CMC Markets Weekly Report
Stocks in the U.S faded in the final hour of trading to close mixed Friday, with major indexes logging a second weekly decline, pressured by news of JPMorgan's trading loss and amid ongoing worries over the euro zone.
Stocks in the U.S faded in the final hour of trading to close mixed Friday, with major indexes logging a second weekly decline, pressured by news of JPMorgan's trading loss and amid ongoing worries over the euro zone.
The Dow Jones Industrial Average slipped 34.44 points, or 0.27 percent, to close at 12,820.60. The S&P 500 erased 4.60 points, or 0.34 percent, to finish at 1,353.39 whilst the Nasdaq squeezed out a gain of 0.18 points, or 0.01 percent, to end at 2,933.82 points.
Stocks got a lift earlier in the session following a report that consumer sentiment rose to its highest level since 2008 in May.
But most of the day's focus was on JPMorgan after the banking giant disclosed that it suffered a trading loss of at least $2 billion from a failed hedging strategy. The firm estimates the business unit with the portfolio will post a loss of $800 million in the current quarter, excluding private equity results and litigation expenses. The bank previously forecast the unit would make a profit of about $200 million. Shares in JPMorgan fell 9% on the day and dragged on the entire banking sector.
In the latest news from Greece, socialist party leader Evangelos Venizelos failed to form a new coalition government after hosting last minute talks, crushing earlier hopes that the debt-ridden nation would avoid another round of elections next month.
Gold took another hit on Friday however, down US$13.00 to US$1580.40/oz, while base metals were mostly softer, with copper down 1.5%. Brent crude fell US47c to US$112.26/bbl and West Texas fell a heftier US$1.51 to US$95.57/bbl. The Aussie fell a further 0.7% and is now holding tentatively above parity at US$1.0024. The US dollar index is up slightly at 80.30, yet the US ten-year bond yield is now 4bps lower at 1.84%.
The eurozone will release its first estimate of March quarter GDP this week, on Tuesday, as well as industrial production, trade and inflation data and a business climate index over the course of the week. The ball is now firmly in Germany's court, and this week will be beholden to rhetoric from Berlin. There will nevertheless be a solid raft of economic data releases from across the globe.
The US will see retail sales, housing sentiment and the Empire State manufacturing index tomorrow, industrial production and housing starts on Wednesday, and the Philly Fed manufacturing index on Thursday. Tomorrow will also see the release of the minutes of the last Fed meeting, from which Wall Street will be looking for comforting signs QE3 is squarely on the table. It seems the only thing preventing a collapse of world stock markets at present is the anticipation of more monetary stimulus across the globe.
Australia will also be focused on policy easing as the RBA releases the minutes of its last meeting tomorrow. Today brings housing finance and investment lending and tomorrow sees vehicle sales. There's more lending data out on Wednesday along with the Westpac consumer confidence survey.
On the local stock front, today sees earnings results from Dulux (DLX) and Incitec Pivot (IPL), on Wednesday its CSR (CSR), and on Thursday Commonwealth Bank (CBA) will provide a quarterly update.
Frequently Asked Questions about this Article…
U.S. indexes faded late in the session after investors focused on two main concerns: JPMorgan's disclosed trading loss and ongoing worries about the euro zone. Although consumer sentiment earlier in the day rose to its highest level since 2008, the JPMorgan news and eurozone uncertainty weighed on market sentiment and helped push major indexes to a second weekly decline.
JPMorgan disclosed a trading loss of at least $2 billion tied to a failed hedging strategy. The firm said the business unit will post an $800 million loss in the current quarter (excluding private equity results and litigation expenses), after previously forecasting a profit of about $200 million. JPMorgan shares fell about 9% on the day, dragging down the broader banking sector.
Key releases include the eurozone's first estimate of March-quarter GDP plus industrial production, trade, inflation and a business climate index. In the U.S., watch retail sales, housing sentiment, the Empire State manufacturing index, industrial production, housing starts and the Philly Fed index, along with the minutes from the latest Fed meeting. Markets are especially keen on Fed minutes for signs that more monetary stimulus (QE3) may be on the table.
Greece’s political uncertainty increased when socialist leader Evangelos Venizelos failed to form a coalition, undermining hopes of avoiding another election. That heightened concern about the debt-stricken nation and added to broader eurozone worries that are influencing global markets.
Gold fell about US$13 to US$1,580.40/oz and base metals were generally softer (copper down 1.5%). Brent crude eased to US$112.26/bbl and West Texas fell to US$95.57/bbl. The Australian dollar weakened about 0.7% and was hovering just above parity at US$1.0024. The U.S. dollar index was slightly higher at 80.30 and the U.S. 10-year yield was around 1.84% (4 basis points lower). These moves reflect a mix of risk sentiment and data-driven flows investors should monitor.
On the local front, Dulux (DLX) and Incitec Pivot (IPL) were scheduled to report earnings today. CSR was set to report on Wednesday, and Commonwealth Bank (CBA) was due to provide a quarterly update on Thursday. These reports could influence individual stocks and sector sentiment.
Investors will scrutinize the Fed minutes for clues on whether additional monetary stimulus (often referred to as QE3) remains likely, which has been a key support for markets. Similarly, the Reserve Bank of Australia (RBA) minutes are important because the market is focused on policy easing in Australia; any hint about future interest-rate moves or easing plans can move local asset prices and the Aussie dollar.
Key short-term risks include surprise trading losses like JPMorgan's which can hit financial stocks, renewed eurozone political stress (for example in Greece), volatile commodity prices and currency moves, and the potential for market swings around major economic data and central-bank minutes. Monitoring those headlines and scheduled releases can help investors manage risk and expectations.
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