On Friday, market indices finished a cautious week on a high note. The S&P 500 increased 0.9% while the NASDAQ advanced 1.0%, reclaiming their 50-day moving averages, while the Dow Jones Industrial Average increased 1.0% on Friday and also turned positive for the month, up 0.1% so far. However, Friday’s increase did not feature the same conviction as Thursday when fewer than 620 million shares changing hands on the New York Stock Exchange versus Thursday's above-average total of 720 million.
Stocks finished the Tuesday session on the defensive after spending the entire day down. The S&P 500 fell 0.6%, posting its third consecutive decline. Market indices were pressured from the start following some overnight developments that weighed on sentiment. The market tried to overcome the early weakness, but could not stage a sustained rebound, which resulted in follow-through selling in the afternoon. Mixed PMI data from the Eurozone combined with an announcement from the U.S. Treasury concerning tax inversion deals factored into a decline in the markets.
The stock market ended the midweek session on an upbeat note despite enduring a difficult start to the day. The S&P 500 rose 0.8% with nine sectors posting gains, while the NASDAQ increased 1.0%. Then, on Thursday, equities fell with the NASDAQ falling 1.9% and the S&P 500 dropping 1.6%. The Dow also declined by a factor of 1.5%.
Dow Jones Industrial Average (September 22nd – 26th, 2014)
The stock market received an early boost on Friday from heavily-weighted consumer discretionary (up 1.1%) and technology (up 1.2%) sectors. Both groups were underpinned by better than expected earnings with discretionary shares increasing behind Nike, which surged 12.2%.
Elsewhere, the technology sector drew strength from chipmakers following positive earnings. Stocks were briefly pressured from their morning highs by the underperforming health care sector (up 0.3%). The relative weakness in the health care sector did not stand in the market's way during afternoon action as other influential groups like financials (up 0.9%), industrials (up 0.9%), and energy (up 1.3%) also were on the rise.
The positive end to the trading week was after the stock market began the trading week on the defensive note with small-cap stocks pacing the retreat. Global equities began declining somewhat after China's Finance Minister Lou Jiwei announced new stimulus measures for the country. Specifically, Mr. Lou said the government has no plans to change policies despite the recent string of disappointing economic data. A somewhat similar hawkish tone was conveyed by comments from Japan's Economy Minister Akira Amari, who said his country's government remains on track to implement another consumption tax hike.
On Friday, it was announced in Europe that six banks may face record fines over currency rigging by British authorities. Talks started this past week following an investigation into allegations of rigging currency markets.
Included in this list of banks were Barclays, Citigroup, HSBC, JPMorgan Chase, the Royal Bank of Scotland and UBS. All of these banks had begun meetings with the Financial Conduct Authority (FCA) to agree a settlement, and fines may amount to over one billion pounds ($1.6 billion, 1.3 billion euros).
Several financial institutions have suspended traders due to the alleged manipulation, which comes after the Libor scandal over the rigging of the London Interbank Offered Rate. This is a flagship instrument affecting borrowing costs around the world.
In the new rigging case, investigators believe traders used online chat rooms and instant messaging to work together illegally to influence the WM/Reuters fix, the dominant global benchmark in the currency market. A criminal investigation separate to the FCA's probe is also underway.
Britain is keen to safeguard the reputation of the City of London, the world's foremost hub for the $5.3 trillion-a-day currency market. On Thursday, the government announced it planned to extend laws criminalizing the fixing of Libor to cover seven major benchmarks including in oil, gold and currency markets.
Investigations of currency market rigging are not limited to Britain, but extend to Germany, Switzerland and the United States.
Additionally, in the past week it was announced that the leading global banks also would have to adhere to new plans that require banks to have capital and other loss-absorbing securities, such as subordinated debt, equivalent to 16-20% of their risk-weighted assets by 2019, said three people familiar with the matter.
A global bank's liabilities held by other lenders won't fully count toward this target under the rules, according to the people, who requested anonymity because the talks are private. Banks must also have a loss-absorbing buffer equivalent to 6% of total assets.
HSBC (September 22nd – 26th, 2014)
HSBC and JPMorgan Chase & Co. are among 29 banks labeled by the FSB as posing a threat to the global economy if they fail. Under the plans, banks would face curbs on the types of securities they could use to meet the minimum threshold, according to the people. Another proposal limits the extent to which banks can meet their requirements using unsecured senior debt, given difficulties imposing losses on such securities in practice.
Mark Carney earlier this year faced an issue over the measure between nations such as the U.K. and U.S., which were pushing for at least 20% of banks' liabilities to consist of instruments that could be wiped out if a lender fails, and Japan and France, which wanted a lower standard. France has also pushed for banks to be able to count levies they pay into backstop funds toward their loss-absorbing capacity.
For the week, HSBC’s stock reached a weekly high of £661.80 on Monday before it reached a weekly low of £643.10 on Thursday.
after a challenging week in the markets, the Dow Jones ended the week on a high. Those that traded binary options based on the value of the Dow Jones through a binary call option first thing on Friday would have been “in the money” by midday of the same trading day.
the yen continues to show signs of weakness but had a blip on a few instances during this past trading week. Those that traded binary options based on the value of this currency pair midday on Thursday through a binary put option would have experienced successful results by the end of the same trading day.
after being named as one of the banks under investigation in the U.K., HSBC’s stock softened after a fairly positive trading week. Those that traded binary options based on the value of this stock late morning on Friday through a binary call option would have been “in the money” by late afternoon of the same trading day.
On Monday, economic data on personal income and spending data for August will be reported, with analyst estimating a rise of 0.3% and 0.4%, respectively. Monday’s data will be topped off with the Pending Home Sales report for August, with it expected to drop 0.2%. If pending home sales rise, this would provide a signal of economic growth in the markets. Subsequently, this could cause a rise in market indices such as the Dow Jones and NASDAQ. Later in the week, on Thursday, October 2nd U.S. jobless claims will also be released.
The markets ended on a high after a difficult week in the U.S., with all market indices rising on the week. With a range of financial assets reacting to the continued strength of the U.S. dollar, it is clear that this is having a significant impact on the markets. It’s unclear if this will continue for the foreseeable future but if it does, it will be interesting to see how this will effect what’s happening in the markets.
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