Sun, Jan 18, 2015 - Page 15 News List

Weak earnings, bad data, Swiss move bruise US stocks


Wall Street endured a bruising this week, with stocks battered by weak bank earnings, bad US retail sales data and a shock decision by the Swiss National Bank (SNB) to strengthen Switzerland’s franc.

US markets mustered solid gains on Friday to close on a high note and snap a five-day losing streak, but the end-of-the-week spurt could not compensate for losses suffered earlier.

The Dow Jones Industrial Average dropped 225.80 points (1.27 percent) to 17,511.57, while the broad-based S&P 500 shed 25.39 points (1.24 percent) to close on 2,019.42 and the tech-rich NASDAQ Composite Index fell 69.69 (1.48 percent) to 4,634.38.

“You had a plethora of negative catalysts that added to the kind of volatility we saw this week,” Wunderlich Securities Inc chief market strategist Art Hogan said.

At the top of the list was a wave of disappointing earnings from JPMorgan Chase & Co, Bank of America Corp and Citigroup Inc. Earnings misses by all three banking giants prompted a sell-off in financials that extended to the broader market on Wednesday and Thursday.

The weak results were due to high litigation costs and poor trading returns. Analysts also expressed worry that a delay in the US Federal Reserve’s plan to raise interest rates could spell more pain down the road. Rate hikes are considered a net positive for large banks.

The poor bank earnings came in parallel with a surprisingly weak US retail sales report, which showed a decline of 0.9 percent last month, a pivotal time for stores given the holiday shopping season.

The figures included a drop in 6.5 percent in gasoline sales due to lower prices at the pump, but several other key categories also saw declines, despite the boost to consumers from low gasoline prices. Sales dropped in miscellaneous and general merchandise stores, clothing stores and sporting goods, hobby, book and music stores.

Investors were also rattled by weakness in commodities markets. Oil and copper prices both dipped to fresh multi-year lows at mid-week. Both commodities rallied somewhat in subsequent days, but the continued weakness is worrisome given that both oil and copper are viewed as proxies for global growth.

The week’s biggest shock came on Thursday, when the Swiss National Bank lifted the franc’s ceiling against the euro after defending the level for more than three years.

The Swiss currency immediately gained nearly 30 percent against the shared unit, before stabilizing at about 15 percent higher than Wednesday’s rate. The decision also prompted a fresh sell-off of the euro, which briefly plummeted below US$1.15 for the first time since 2003, before recovering somewhat.

The Swiss central bank’s move pummeled some forex trading firms on the wrong side of the trade. Analysts predicted it could also spur policy shifts by other central banks, as well as more financial market turbulence in general.

Central bank activity will be at the top of next week’s agenda, with the European Central Bank set for an eagerly anticipated policy meeting on Thursday next week that is increasingly expected to result in a bond-buying stimulus program.

The meeting comes ahead of a closely watched snap general election in Greece on Sunday next week, a poll that has raised concerns that a victory by the leftist SYRIZA party will force Athens to renegotiate its bailout with international lenders.

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