the Fed is dovish and monetary policy is easy, markets have a backstop. In other words, we must still buy the dip,” said Fundstrat Founder Tom Lee said in note Thursday.
Lee also backed “epicenter” stocks, or those impacted by the pandemic. These stocks “are going to be primary contributors to EPS growth in 2021, thus, we see better risk/reward.”
On the earnings front, Peloton Interactive (NASDAQ:PTON) fell more than 3% even as the company delivered better-than-expected guidance and swung to a profit in its fiscal fourth quarter following a pandemic-led jump in sales.
Oracle (NYSE:ORCL), meanwhile, also struggled to advance despite better-than-expected quarter results that beat on both the top and bottom lines.
Energy stumbled to add to broader market malaise as oil prices stuttered on signs that OPEC members’ commitment to stick to production cuts are waning after the United Arab Emirate pumped more oil than agreed to under the accord.
The dollar slipped in early European trade Friday, with the euro showing strength as traders took heart from Thursday’s European Central Bank meeting. Sterling rebounded after a robust bounce in activity in July, but further losses look likely.
At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 93.285, with EUR/USD up 0.2% at 1.1831.
The euro had a volatile ride during Thursday’s ECB meeting and subsequent press conference, but the overall tone Friday remains positive. Analyst Petr Krpata at ING said:
“The ECB presented almost no serious hurdles to renewed euro strength as economic forecasts were more upbeat than expected while comments on the exchange rate were fairly soft.
Given the outlook, it is hard for ECB to lean against currency strength and with bearish USD dynamics firmly in place, the medium-term upbeat EUR/USD outlook for 2021 remains intact.”
That said, possibly to counter the impression that the bank had been unduly optimistic, the ECB’s chief economist Philip Lane wrote in a blog post on Friday that: “There is no room for complacency.“
Elsewhere, GBP/USD rose 0.2% to 1.2824, and EUR/GBP gained 0.1% to 0.9228, after Britain’s economy expanded by 6.6% in July from June, for its third month of growth as the country tries to recover from its coronavirus lockdown crash.
However, sterling remains weighed by the fraught state of negotiations with the European Union over its trading relationship after Britain fully leaves the bloc.
The pound has lost 3.6% against the dollar this week and about as much against the euro as Brexit turmoil resurfaced.
EU diplomats said the bloc could take legal action against Britain after U.K. officials presented a draft law earlier this week that would break the divorce treaty and in all likelihood end four years of Brexit talks.
ING said:
“The chances of a UK-EU trade deal being struck are now 50:50 at best, given the events of the past few days. The very limited risk premium factored into EUR/GBP at the moment suggests further downside lies ahead for the pound.”
Turning back to the dollar, traders will focus on the inflation figures for August, which are due at 8:30 AM ET (1230 GMT).
They are expected to show core CPI rising 0.2% month-on-month and 1.6% on a year-over-year basis, still way below the 2% level the Federal Reserve has set as its average target.
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Gold prices ended up for the week but the “mini rally” of the past three days – which saw the yellow metal rise less than $10 daily on the average – came to an abrupt end Friday as volatility struck financial markets again in the absence of clear drivers.
From stocks on Wall Street to crude oil on NYMEX, prices either gyrated or see-sawed in a range as upbeat U.S. Consumer Price Index data was offset by the continued standoff in Congress over a new coronavirus relief bill.
U.S. gold for December delivery settled down $16.40, or 0.8%, at $1947.9 per ounce on New York’s Comex. It had risen over $27 in three previous sessions.
The spot price of gold, which reflects real-time trades in bullion, was at $1,942.80 by 3:56 PM ET (19:56 GMT), showing a decline of $3.38, or 0.2%.
For the week, though, December gold was up 0.7% while bullion showed a gain of 0.5%.
Notwithstanding that, gold remains way below Comex’s record highs of nearly $2,090 and bullion’s peak of above 2,073, both hit on Aug 7.
Charts show that spot gold needs to get to at least $1,968 to recover some of the frenetic momentum that took it to last month’s record highs. In Friday’s session, it only got as high as 1,954.72. Gold chartist Sunil Kumar Dixit said:
“The market’s reaction to $1,968 will give guidance on the further course of action. But gold actually needs to close above $1,973 and cross above $1,993 to resume the bullish momentum.”
“On the downside, breaking below $1,935 and a close below $1,920 will prompt it to attempt the $1,900 handle. Further weakness can increase the chances of a lower low that may reach $1,850-$1,800.”
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Oil prices finished with a second week of losses that left the market down more than 10% over the past fortnight as higher-than-anticipated crude stockpiles rattled investors already concerned about fuel demand with the end of the peak U.S. driving season.
A sluggish day on Wall Street added to the anemic performance in oil. The S&P 500, the leading indicator of U.S. stocks, was down slightly as well for the day while showing a loss of nearly 3% on the week, after the previous week’s drop of more than 2%.
New York-traded West Texas Intermediate, the key indicator for U.S. crude prices, settled the day up 3 cents at $37.33 per barrel. For the week though, WTI lost 6.1%, extending last week’s drop of 7.5%.
Ed Moya, an analyst at New York’s online trading platform OANDA, said WTI seemed destined to trade at around the mid-$30s for now as the crude market continued to work its way towards balance. Moya said in a note:
“Much attention is falling on the lack of American road-fuel demand, but in the short-term that could change as some companies are starting to urge more people to stop working from home. The next few months will be extremely uncertain for the demand outlook as no one knows how the winter wave of the coronavirus will trigger scattered lockdowns throughout the country.”
London-traded Brent crude, the global benchmark for oil, closed the New York trading session down 23 cents, or 0.6.%, at $39.83. Brent lost 6.6% for the week, adding to the previous week’s drop of 5.3%.
This week’s slide came after the Energy Information Administration reported a weekly crude inventory build of 2 million barrels, above the 1.3-million forecast by analysts. It was the first rise in crude inventories since mid-July. In six previous weeks, the EIA had reported a total crude drawdown of more than 38 million barrels.
Aside from the weekly crude build, the EIA also reported that refinery utilization of oil fell 5% for a second straight week. That raised concerns about demand for fuel after the end of the peak U.S. summer driving season.
On the bearish side as well, the EIA raised output estimates for U.S. crude by 300,000 barrels per day to 10 million bpd, accounting for the redeployment of production platforms on the Gulf Coast that were preemptively shut during last month’s Hurricane Laura.
Oil market economics were clouded over the past four months by euphoria more than statistics attesting to business reopenings from Covid-19 lockdowns.
Tepid U.S. jobs recovery since July – despite unemployment returning to single digits – and a resurgent dollar that’s anything but good for commodities had capped crude in the low $40s.
The floor finally came off the market last week after OPEC kingpin Saudi Arabia cut the selling price of its oil, ostensibly to preserve or widen its market share. The Saudi move came weeks after OPEC’s global producer alliance called OPEC+ said it was winding back production cuts observed since May.
The return of the Dollar Index to its bullish 93-handle and a stocks rout on Wall Street completed a perfect storm for crude longs.
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Natural Gas (Hellenic Shipping News)
Through the worst public health crisis in many decades, U.S. natural gas prices were low and stable from January until the end of July. For the first half of this year, prices were just $1.81 per MMBtu, their lowest since at least 1989. But unpredictably so, August proved to be a much different story. Prices through the month rose nearly 45%. We are now seeing the highest prices since mid-November – seemingly out of nowhere.
Analysts are scrambling to describe what happened in August to surge gas prices. But neither the technicals nor the fundamentals neatly explain such a jump. The weather was nothing bullish, and gas storage has been overflowing. At 3,420 Bcf, we now have a 20% surplus to year-ago levels and 15% more than the five-year average. U.S. gas production, however, has been mostly flat. Output for August was 86-87 Bcf/d, down from the 93-94 Bcf/d level we were at pre-pandemic. And this past week, Hurricane Laura shut-in “82% of oil, 59% of natural gas output in U.S. Gulf of Mexico” so national output did dip to 85 Bcf/d.
But still, especially as the shale-era since 2008 has lifted our production zones away from the vulnerable Gulf of Mexico to the inland shale plays like Appalachia and the Permian basins, hurricanes should be mostly bearish events. They lower gas demand by cutting electricity needs and shutting-in exports. In particular, the southeast and southwest regions have installed huge coal-to-gas fuel switching. Florida, for instance, has used gas to generate a staggering 76% of its electricity for the first half of 2020. This past week, U.S. LNG exports were shut-in from Hurricane Laura, with feedgas demand falling from 5.2 Bcf/d to 2.0 Bcf for August 22-27.
We all knew that gas prices were unsustainably sunk for the first seven months of 2020, generally in the extremely low range of $1.60 to $1.90. This is especially true since natural gas is on its way to surpass oil and become our most vital source of energy – likely at some point within the next five to seven years. Through the ongoing pandemic, U.S. gas usage could be classified as “surprisingly high and on par with year-ago levels.” In fact, we set a record for gas power generation in July, one day hitting a whopping 47 Bcf/d.
Easily the most bearish factor for the gas market through COVID-19 has been the huge drop in U.S. LNG exports, which hit a booming ~9.6 Bcf/d at the end of January until spiraling to ~3.3 Bcf/d for July – driven by low prices and demand globally. This past week, however, U.S. piped gas exports to Mexico were up to all-time record levels at 6.7 Bcf/d. All told, U.S. gas consumption for the three main sectors of power, industrial, and res/comm was at 73-75 Bcf/d for August, right where it was for July.
Looking forward, the U.S. Energy Information Administration has natural gas prices averaging $2.11 this year and $3.25 for 2021. The primary explanation for such a jump is that the Administration sees production continuing to fall, averaging just 84 Bcf/d next year. Not me. I see higher prices for both oil and gas bringing on more supply, reaching back up over 90 Bcf/d in a matter of months. We will need the new production because winter demand spikes 40-60% over summer, not to mention a much-improved outlook for exports.
But with the RSI hitting 73 on Friday, an overbought market is already beginning to pull pricing back down a bit, down 8% this week to $2.45 as of this morning. And temperatures are cooling down. Stay tuned, as we saw in 2018 (almost hitting $5.00) and 2019 (almost hitting $4.00), November is that mountain on the horizon. November is the key month for gas prices to really spike – with a cold and early start to winter prone to spooking the market.
Source: Forbes
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