A sudden flurry of selling has sent the Dow and S&P 500 into negative territory, where they now trade with modest losses. The Nasdaq has paused near the neutral line.
Selling has really intensified around the materials sector, which had already lagged the broader market, but is now down 1.2% to trade at a new session low. Steel play Nucor (NUE 45.14, -1.36) has been dumped, despite better-than-expected earnings. The stock had rallied 3.5% yesterday, ahead of its quarterly report this morning. Fellow steel plays U.S. Steel (X 58.00, -1.48) and Steel Dynamics (STLD 18.28, -0.75) have been imbued by the weakness in shares of NUE.
Offers: $1.3755, $1.3785, $1.3800, $1.3820/30
Bids: $1.3710/00, $1.3685/80, $1.3665/60, $1.3630
Stocks made a nice push higher in recent trade. The move took the S&P 500 to the 1300 line for the first time in more than two years, but the benchmark measure has paused there.
November pending home sales showed a month-over-month increase of 2.0%, which is stronger than the 0.5% decline that had been expected, on average.
Advancing Sectors: Consumer Discretionary (+0.6%), Financials (+0.5%), Industrials (+0.3%), Tech (+0.3%), Health Care (+0.3%), Utilities (+0.2%) Unchanged: Energy
Declining Sectors: Telecom (-1.4%), Consumer Staples (-0.5%), Materials (-0.2%)
"We currently forecast that total nonfarm payroll employment increased by 150k in January, and we think today's result is consistent with that forecast. However, it arguably removes some upside risk to next Friday's report."
CIBC says 454k jobless claims "go counter to the generally improving trend" but probably reflected bad seasonal adjustment. Dec US durable goods orders of -2.5% came about because better aircraft orders "did not materialise." They note capital goods orders ex aircraft was +1.4%. Dec Chicago Fed National Activity Index was 0.03, "the first time it's been in positive territory in five mos."
10:00 EU(17) Economic sentiment index (January) 106.5 106.8 106.6 (106.2)
10:00 EU(17) Business climate indicator (January) 1.58 1.34 1.38 (1.31)
11:00 UK CBI retail sales volume balance (January) 37% 41% 56%
The yen declined after Japan’s credit rating was lowered one step to AA- by Standard & Poor’s, the first cut since 2002, on concern Prime Minister Naoto Kan hasn’t done enough to curb the world’s biggest debt load.
The Japanese currency was lower, declining for the first day in five against the dollar.
“News of Japan’s rating downgrade spurred yen selling as it occurred,” said Koji Fukaya, chief currency strategist at Credit Suisse Group AG. “With domestic investors holding most of Japanese government bonds, the direct impact on the currency market will likely be small. Still, in the near term, the market will likely take this as a negative.”
“It will only have a temporary effect on the market,” said Lee Hardman, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd.. “Japan’s credit rating has been on negative watch for almost a year now so this is something which has been on the cards for some time.”
The euro strengthened against the dollar for the fifth- straight day as European Central Bank Executive Board member Lorenzo Bini Smaghi said imported inflation can’t be ignored.
The euro rose as French President Nicolas Sarkozy said European leaders would continue defending the currency union.
“It is of such importance that we will be there whenever it needs to be defended,” Sarkozy said in a speech at the World Economic Forum in Davos, Switzerland. “The consequences of a euro failure would be so cataclysmic that we can’t even entertain the idea.”
The Australian dollar fell after Prime Minister Julia Gillard announced a one-off levy to fund rebuilding after recent floods, damping demand for the South Pacific nation’s assets.
EUR/USD rose from $1.3630 to $1.3760 before retreated to $1.3720.
GBP/USD rose from $1.5880 to $1.5965.
USD/JPY rallied from Y82.10 to Y83.20 before it corrected to Y82.65. Later rate was back to Y83.00.
Attention is at Jobless claims and Durable goods orders, both at 13:30 GMT.
Oil holds tight with the upside currently capped by the former 23.6% Fibonacci of $70.76/93.02 at $87.77 and the downside meets support around the two previous day's lows of $86.03/12. Daily studies are rather bearish. Further support seen as the Aug 25 support line around $85.67.
AUD/USD pulled lower by the euro-dollar slippage. The rate breaks under $0.9900 and extends its corrective pullback from highs of $1.0002. PM Gillard announcement of a flood tax had prompted rate to slide through $0.9940. Rate touches a low of $0.9876. Traders already highlighting the 100-dma at $0.9842 (not seen since the end of Aug 2010). Last week's lows between $0.9840/30 behind expected to provide some back up support, but momentum sellers expected to emerge if we break this area.
The yen is slumping and US equity futures have dropped 0.4% from session highs after S&P downgraded Japan’s credit rating.
The rating agency’s move has revived sovereign debt fears that had abated of late after several successful bond auctions in the eurozone.
The news has hit a raw nerve in the market because it reminds investors that fiscal difficulties are not restricted to relatively small nations such as Greece and Ireland, but are a big problem for many developed economies.
Indeed, on Wednesday it was estimated that the US budget deficit would hit nearly $1,500bn in 2011, more than originally forecast.
Sentiment was also supposed to be supported by confirmation overnight from the US Federal Reserve that it would continue with its controversial $600bn bond purchase programme to support the economy, though it only slightly upgraded its growth outlook.
However, even before the S&P report it was evident that risk asset gains were likely to be limited for much of the global session as traders waited to see if Wall Street can decisively push above some round numbers on benchmark gauges that are so beloved of market watchers.
The Dow Jones Industrial Average briefly broke above 12,000 on Wednesday – the first time since June 2008 – but closed at 11,985, while the S&P 500 sits less than 4 points shy of 1,300.
Failure to breach these, albeit arbitrary, ceilings may encourage the bears to trot out the familiar mantra that the market is losing impetus and is ripe for a correction.
It’s one of the biggest reporting days for US companies as the likes of Microsoft, Procter & Gamble, Amazon and Caterpillar step up to the plate.
It’s also a busy day for economic data. US, December durable goods orders and weekly initial jobless claims will be released at 1330. Last month’s pending home sales numbers will be published at 1500.
Capital Economics' analysts says S&Ps downgrade "may not be a big deal in itself but it supports our fear that 2011 could be the year when Japan's fiscal position finally impacts home and external markets." It predicts that "a growing fiscal crisis, along with renewed slide into recession and further easing from the Bank of Japan, will drag the yen down to Y90 against the dollar by year-end".
GBP/USD eases back below $1.5900 as market reacts to reported comments from HSBC Chief economist King suggesting UK is a 'long, long way away from hiking rates'. Support seen to $1.5880 with recent talk noting stops below.
EUR/USD slowly creeping its way back toward $1.3700, as it extends recovery off earlier lows of $1.3636. Traders mention the 100-hma in around $1.3640. An hourly close below this level expected to prompt sales. Offers seen placed to $1.3730, stops above, with stronger interest from around $1.3740 ($1.3739 61.8% $1.4283/1.2860) through to the next barrier at $1.3750.
Gold is pressuring the 5-DMA at $1339.60 and decisive break below here is seen putting focus back on recent low at $1322.75. Daily studies also remain bearish. Risk remains to the long-term trendline from Oct 2008 at $1293.50.
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