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Market Overview  : Banking sector performance weighs on global markets

US stocks fell on Thursday due to the weak performance of the banking sector which may postpone the rates hike. The US dollar index which measures the greenback’s value against a basket of six major currencies rose 0.1% to $95.666 still on track to lose 1.4% this week (see live US dollar index data). The Janet Yellen’s testimony did not support the dollar. The Fed Chair mentioned that she expects the gradual interest rates hike this year but the Fed will act depending on the worsening global market conditions. The trading volume was high – 11.2bn compared to the 9.6bn average – as S&P 500 hit the lowest in 2 years but later pared half of the losses on the news from OPEC that it was going to cooperate for oil production cuts. The index ended 1.23% lower at 1829.08 with all of its 10 sectors closing in the red and financials leading the decline (-2.68%). The financial sector hit a fresh low since October 2013 with Bank of America down 6.8% and J.P.Morgan down 4.4%. Market participants are worried the global recession may be looming. The Dow Jones Industrial Average lost 1.6% while Nasdaq 100 composite lost 0.39%.

European stocks were on the decline on Thursday due to the weak banking sector performance. EURUSD rate hit almost 4-month high of $ 1.1377 on Thursday. European banks tumbled 6.3% which raises concerns that funding conditions may worsen for some companies. The banking sector suffered on concerns that low interest rates make it barely profitable. Societe Generale fell 7.1% after its quarterly earnings fell short of expectations as the bank set aside 400mln euros on litigation. Rio Tinto posted an annual loss which pushed the miner’s shares 3.4% lower. On Friday European shares edged up paring yesterday’s losses. FTSEurofirst index rose 1.4% after the 3.7% loss on Thursday. Banking sector is in the black today with Commerzbank stocks rising 12% on positive Q4 earnings data.

Asian stocks were declining for a sixth session in a row on Friday dragged lower by weak data from European banks, concerns over the China’s slowdown and falling oil prices. Japan’s Nikkei index slumped 5.4% to a 15-month trough recording a weekly loss of 11.1%. Toyota Motor Corp and Honda Motor Co lost 6.8% and 5.5% respectively. Analysts at Nomura Securities calculated that “when dollar falls by 1 yen, it cuts Japan’s pretax earnings by 0.4-0.5% and pushes the Nikkei share average down by 400 points”. The yen continued strengthening with the USD JPY having hit 110.985 on Thursday. Japan’s markets were closed for a holiday on Thursday when US dollar sharply fell against the yen. The Japanese currency has already become almost 10% stronger since the Bank of Japan introduced negative interest rates and may strengthen further, according to experts.

Gold spot prices surged 4.1% to $1262.90 showing the record daily gain since September 2013 as investors rushed to safe-haven assets (gold, yen, government bonds) amid the slowdown of the world economy. This week spot gold prices have already advanced 5.5% while gold futures added almost 7%. The assets in the world’s major ETF SPDR Gold Trust increased 2% on Thursday.

WTI oil futures today edged up 4.7% to $ 27.44 a barrel on the news OPEC was considering oil production cuts, Brent oil prices are rising 6%. Nevertheless, both Brent and WTI are still to suffer 7% and 11% weekly losses respectively. According to the United Arab Emirates Oil Minister, cheap oil already forces its producers to limit oil output which will finally make the market rebalance.

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