The Star Online: Business
The Star Online: Business |
- Wall St. Week Ahead: Investors will look to Fed to ease volatility
- Wall St. slides in volatile week, eyes on the Fed
- Yen strength sustained, market uncertain on monetary policy
| Wall St. Week Ahead: Investors will look to Fed to ease volatility Posted: 15 Jun 2013 12:47 AM PDT NEW YORK: Stock investors eager to hear from the Federal Reserve about its plans for continuing economic stimulus may get some soothing words from the U.S. central bank next week. The Fed is unlikely to tip its hand about when it may begin to scale back its bond-buying program, but policymakers still may be inclined to try to tamp down recent volatility in financial markets with some mention of the issue. The rally in stocks stumbled and Treasury bond yields rose to 14-month highs following Chairman Ben Bernanke's comments that the Fed may decide to begin scaling back its quantitative easing in the next few policy meetings if the economy improves. As part of its quantitative easing policy, adopted more than four years ago, the Fed has been buying Treasury and other bonds each month to keep interest rates low and promote growth. Interpreting Bernanke's words and recent signs about the economy have roiled markets since then. The Dow industrials climbed 200 points in eight of the 17 sessions since Bernanke's comments, and its daily average swing has been 191.5 points. "What (Bernanke) has done is create what I call an early summer market storm, not a huge one but enough to cause people to become a little nervous," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. Stocks ended a third negative week in four. The Dow fell 1.2 percent, the S&P 500 slid 1 percent and the Nasdaq lost 1.3 percent Next week might offer a bit more clarity, he said, but probably not the details many investors are hoping for. Still, analysts said, the Fed may want to say something to remove some of the markets' anxiety. The markets have priced in a sea change and seem to think that rates are going up soon, said Stephen Massocca, managing director at Wedbush Equity Management LLC in San Francisco. But "I think the Fed is not going to want that to be the market's impression," he said. The news may be that any change is going to be gradual, he added. Comments from Fed policymakers in recent weeks have added fuel to the guessing game. Views have ranged from favoring continuing the stimulus policies for some time to starting the process of winding down quantitative easing in the near term. But Bernanke's views hold the most weight, so investors will likely be on edge awaiting his comments. The Fed chairman is due to give a news conference at 2:30 p.m. on Wednesday shortly after the Fed's policy committee ends a two-day meeting and issues a statement. RALLY EASES Although earnings have taken a back seat to Fed talk, forecasts for second-quarter profits have come down in recent weeks. Growth is forecast at 3.2 percent, down from an April 1 forecast of 6.1 percent, and negative preannouncements have outnumbered positive ones by a ratio of 6.9 to 1, according to Thomson Reuters data. That would be the most negative ratio since at least 1996. Investors worry speculation about the Fed's course alone may have been enough to spark the long-feared pullback in stocks, which have rallied for most of this year. Even with recent losses, the S&P 500 is up 15 percent for the year to date. The benchmark index is down 2.5 percent since May 21, but there have been short-lived rallies in that period. Also the gains in bond yields since Bernanke's comments caused investors to rotate out of high-yielding dividend stocks. Dividend stocks had been among the market's leaders as investors favored those shares over fixed-income securities in a low interest-rate environment. The Dow shot up 200 points and scored its best day since January 2 after the U.S. employment report for May showed 175,000 jobs were created, a positive sign but not strong enough for the Fed to abandon stimulus efforts to aid the economy. "As we see mixed signals in terms of economic growth from across the globe, a marginal tapering can have significant effects," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. "What would happen if the tapering is too soon, I think, is that it puts risk into financial assets, both equities and bonds." Among next week's economic reports, the Consumer Price Report for May is due on Tuesday along with data on housing starts. - Reuters |
| Wall St. slides in volatile week, eyes on the Fed Posted: 15 Jun 2013 12:44 AM PDT NEW YORK: Stocks fell on Friday on low volume to end their third negative week in four on lingering concern over whether the world's central banks will soon start to trim their stimulus programs. Uncertainty about the longevity of loose monetary policy around the world has caused volatility to jump lately. Nerves were frayed some more earlier in the week when the Bank of Japan decided to hold policy steady. Attention is now focused on the Federal Reserve's policy-setting meeting and press conference next week. Chairman Ben Bernanke's congressional statement on May 22 raised concerns that the Fed could soon begin to cool its stimulus efforts. "Bernanke is going to try to soothe the market and maintain his position he's not tightening soon," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. "The market wants to see the timetable for the tapering, and I doubt they're going to get that." Bernanke "has become the market whisperer," she said. "He knows tapering is necessary, but he's learning the market isn't going to wait for the Fed to act." The unwinding of trades linked to central bank support has recently strengthened correlations between asset classes. The 200-day correlation between the S&P 500 and the Japanese currency stands at minus 0.91, near its strongest inverse correlation in more than four years. Bets against the yen, cemented on expectations that Tokyo will keep accommodative monetary policy in place, have been used to finance long positions in Wall Street equities. The U.S. dollar extended losses against the yen on Friday to fall more than 3 percent for the week, its largest such drop since July 2009. The Dow Jones industrial average .DJI fell 105.90 points or 0.70 percent, to close at 15,070.18. The S&P 500 .SPX slipped 9.63 points or 0.59 percent, to finish at 1,626.73. The Nasdaq Composite .IXIC dropped 21.81 points or 0.63 percent, to end at 3,423.56. For the week, the Dow fell 1.2 percent, the S&P 500 slid 1 percent and the Nasdaq lost 1.3 percent. The Dow swung 161 points throughout Friday's session. Its 14-day intraday average range is now 193 points - the highest since December 2011. The CBOE Volatility Index .VIX, or VIX, rose 4.5 percent to end Friday's session at 17.15. The VIX is Wall Street's favorite measure of investor anxiety. Analysts say the market's volatility will continue as traders try to anticipate the Fed's next move. Financial stocks led the market's decline on Friday. The S&P financial sector index .SPSY has dropped more than 3.9 percent from a 4-1/2 year intraday high hit last month. Dow component American Express (AXP.N) fell 3 percent to $72.97 and led financial shares lower. The stock extended its weekly loss to 6.5 percent. DuPont (DD.N) ranked as the Dow's second-biggest percentage decliner, falling 2.2 percent to $52.68 after a brokerage cut its price target on the stock following the company's second-quarter earnings pre announcement on Thursday. JPMorgan Chase & Co (JPM.N) shares slid 1.9 percent to $53.13 after the bank said its private equity unit, One Equity Partners, will become independent and raise future funds from an external group of partners. Decliners beat advancers on the New York Stock Exchange by a ratio of about 8 to 7. On the Nasdaq, about 18 issues fell for every seven that rose. About 5.5 billion shares exchanged hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, far below the daily average so far this year of nearly 6.39 billion. In contrast with the market's downturn, shares of Groupon (GRPN.O) surged 11.5 percent to $7.65 after an analyst's upgrade increased optimism about a recent strategy shift by the world's largest daily deal company. On the economic front, Thomson Reuters/University of Michigan's preliminary index on consumer sentiment fell to 82.7 in June after touching a near six-year high of 84.5 in May. June's reading was the second highest in the last eight months, suggesting Americans were far from gloomy about their long-term economic prospects. The overall U.S. producer price index rose more than expected in May as gasoline prices rebounded, the Labor Department reported. But underlying inflation pressures remained muted, which could bolster the argument against an early pullback in the Federal Reserve's stimulus program. - Reuters |
| Yen strength sustained, market uncertain on monetary policy Posted: 15 Jun 2013 12:41 AM PDT NEW YORK: The yen rose against the U.S. dollar on Friday for a fourth straight day and gained ground versus the euro as investors unwound bets against the Japanese currency due to uncertainty whether central banks will maintain their easy monetary policies. With the Federal Reserve's next policy meeting just a few days away, there has been increasing focus - and growing uncertainty - over when the U.S. Federal Reserve might pull back from flooding the market with dollars, a policy meant to spur borrowing and investment to bolster a sluggish economy. In addition, doubts over the Bank of Japan's commitment to its inflationary policies has caused some investors to exit their use of profitable carry trades in the yen. That practice involves using the low-yielding yen to fund purchases of higher-yielding assets, such as U.S. stocks. "The strength against the euro doesn't surprise me because the dollar and yen strength tend to be consistent with a loss of risk appetite. We are in a more risk averse mode," said Michael Woolfolk, global markets strategist at BNY Mellon. "The carry trade has been put on the shelf until we get more certainty on U.S. monetary policy. These short-yen positions that invested in equities and other high yielding assets outside of Japan have been brutalized recently due to a drop in both the Nikkei and the Dow and yen strength," he said. The Fed will meet on Tuesday and Wednesday, and the U.S. central bank's policy statement that will be released at the close of the meeting and the news conference by Fed chief Ben Bernanke will be scrutinized for clues on when the Fed might start to pull back on its stimulus program. The euro fell against both the yen and greenback on Friday. Trading in the dollar-yen has been locked in step with Japan's benchmark Nikkei 225 .N225 index in recent weeks as investors unravel the sell-yen, buy-stocks trade that dominated the market between November and May. Japanese benchmark stock prices have fallen for four consecutive weeks and U.S. stocks are down nearly as much. A fall in equities also forces investors to pare the dollar hedges initially put in place to protect them from a weakening yen. Although the Nikkei rose 1.9 percent on Friday, all three major U.S. stock indexes fell and the yen buying extended into the weekend. In addition, a survey showing U.S. consumer sentiment retreated this month after reaching its highest level in nearly six years in May favored the safe-haven yen. "The yen has proved to be investors' go-to safe haven to ride out global stock market volatility," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C. "The uncertainty has prompted investors to exit recently overcrowded plays like betting on the dollar and Japan's Nikkei stock index and against the yen," he said. "With that play now in reverse, the yen has steadily been squeezed higher." The dollar last traded down 1.07 percent at 94.34 yen, up from a low of 93.99, its lowest point since the BoJ announced on April 4 that it would buy $1.4 trillion in bonds to stimulate its economy. The euro fell on Friday, dropping 1.28 percent against the yen to 125.89 yen. It hit a session low of 125.17 yen. The dollar had its worst week against the yen since July 2009, with a decline of 3.3 percent. The euro lost 2.4 percent against the Japanese currency, its worst week since July 2012. "Until investors get a better handle on the future course for monetary policy in the U.S., Japan and Europe - which could come as soon as next week - the yen should be poised for a continued grind higher," Manimbo said. After hitting a four-month high of $1.3390 on Thursday, the euro traded down 0.2 percent to $1.3345, according to Reuters data. The dollar index was off 0.13 percent at 80.639 .DXY, recovering from a four-month low of 80.500 on Thursday. |
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