MARCH 21st

WORLD MARKETS-Sharp decline in U.S. dollar lifts stocks, oil – Euro has best week against the dollar since 2011 – Oil sharply higher despite oversupply concerns – European stocks helped after Athens’ assurances – Fed Loses Patience, But Is in No Hurry – Oil Markets Brace for Another Deluge

The Fed’s lack of impatience sends markets on a wild ride, while some say a rate increase would usher in Chairwoman Janet Yellen’s next challenge. Oil is bracing for another deluge and bond funds get ready to crown a new king.
Investors got a jolt this week as the Federal Reserve appeared downbeat on the U.S. economy, raising the prospect that any move to increase rates might come later than many had expected. Traders were ready Wednesday when the Fed, as expected, dropped the word “patient” from its policy statment, opening the door to rate rises as soon as June. But they were caught off-guard by the cautious forecasts. Stocks surged, Treasury bond yields plummeted and the dollar sagged immediately following the news. Markets later retreated from some of those moves, as the U.S. still seemed on course to tighten monetary policy sooner than other major nations.

The dollar’s quick rebound this week from its worst decline against the euro in six years capped two days of gyrations that marked the return of heightened volatility to currency markets and raised worries that crucial corners of the financial system, such as bonds, could seize up. The agitation reflected a sudden uncertainty about the path of interest rates around the world, showing how central banks of late have been sending traders reeling. Still, the euro’s weakness has given a much-needed lift to some hedge funds frustrated in recent years by calm markets and by misreading macroeconomic shifts.What happens if the Fed stops the low-rates party and nobody leaves? That could be Fed Chairwoman Janet Yellen’s next challenge. At some point this year—this week’s statement notwithstanding—the Fed is expected to raise its benchmark short-term interest rate. But some worry that the central bank will have a tougher time nudging longer-term rates up. That would complicate efforts to prevent bubbles and return the economy to a normal footing.Oil prices headed toward lows not seen since the financial crisis as U.S. storage tanks continued to fill–hitting a record at the key depot of Cushing, Okla.–and as traders looked to the possibility that a nuclear deal with Tehran could unleash more Iranian crude onto world markets. As many investors steer clear of energy producers, some Wall Street banks face tens of millions of dollars in losses on loans they are struggling to sell. In one place, though, oil is in short supply: Waning production at the North Sea’s Brent field has opened the prospect of a Brent benchmark with no Brent oil.The man set to depose Bill Gross as the new bond king has has one follower on Twitter, has never appeared on business TV shows, and even some of his own investors don’t recognize his name. Yet a bond fund run by Vanguard Group’s Joshua Barrickman is poised to depose as early as next month Pacific Investment Management Co.’s flagship Total Return fund as the largest by assets. The looming regime change comes as investors flock to plain-vanilla funds that follow market indexes rather than relying on money managers to pick winners.The U.S. dollar fell sharply on Friday and posted its biggest weekly decline against the euro in more than three years, helping to drive a rally in Wall Street stocks and crude oil.The Nasdaq posted its highest close in 15 years on Friday and had a weekly gain of 3.2 percent.
Riskier assets like equities had a strong week in general, largely driven by the Federal Reserve’s policy statement on Wednesday, which struck a more dovish tone than investors had expected. The Fed appeared to argue against an interest rate hike in June.The U.S. dollar index is up more than 20 percent since mid-2014. The dollar’s strength for some time buoyed U.S. stocks because it served as evidence of a strengthening economy, but lately there have been concerns of the impact it could have on the profits of U.S. multinational companies.U.S. crude futures had their first weekly advance of the past five, and the S&P 500 snapped a three-week losing streak on Friday. The euro posted its biggest weekly jump against the dollar in more than three years, while the U.S. dollar index suffered its biggest weekly drop since 2011.The dollar index, which measures the greenback against a basket of currencies, fell 1.37 percent, its biggest one-day decline since September 2013. The euro rose 1.4 percent, to $1.0811, and the yen rose 0.61 percent against the dollar.”This is just some counter-trend correction in the dollar and is transitory,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.Wall Street stocks surged, with the Dow and the S&P 500 both gaining almost 1 percent on Friday. For the week, the Dow rose 2.1 percent and the S&P rose 2.7 percent.MSCI’s all-country world index of equity performance in 46 countries rose 1.3 percent.The Dow Jones industrial average rose 168.36 points, or 0.94 percent, to 18,127.39, the S&P 500 gained 18.82 points, or 0.9 percent, to 2,108.09 and the Nasdaq Composite added 34.04 points, or 0.68 percent, to 5,026.42.”The Federal Reserve’s created a situation where there’s very little alternative to equities, so the path of least resistance for stocks will be up for a period of time,” said Robert Lutts, president, chief investment officer at Cabot Money Management in Salem, Massachusetts.Shares of Nike Inc, the world’s largest sportswear maker and a Dow component, jumped 3.7 percent to $101.98 a day after reporting strong quarterly results, though it warned about the impact of the dollar on the current quarter.The Nasdaq Biotech Index rose 0.5 percent, powered by a 9.8 percent gain in Biogen Idec after the company announced promising results of an early-stage study of its drug to treat Alzheimer’s.European equities closed higher. The FTSEurofirst 300 index posted its highest close since mid-2007, finishing up 0.8 percent at 1,610.93. Greek equities rose 2.9 percent after Greek Prime Minister Alexis Tsipras assured European Union creditors his coalition would soon present economic reforms to unlock cash to stave off bankruptcy. In addition, the recent weakness of the euro was seen as boosting the region’s economy and corporate earnings.The benchmark 10-year U.S. Treasury note rose 15/32 in price, pushing the yield down to 1.9216 percent.Brent crude rose 1.6 percent to settle at $55.32 per barrel while U.S. crude futures for April delivery jumped 4 percent to settle at $45.72. While concerns remain about oversupply, oil was boosted by the dollar’s decline.Both gold and silver rose for a third straight session, also helped by the dollar’s weakness. Gold rose 1 percent while silver jumped 3.9 percent. Copper rose 3.3 percent.ECONOMIC DATA REVIEWEurope* Germany’s producer prices dropped more-than-expected in February, figures from Destatis showed Friday. The producer price index fell 2.1 percent year-over-year in February, exceeding economists’ expectations for a 2.0 percent drop. In January, prices had fallen 2.2 percent.* As urged by European Union leaders, Greek Prime Minister Alexis Tsipras agreed to submit a list of reforms within days. EU leaders sought more concrete steps on reforms and efforts to overcome the standstill on the aid programme.* The U.K. budget deficit decreased in February from last year, the Office for National Statistics showed Friday. Public sector net borrowing excluding public sector banks declined by GBP 3.5 billion to GBP 6.9 billion in February. It was forecast to fall to GBP 8.4 billion.* Eurozone current account surplus in January grew from a year ago, as trade surplus and primary income rose sharply, figures from the European Central Bank revealed Friday. The current account surplus rose to EUR 29.4 billion from EUR 18.1 billion a year ago.* Italy’s current account balance turned to a surplus in January from a deficit in the previous year, figures from the Bank of Italy showed Friday. The current account balance showed a surplus of EUR 45 million in January versus a deficit of EUR 1.5 billion in the same month of the previous year.Asia* Consumer confidence in New Zealand inched slightly higher in March, the latest survey from ANZ Bank showed on Friday – gaining 0.5 percent on month to a score of 124.6. That follows the 3.8 percent tumble in February to a reading of 120.0.* Total credit card spending in New Zealand was down a seasonally adjusted 0.1 percent on month in February, the Reserve Bank of New Zealand said on Friday – coming in at NZ$3.05 billion. That follows the upwardly revised 2.0 percent increase in January (originally 1.9 percent).* Malaysia’s consumer price inflation eased at a faster-than-expected pace in February, due to cheaper fuel prices, figures from the Department of Statistics showed Friday. The consumer price index rose only 0.1 percent year-over-year in February, slower than January’s 1.0 percent climb.* Reserve Bank of Australia Governor Glenn Stevens said the weaker exchange rate is assisting the major transition from mining driven growth to other sectors of the economy and promised to lend support to the fine-tuning. The massive run-up in resources sector capital spending that was a natural response to earlier very high prices is reversing, causing a drag on demand, Stevens said.* Hong Kong’s consumer price inflation accelerated at a faster-than-expected pace in February, after easing in the previous four months, figures from the Census and Statistics Department showed Friday. The consumer price index climbed 4.6 percent year-over-year in February, faster than January’s 4.1 percent.* Taiwan’s export orders declined unexpectedly in February and marked its first fall in more than a year, data published by Ministry of Economic Affairs showed Friday. Export orders fell 2.7 percent in February from last year, following an 8.1 percent rise in January.LOOKING WEEKAHEADInvestors enjoying near-record levels for major stock indexes will scrutinize housing data and other economic indicators in the coming week for hints about the timing of U.S. interest rate hikes to see if the rally will continue.Concern about the Federal Reserve’s path of rate increases and the soaring U.S. dollar have resulted in big swings in the S&P 500 on a daily basis, even though overall expectations for volatility remain low.Bolstered by reduced expectations of approaching rate hikes, the S&P 500 and Nasdaq Composite came close to record closing highs on Friday.”Any piece of economic data that speaks to the pace of job creation or inflation will be watched very closely. That’s the driver,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.That makes economic updates due in the next few days all the more important, strategists say, including February new home sales on Tuesday and February durable goods orders on Wednesday.After U.S. consumer prices in January fell their furthest in six years due to low gasoline prices, Tuesday’s February Consumer Price Index is expected to be up 0.2 percent, according to a Reuters poll.The U.S. economy’s growth prospects and the outlook for rate hikes have also been clouded by the strong dollar. The greenback’s 20 percent surge over a year has caused about 50 companies to reduce earnings expectations for the first quarter, and more could be on the way.On Friday, the dollar was off 1.5 percent against a basket of major currencies and registered its biggest weekly decline since 2011.Expectations for first-quarter earnings are already off to a poor start. For every company that has pre-announced earnings above Wall Street’s expectations, 5.5 others have pre-announced below expectations, according to Thomson Reuters data. That’s the worst ratio since the same point of time in the first quarter of 2014, when the ratio was 7.2 to 1.Investors also worry about falling oil prices and how much of the recent drop is attributable to global economic weakness as opposed to oversupply. Energy companies account for 8 percent of the earnings of S&P 500 companies but volatile crude prices reverberate across the economy.Some investors worry that consumers are not spending money freed up by lower gasoline prices on more goods and services.”They’re saving it or paying down debt,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. “That’s why everyone is nervous.”

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