The Economy and Direction of Monetary Policy

The Economy and Direction of Monetary Policy

Gold Silver Reports ~ U.S. stocks declined in thin trading as commodity shares followed crude prices lower, while investors awaited further clues on the economy and direction of monetary policy.            

Equities may be losing momentum after a five-week rally erased the worst start to a year ever. Before today’s slide, the Standard & Poor’s 500 Index barely budged in the two prior sessions amid the lightest trading in 2016, and has gone without a 1 percent move in either direction for eight days, the longest in seven months. About 6.8 billion shares traded hands on U.S. exchanges Wednesday, 21 percent below the 2016 average.

The S&P 500 fell 0.6 percent to 2,036.71 at 4 p.m. in New York, below its break-even level for the year. The Dow Jones Industrial Average lost 79.98 points, or 0.5 percent, to 17,502.59. The Nasdaq Composite Index decreased 1.1 percent, ending the lengthiest advance in 11 months. It’s a holiday-shortened week with markets closed on Good Friday.

“Markets are taking a breather, waiting for a clearer picture of how the economy will play out in the first half,” said Hugh Grieves, who runs the 145 million-pound ($206 million) U.S. Opportunities Fund at Miton Group in London. “Investors have got over immediate recession fears but remain nervous ahead of the first-quarter earnings season.”

West Texas Intermediate crude declined 4 percent, the most in six weeks, as the dollar gained and a government report showed rising oil stockpiles kept supplies at the highest level in more than eight decades.

That sent energy producers lower for a third day and raw-materials slipped amid the dollar’s longest rally in a month. Nike Inc. dropped 3.8 percent after its annual forecast missed analysts’ estimates. Inc. advanced 1.6 percent to buoy a group of retailers, while UnitedHealth Group Inc. and Johnson & Johnson gained at least 1 percent to help limit the Dow’s losses.

The main U.S. equity benchmark has rebounded more than 11 percent from a 22-month low last month, as oil prices firmed, economic data improved and central banks continued to signal a willingness to bolster growth. The S&P 500 dropped 11 percent in the first six weeks of the year as tumbling crude amplified concern that a slowdown in China would drag down global growth. The gauge is heading for its biggest monthly advance since October, rising 5.4 percent.

An expected tumble in first-quarter corporate profits may be one factor curbing the rebound in stocks. The earnings season looms with Alcoa Inc. unofficially kicking off the period when it reports results on April 11. Profit at S&P 500 companies probably fell 9.4 percent in the quarter, according to analysts’ estimates, worse than forecasts two months ago that saw a 2.5 percent drop.

Investor focus also remains locked on the Federal Reserve, which last week reduced its growth forecasts and indicated a slower pace of interest-rate increases. Policy makers continue to stress their rate decisions depend on progress in data, and report today showed purchases of new homes climbed in February for the fourth time in the last five months, indicating residential construction will remain a source of support for the economy.

Traders are pricing in a 38 percent probability for a boost in borrowing costs at the central bank’s June meeting, in line with the level after last week’s Fed meeting. Odds had briefly crept higher in the past two days amid some more hawkish commentary from Fed officials this week.

St. Louis Fed President James Bullard said in an interview with Bloomberg today a decline in joblessness below the natural rate may force policy makers to raise rates faster in the future. Chicago Fed President Charles Evans said yesterday two rate increases this year are “not at all unreasonable.”

“Nobody’s really looking to make a substantial bet at this point,” said Brad McMillan, chief investment officer of Commonwealth Financial Network in Waltham, Massachusetts, which oversees $100 billion. “The big story over the past couple months has been an absolute loss of confidence and then all of a sudden the return of that confidence. The market’s continuing to struggle with the implications of the Fed.”

The Chicago Board Options Exchange Volatility Index rose 5.4 percent Wednesday to 14.94, marking back-to-back gains for the first time in two weeks. The measure of market turbulence known as the VIX reached a seven-month low on Monday.

Eight of the S&P 500’s 10 main industries sank, with energy companies dropping 2.1 percent, the most in two weeks, while raw-materials shares slipped 1.2 percent. Utilities rose 0.7 percent, lifted by regulatory approval on an industry merger, and consumer staples edged higher.

Energy Retreats

Chevron Corp. fell 2 percent to extend declines to a third day, the longest in two months. Marathon Oil Corp. and Devon Energy Corp. dropped at least 8 percent, among the biggest losers in the benchmark index. Transocean Ltd. slid 7.3 percent, taking its four-day retreat to 21 percent.

Copper prices had the biggest drop in two weeks, sinking miner Freeport-McMoRan Inc. 11 percent, the steepest retreat since March 8. Still the shares are up 28 percent this month after soaring 66 percent in February. Newmont Mining Corp. sank 8.8 percent, the biggest since July as gold also succumbed to the stronger dollar. Alcoa lost 5.4 percent.

Banks declined for a second day to weigh on the S&P 500, with Citigroup Inc. down 2.3 percent and Comerica Inc. losing 2 percent. Both stocks are still up more than 21 percent since Feb. 11.

Vertex Pharmaceuticals Inc. led a slide among drugmakers, falling 7.6 percent as the group ended the strongest three-day climb in a month. Gilead Sciences Inc. fell 3.9 percent, the most in seven weeks, after losing a patent claim to Merck & Co. The Nasdaq Biotechnology Index sank 3.4 percent, reversing more than half of a 6.4 percent surge in the prior three sessions.

Among shares moving on corporate news, Pepco Holdings Inc. jumped as much as 28 percent after Exelon Corp.’s proposed $6.8 billion takeover of the power company was approved by District of Columbia regulators, clearing the way for the companies to form the nation’s biggest utility.

Virgin America Inc. climbed 13 percent, the largest one-day increase in 15 months, after Bloomberg reported the airline backed by U.K. billionaire Richard Branson, is reaching out to potential buyers about a sale of part or all of the company, according to people with knowledge of the matter. Yum! Brands Inc. advanced as much as 3.2 percent after a report said it’s holding talks on potentially selling a stake in its China unit. ~ Neal Bhai Reports

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Neal Bhai has been involved in the Bullion and Metals markets since 1998 – he has experience in many areas of the market from researching to trading and has worked in Delhi, India. Mobile No. - 9899900589 and 9582247600

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