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While you were sleeping: Mood turns sour

Friday 6th January 2017

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The US dollar dropped while Treasuries climbed as investors reassessed the Federal Reserve’s appetite for interest rate increases.

Minutes of the Fed's December meeting, released on Wednesday, weighed on the greenback.

“Fed officials seem a lot less certain about the glide path of future projected rate rises,” Michael Hewson, chief market analyst at CMC Markets, wrote in note, according to Bloomberg. “This may well explain why the US dollar has sold off sharply.”

US Treasuries rallied, pushing yields on the 10-year benchmark note eight basis points lower to 2.36 percent. 

Meanwhile shares of Kohl’s and Macy’s plunged after the US retailers downgraded their full-year profit estimates following disappointing holiday sales. Shares of Kohl’s traded 19.6 percent lower as of 1.22pm while those of Macy’s were 13.4 percent weaker. 

“Sales were volatile throughout the holiday season. Strong sales on Black Friday and during the week before Christmas were offset by softness in early November and December,” Kevin Mansell, Kohl's chief executive officer, said in a statement.

Wall Street was mixed. In 1.18pm trading in New York, the Dow Jones Industrial Average slid 0.4 percent, while, in 1.04pm trading, the Standard & Poor’s 500 Index slid 0.3 percent. However, the Nasdaq Composite Index eked out a 0.1 percent gain as of 1.19pm.

The decline may prove short-lived.

“We are at the top of the range from the perspective of the Dow and the S&P, so that means we have a little bit of downside room to move, but frankly I think it will be fairly minimal," Randy Frederick, vice president of trading and derivatives at Charles Schwab & Co, told Reuters.

“I suspect financials are just starting to catch up to the fact that rates have topped out in the near-term,” Frederick noted.

In the Dow, slides in shares of Travelers and those of Goldman Sachs, down 1.8 percent and 1.5 percent respectively, outweighed gains in shares of Visa and those of Johnson & Johnson, recently up 1.1 percent and 0.8 percent respectively.

Weighing on sentiment were mixed US jobs data. 

An ADP report showed that private employers added a less-than-expected 153,000 jobs in December, following an increase of 215,000 in November. However, separately, a Labour Department report showed that initial claims for state unemployment benefits fell 28,000 to a seasonally adjusted 235,000 for the week ended December 31.

The government’s nonfarm payrolls data on Friday will show that employers added 178,000 jobs in December, according to a Reuters survey of economists.

“Job growth remains strong but is slowing,” Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pennsylvania, said in a statement, according to Bloomberg. “Smaller companies are struggling to maintain payrolls while large companies are expanding at a healthy pace.”

In Europe, the Stoxx 600 Index finished the session with a 0.1 percent advance from the previous close. Both France’s CAC 40 Index and Germany’s DAX Index closed practically unchanged from the previous day. The UK’s FTSE 100 Index rose 0.1 percent.

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