The major averages ended down after early gains evaporated during the opening hour amid a range of factors. Additionally, two heavily-weighted sectors (energy and financials) lagged from the open and their weakness overshadowed the relative strength of defensive sectors. Contributing to the softness was news that the International Monetary Fund (IMF) cut its 2014 growth outlook for the United States to 2.7% from 3.0%. The IMF also said the Federal Reserve's large-scale asset buying is warranted at least until year's end.
The foreign exchange market presented another hurdle as the USD/JPY currency pair continued selling off in a move reminiscent of an unwinding of the short-yen trade that fueled much of the rally in Japan's Nikkei. The USD/JPY pair dipped as low as 93.99 before ticking up to 94.30 in afternoon action.
As a result of all the economic news in the US and across the globe, the Dow Jones Industrial Average fell by a factor of 105.90 to 15,070.18, while the NASDAQ fell 21.81 points to at 3,423.56. The S&P 500 fell 9.63 points to close at 1,626.73.
S&P 500 (June 10th – 14th, 2013)
The financial services sector led to the downside, ending lower by 1.3% as all major components settled down. American Express lost 3.0% after Barclays downgraded the stock to 'Equal Weight' from 'Overweight.' Another growth-oriented sector, energy, dropped 1.0% even as crude oil rose 1.2% to $97.85 per barrel.
While most cyclical groups trailed behind the broader market, the discretionary sector outperformed amid strength in media companies and homebuilders.
Defensive sectors outperformed the broader market. However, only the utilities sector was able to end with a slim gain of 0.1%. Today's advance came after the group endured a rough six-week period. The sector saw its best level of the year on April 30, before heavy selling sent it lower by 8.0% in May. So far, June has been better for utilities as the sector holds a month-to-date gain of 0.6% versus a narrow loss of 0.3% for the S&P.
Producer prices ended two consecutive months of declines and increased 0.5% in May after declining 0.7% in April. The market analyst consensus expected the PPI to increase 0.1%. The increase in producer prices was due almost entirely to higher food and energy costs. Food prices rose 0.6% in May after falling 0.8% in April. A 41.6% increase in egg prices accounted for most of the food price increase. Separately, energy prices, which had declined 2.5% in April and 3.4% in March, rose 1.3%. Most of that gain was the result of a 1.5% increase in gasoline costs. Excluding food and energy, core prices rose 0.1% for a second consecutive month. That was exactly what the consensus expected.
Industrial production growth was unchanged in May after declining an upwardly revised 0.4% (from -0.5%) in April. Market analyst consensus expected industrial production to increase 0.1%.
The University of Michigan Consumer Sentiment Index dipped to 82.7 in the preliminary June report from 84.5 in May.
On Thursday, part-government owned UK bank Royal Bank of Scotland (RBS) started saying goodbye to CEO Stephen Hester. As a result, RBS shares closed 3.3% lower following the announcement that he would be departing the bank.
Royal Bank of Scotland's share price fell amid uncertainty about the future following the announcement that chief executive Stephen Hester would be leaving by year's end.
Shares in the bank bailed out by the British taxpayer dropped 3.3% Thursday to close at 315 pence. At one point, the stock was as low as 299 pence. The volatile day came as the bank said it would trim 2,000 jobs through 2014 as part of changes in its markets business.
Nic Clarke, a banking analyst at Charles Stanley, says Hester's departure was a "damaging development." It comes amid speculation that the government wanted a new leader to usher in the bank's return to the private sector. Clark says Hester's departure smashes any lingering pretense that RBS is being run at "arm's length”.
Many market analysts are stating that RBSwill struggle to recruit a suitable replacement for ousted chief executive Stephen Hester, someone who must steer it through privatization and accept that political interference comes with the job.
Hester's departure, engineered by Chairman Philip Hampton with the backing of Britain's finance ministry, presents RBS with the near-impossible task of finding an ideal candidate - an experienced banker untainted by the industry's scandals who has the skill to deal with its biggest shareholder, the government.
Political and banking sources say that while Hampton took the initiative in removing Hester, he could not have done so without the support of finance minister George Osborne.
Britain holds a controlling 81% stake in RBS after pumping 45.5 billion pounds ($71 billion) in to keep it afloat during the 2008 financial crisis.
During his five years at the helm, Hester oversaw a massive shrinking of the RBS balance sheet, all the while parrying criticism from politicians about the strategy and the size of his bonuses.
Royal Bank of Scotland (June 10th – 14th, 2013)
A former investment banker, his wealth and penchant for fox hunting made him a target for anti-banker sentiment.
Hester, whose basic pay package was worth 1.6 million pounds ($2.5 million) a year, has opted to forgo his annual bonus in three out of the last four years, recognizing public resentment over the awards.
Within the banking industry, Hester is respected for his success in shedding around 900 billion pounds' worth of assets from the bloated balance sheet of what was once the largest bank in the world. However, this enthusiasm is not always shared by politicians and Hester has faced calls to accelerate the bank's restructuring.
In February, he reluctantly bowed to political and regulatory pressure to cut the size of RBS's already shrunken investment bank and sell off a stake in its American business, Citizens.
RBS's shares price continues to lag the 407 pence level which the government considers its break-even. The shares topped the FTSE-100 fallers on Thursday, losing 3.3 percent to 315 pence, having earlier been down 8 percent. Taxpayers are currently sitting on a loss of around 10 billion pounds.
Equities/indexes: the S&P 500 market index experienced a lot of movement in the week. After falling on Wednesday, the index picked up on Thursday before falling again at closing time on Friday. Those that traded binary options based on the value of this index first thing on Thursday morning through a binary call option would have been “in the money” by midday of the same trading day.
EUR/USD: this currency pair experienced fluctuations throughout the trading week, with an overall rise in the euro. Those that traded binary options based on the value of this currency pair on Wednesday morning through a binary put option would have experienced successful results by Wednesday afternoon.
Royal Bank of Scotland: after announcing that its current CEO will be leaving at the end of 2013, RBS stock fell on Thursday. Those that traded binary options based on the price of this stock late morning on Thursday through a binary call option would have been “in the money” by the end of the same trading day.
After a range of economic and corporate announcements, the markets reacted by falling across the board. The lackluster data coming out of the US, in particular, created a downtrend across most major markets. Hopefully the trend will reverse again and we’ll start seeing the stronger results we were starting to get accustomed to.
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