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Major benchmarks suffer biggest one day losses in more than a year

Last updated: 17:35 02 Feb 2018 EST, First published: 03:37 02 Feb 2018 EST

Distraught trader
  • Dow Jones down 666 at 25,521

  • S&P 500 down 60 at 2,762

  • Oil majors Exxon Mobil and Chevron were given the cold-shoulder after disappointing earnings updates

  • Akers revival continues after funding news

Bang! Stocks collapsed on Friday, with the Dow Jones shedding 666 points to cement a loss of more than a thousand points on the week.

The Dow ended up at 25,521, down 1,095 points on the week, marking its biggest weekly points fall since October 2008.

The broader-based S&P 500 plunged 60 points to 2,762 while the tech-heavy Nasdaq Composite was 145 points lower at 7,241.

Across the border in Canada, things were no better, with the S&P TSX Composite down 255 at 15,606.

The CBOE Volatility index, known as the VIX (or, more colloquially, the “fear gauge”), rose 28.5% to its highest level since late 2016.

Investors were spooked by the January jobs report, which not only showed the US economy adding jobs at a faster pace than expected, but also much faster wages growth than the market had been expecting.

With wages growth picking up, and probably feeding into higher inflation, the market was betting the Federal Reserve would have little compunction about increasing interest rates next month to keep inflation in check.

“Unemployment remained at 4.1% – its lowest level in 17 years, while wage growth was the biggest shock, having risen to 2.9% – its fastest pace since 2009,” commented Miles Eakers, chief market analyst at Centtrip.

“With the labour market at or close to full capacity, employee earnings are on the rise, which is likely to accelerate wage-driven inflationary pressure. This could accelerate the path of monetary tightening and cause the Federal Reserve to raise interest rates this year at a faster pace. 

“Yields on 10-year US treasuries spiked higher to 2.829% – the highest level since the beginning of 2014. The dollar rallied on the news, gaining 0.34%,” he added.

Mid-session: Losses lengthen as traders bet on a March rate hike

No sign of a recovery yet, as losses lengthen in expectations of the Fed hiking interest rates next month.

The Dow Jones average was down 402 points at 25,784 and the S&P 500 was 36 points at 2,786 as the value of the US dollar rose by an average of 0.5% on foreign exchange markets.

“With interest rates on hold for the time being and inflation and wages beginning to show signs of picking up, the US could be on course to hit the White House’s economic growth target of 3% this year,” suggested Jacob Deppe, head of trading at online trading platform, Infinox.

“A clear sign that confidence was restored by the jobs report was the fact US 10-year Treasuries hit a four-year high immediately after it was released.

“If the Atlanta Federal Reserve forecast that US first-quarter growth could be as high as 5.4% proves true, Treasury yields and confidence will almost certainly soar, but such a strong first quarter GDP figure would also make a rate hike in March by the US Federal Reserve a foregone conclusion, so be careful what you wish for,” he added.

Even on a day when the Dow was down 400 points, the 63% plunge by commercial printer Cenveo Inc (NASDAQ:CVO) caught the eye.

The group has reached an agreement with holders of a majority of its first lien debt to support a Chapter 11 plan of reorganization.

On a brighter note, Akers Biosciences Inc (LON:AKR, NASDAQ:AKER) shot up 24% to US$0.449 as investors wake-up to the comeback story at the medical devices company.

READ Akers Biosciences funded to profitability as it gears up for transformational year

 

 


 

Open: Dow down 300 points; S&P down 30

With a rate hike in March now looking more likely, US stocks opened sharply lower.

The Dow Jones index was down 300 at 25,884 and the S&P 500 was 30 points lower at 2,792.

Dutch finance house ING said it was hard to argue against a March rate hike after today's jobs figures.

“Wage growth has surged to a cycle high and jobs growth remains strong. Consequently, it will need a big shock to prevent the Fed from hiking in March,” ING said.

“Wages are now growing 2.9% YoY (the fastest rate of growth since 2009) with last month’s figure revised up to 2.7% from 2.5%. Unemployment stays at 4.1%, but given the strength of this report, it is hard to argue against a March Fed rate hike now,” it added.

The jobs report, and the likelihood of a March rate hike, sent the dollar higher on foreign exchange markets.

“With the average American’s pay packet now rising at a whisker under 3% a year, the Fed’s newly anointed chairman will have little hesitation in signing off the three interest rate hikes planned for 2018.

“That growing sense of certainty has set the dollar rebounding, but begs the question – could three hikes become four?” wondered David Lamb, head of dealing at FEXCO Corporate Payments.

In corporate news, Motorola Solutions Inc (NYSE:MSI) climbed 6.8% to US$105.81 after announcing last night it is to acquire Canadian company Avigilon Corporation (TSE:AVO).

Security services provider Avigilon accepted a C$27 a share offer from Motorola, prompting its shares to rise 18.1% in Toronto to US$26.95.

Pre-open

Non-farm payrolls rose by 200,000 in January, topping expectations of 180,000 new jobs.

The news might fall into that strange category of “good news is bad news”, as it might pave the way for the Federal Reserve to increase interest rates sooner than it might otherwise have done.

Traders were still reacting to the news, but shortly after the announcement spread betting quotes were pointing to the Dow Jones average opening at around 25,956, down 231 points, while the S&P 500, which closed at 2,822 last night, was trading at around 2,801.

The unemployment rate was unchanged at 4.1%, but there was a strong increase in wages.

Workers' pay increased 2.9% year-on-year, compared to expectations of a 2.6% increase.

“While criticism of Donald Trump’s embattled White House continues to mount, job growth continues to go through the gears, with the latest non-farm payroll figures proving job creation remains a competence within the president’s capabilities,” commented Dennis de Jong, managing director of UFX.com.

“Buoyant domestic and global demand, particularly for the manufacturing sector, appear the drivers in higher-than-anticipated numbers, and Trump’s fiscal stimulus package is clearly a shot in the arm for economic growth.

“However, with the economy close to full employment, increased pressure on wages looks an inevitable consequence, so, higher inflation is surely on the cards, with taller interest rates set to arrive over the coming months,” he added.

On the corporate front, integrated oil giant Exxon Mobil Corporation (NYSE:XOM) saw its shares marked down by market-makers in pre-market trading after missing expectations with its fourth-quarter earnings.

Underlying earnings per share of 88 cents were well short of the US$1.06 expected by analysts who cover the stock.

Revenue of US$66.52bn was also way short of expectations of US$74.44bn.

"The impact of tax reform on our earnings reflects the magnitude of our historic investment in the U.S. and strengthens our commitment to further grow our business here," said Darren Woods, who is both the chairman and the chief executive of Exxon.

"We're planning to invest over US$50 billion in the US over the next five years to increase production of profitable volumes and enhance our integrated portfolio, which is supported by the improved business climate created by tax reform," Woods said.

Meanwhile, on the cryptocurrency markets, Bitcoin briefly dropped below US$8,000 for the first time since November 24, before recovering to US$8,508, down US$638 on the day.

Sector peer Chevron Corporation (NYSE:CVX) barely fared any better, sliding 2.1% to US$122.93 after its results.

Net income in the fourth quarter rose to US$3.11bn, equivalent to US$1.64 a share, from US$415mln (22 cents) a year earlier.

The bulk of that improvement came from US$2.02bn of benefits related to tax legislation.

The Street has been expecting earnings per share of US$1.23 and revenues of US$37.4bn; the latter rose to US$37.62bn from US$31.5bn the year before.

The quarterly dividend was hiked to US$1.12 from US$1.08.

"Similar to Exxon’s reporting today, this looks like a disappointing set of results to us, with adjusted EPS of $0.72 per share missing consensus by 40%, and our estimate by 37%," said the Royal Bank of Canada.

"Underlying cash generation also was only up slightly quarter on quarter, versus market expectations of a significant increase. Last quarter Chevron was able to explain away the cash flow miss due to a number of factors (pension contributions, etc), and we await details on the call later today to see if management presents any one-off factors that led to weaker cash flow generation. More positively, group capex continues to trend lower, with the quarterly run rate now at $2.5bn vs $3.2bn last quarter. Finally, Chevron’s production growth guidance at 4-7% excluding 2018 asset sales appears broadly in line with market and RBC expectations," it added.

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