MARKETS AT A GLANCE
LAST CHANGE % CHG
DJIA 17841.98 -86.22 -0.48%
Nasdaq 4919.64 -19.68 -0.40%
S&P 500 2080.15 -9.31 -0.45%
Japan: Nikkei 225 19531.63 11.62 0.06%
Hang Seng 27640.91 -114.63 -0.41%
Shanghai Composite 4229.27 -69.44 -1.62%
S&P BSE Sensex 26717.37 -722.77 -2.63%
Australia: S&P/ASX 5692.2 -134.3 -2.30%
UK: FTSE 100 6933.74 6.16 0.09%
PRICE CHG YIELD %
U.S. 2 Year -1/32 0.639
U.S. 5 Year -5/32 1.588
U.S. 10 Year -15/32 2.244
Australia 10 Year 1 5/32 2.938
China 10 Year -8/32 3.49
India 10 Year 3/32 7.891
Japan 10 Year -9/32 0.361
German 10 Year -20/32 0.59
LAST(MID) CHANGE
Australia $ (AUD/USD) 0.7975 0.0006
Yen (USD/JPY) 119.47 0.01
S. Korean Won (USD/KRW) 1080.4 0.05
Chinese Yuan (USD/CNY) 6.2018 0.0005
Euro (EUR/USD) 1.1348 0.0001
WSJ Dollar Index 84.83 -0.02
LAST CHANGE % CHG
Crude Oil 60.6 0.2 0.33%
Brent Crude 67.46 -0.06 -0.09%
Gold 1191 -2.2 -0.18%
(Data as of approximately 5 p.m. ET)
SNAPSHOT:
U.S. stocks fell after Fed Chairwoman Janet Yellen drew attention to elevated valuations in the equity market. U.S. government bonds sold off for the eighth consecutive session. The dollar fell against the euro. Oil prices gained on a report showing a decline in U.S. stockpiles. Gold prices slipped ahead of Friday's U.S. employment report.
OPENING CALL:
Investors in Australia will get the latest reading on the nation's economy with the release of the April labor-market report. The economy added 37,700 new jobs in March, outpacing economists' expectations of a rise of 15,000 and lowering the unemployment rate to 6.1%, the lowest since December. On Tuesday, Australia's central bank cut interest rates to a fresh record low of 2.0%, hoping to give a jolt to an economy that's suffering from the end of a decadelong mining boom.
EQUITIES:
U.S. stocks fell after Federal Reserve Chairwoman Janet Yellen drew attention to elevated valuations in the equity market.
Ms. Yellen made the remarks in a conversation with International Monetary Fund Managing Director Christine Lagarde, who asked the central bank chief about the possibility that the Fed's rock-bottom interest-rate policy was leading to bubbles in financial markets.
The declines capped a volatile session for stocks, which rose at the opening bell, then reversed course within the first half hour of trading. The losses snowballed following Ms. Yellen's remarks, with the Dow falling as much as 195 points, before paring losses.
"Risks to financial stability are moderated, not elevated at this point, " Ms. Yellen said, though she added that stock-market valuations appear "quite high" and some bond and loan markets suggest investors may be taking excess risks.
Investors seized on the warning, which comes amid a recent spate of negative economic headlines and one of the weakest quarterly earnings seasons in several years. Trading volumes were elevated, with more than 7 billion shares trading hands.
"You came in hoping for a reason to buy stocks, and the market hasn't given us that for a while," said Larry Weiss, head of trading at brokerage Instinet in New York. "When something comes out [from the central bank] that's unscripted, or surprises people, people definitely use it as an excuse" to trade.
The comments weren't the first time Ms. Yellen has raised concerns about the risks of high valuations in the stock market. Last July, in a biannual report to Congress, the central bank sounded alarm about lofty prices of social-media and biotechnology stocks, prompting a short-lived pullback in those sectors.
The pullback marked the second consecutive day of losses for major stock benchmarks, the latest move in a sideways year for stocks. The Dow is up just 0.1% for the year, and has fallen 2.4% from its last record close reached in early April. The S&P 500 is up 1% for the year, but down 1.8% from its late-April record.
Above-average stock valuations have for years been a concern for investors as the bull-market in equities enters its sixth year. The S&P 500 index now trades at 17.5 times the last 12 months of earnings, according to FactSet. The 10-year average P/E ratio for the index is 15.8.
Ms. Yellen's latest warning over valuations is the latest cause for hand-wringing by investors, following a raft of data suggesting the U.S. has entered an economic rough patch. Last week, the Commerce Department said gross domestic product grew at a paltry 0.2% pace in the first quarter, while the country's trade deficit widened.
At the same time, earnings growth all but stalled in the first quarter. With 417 companies reporting first-quarter results, earnings among companies in the S&P 500 are on pace to grow just 0.2%, according to FactSet. Still, that's better than the forecast for a 4.7% decline in earnings at the end of March.
First-quarter earnings reports prompted some moves by individual stocks. Chesapeake Energy Corp. said Wednesday it had swung to a loss in the first quarter as the shale driller took a $3.6 billion write-down. Excluding the impairment and other special charges, profit came in above expectations. Shares fell 7.2%.
Mylan NV said Tuesday its revenue rose a less-than-expected 9%, as foreign currency and acquisition costs weighed on results. The company affirmed its full-year outlook. Shares fell 2.5%.
Alexion Pharmaceuticals Inc. has agreed to buy Synageva BioPharma Corp. in a cash-and-stock deal valued at $8.4 billion. Alexion shares fell 8%, while those of Synageva surged 112%.
Shares in Shanghai tumbled for a second day, pushing losses on the market's benchmark index to 5.6% in two sessions, with comments by state-media failing to prop up the market on Wednesday, while Australia's market fell to a three-month low amid worse-than-expected earnings from the country's largest bank.
FOREX:
The dollar dropped against the euro after lackluster employment data heralded a sluggish start for the U.S. economy in the second quarter.
Higher bond yields for countries in the eurozone have also given the euro a boost. Bond yields rise as their prices fall. Yields for bonds climbed in Germany, France, Spain, Italy and Portugal.
Soft U.S. economic data have buffeted the dollar for much of the past couple of months, discouraging investors who had piled into the U.S. currency in the hope that the Federal Reserve would raise interest rates around the middle of this year. On Wednesday, payroll processor Automatic Data Processing Inc. and forecasting firm Moody's Analytics said the U.S. private sector added 169,000 jobs in April, which was below expectations. The report raised concerns that the April nonfarm payrolls report, due Friday, would also be weak.
"For the dollar to move in a strengthening trend, you need confirmation in the near term that the Fed will raise rates," said Mark McCormick, currency strategist at Credit Agricole. "But if the data continue to soften and that doesn't happen, then the dollar will continue to struggle."
Higher interest rates make the dollar more attractive to yield-hungry investors. The Fed has left borrowing costs pinned near zero since 2008, but it has signaled it would tighten monetary policy when it sees improvement in the economy, particularly in the labor market.
BONDS:
U.S. government bonds sold off for an eighth consecutive session, sending the yield on the benchmark 10-year note to nearly the highest level of the year.
It was the Treasury bond market's longest losing streak since March 2011. The yield on Germany's 10-year government debt climbed to the highest level since December. Bond prices fall as their yields rise.
The selloff underscores the risk bond investors, who have benefited from capital gains over the past year, are facing when sentiment sours. Even a moderate rise in bond yields--and a corresponding fall in prices--could more than offset income from paltry interest payments.
Concerns have been growing lately over whether the bond market's valuation is getting stretched. The angst has been the most pronounced in German government debt, where the 10-year yield tumbled to near zero in late April, driven by the ECB's stimulus.
"We are in a correction," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.
The magnitude of the selloff reminds some investors of the taper tantrum of the summer of 2013, when bond markets were rattled by worries over reduced bond buying from the Federal Reserve.
Concerns over liquidity--the ease with which investors sell or buy a financial asset--have been growing among global investors across a broad arena of assets, ranging from bonds to currencies to stocks.
Major central banks through their asset-purchase programs have mopped up a large amount of high-grade government debt out of the secondary markets following the financial crisis. Tighter banking regulations have reduced banks' willingness to be the middlemen for investors.
The International Monetary Fund warned last month that the Federal Reserve could spark widespread volatility in global financial markets if its move to raise interest rates surprises markets.
Demand for haven bonds has diminished lately. Fears over a deflation scare also dialed back, sapping demand for haven bonds. Crude-oil prices have rallied from a six-year low, inflation expectations in both the U.S. and eurozone have bounced from multiyear low levels, and some economic releases out of the eurozone have shown improvement.
(MORE TO FOLLOW) Dow Jones Newswires
May 06, 2015 17:43 ET (21:43 GMT)
The nonfarm jobs release due Friday is a bellwether indicator of the labor market. Economists polled by The Wall Street Journal expect 228,000 new jobs were added last month, sharply rebounding from 126,000 in March.
COMMODITIES:
Oil prices spiked in a volatile session as weekly data showed U.S. stockpiles fell for the first time this year, but the market gave back much of its gains amid a continued bearish backdrop.
U.S. oil inventories fell 3.9 million barrels last week, the first weekly decline since Dec. 26, according to data provided by the U.S. Department of Energy. The decrease sent a surprisingly bullish signal to the market that the monthslong growth in supplies may finally be ebbing, and prices briefly touched a new high for the year.
The data showed strong demand for crude from refineries, which ramped up processing rates to produce gasoline in anticipation of the summer driving season set to kick off in a few weeks. The decline in stockpiles stood in contrast to the 1.1 million-barrel increase projected in a survey of analysts by The Wall Street Journal and was even larger than the 1.5 million barrel draw reported by the industry trade group American Petroleum Institute.
"The inventory data is really shaking the bearish argument that supplies are just going to keep going up," said Phil Flynn, an account executive at brokerage Price Futures Group in Chicago.
But the data contained other notes that sent caution signals to the market. For one, it showed a sharp drop in imports for the week, which analysts said played a big role in the overall stockpile decline and would likely revert to normal in the coming weeks. And for another, domestic oil production remains robust at more than 9.3 million barrels a day--declining by just 4,000 in the weekly data--and commercial crude inventories remain near record highs, at 487 million barrels.
The benchmark U.S. oil contract jumped as high as 3.6% after the data release, but gave back much of the gains over the course of the session.
"You mustn't get confused between weekly changes (in data) and the fact that stocks are very, very high," said Gareth Lewis-Davies, a crude oil strategist at BNP Paribas in London. "There's an excess of crude that has to dissipate."
The data showed a mixed picture for refined products. Gasoline stockpiles rose less than expected, climbing 401,000 barrels to 227.9 million barrels. But distillate stocks, which include heating oil and diesel fuel, rose by 1.5 million barrels to 130.8 million barrels, when analysts were expecting a 200,000-barrel decrease in inventories.
In the precious metals market, gold prices fell, giving up earlier gains as investors grew cautious ahead of Friday's U.S. employment data.
TODAY'S HEADLINES:
Yellen: Stock Valuations 'Generally Are Quite High'
Federal Reserve Chairwoman Janet Yellen said stock market valuations appear "quite high" and some bond and loan markets suggest investors may be taking excess risks, though she said risks to financial stability generally are contained.
Tesla's Loss Widens
Tesla Motors' first-quarter loss widened to $154 million, compared with $49.8 million in the same period a year ago, as higher capital spending and other costs offset higher Model S electric sedan sales.
Fox's Earnings Decline But Still Top Expectations
21st Century Fox's earnings fell 7.4% in the third quarter following the sale of some satellite businesses, but still topped expectations on growth from its cable-network business.
Zynga Plans to Cut 18% of Workforce
Just weeks after returning to the helm of the company he founded, Zynga CEO Mark Pincus is slashing nearly a fifth of the company's workforce to focus on making fewer, higher-quality games.
U.S. Private Sector Jobs Rose by Only 169,000 in April, ADP Says
Private-sector payrolls once again expanded at a mediocre pace last month, increasing by just 169,000 jobs in April, said the national employment report compiled by payroll processor ADP and forecasting firm Moody's Analytics.
U.S. Productivity Falls 1.9% in First Quarter
U.S. worker productivity fell in the opening months of 2015, the latest sign of sluggish economic growth at start of the year. The productivity of nonfarm workers fell at a 1.9% seasonally adjusted annual rate. Economists expected a 1.8% decline.
Wells Fargo Increases Estimated Litigation Loss
Wells Fargo increased its estimate of the amount it may lose related to litigation in excess of legal reserves to as much as $1.2 billion as of March 31 from $1.1 billion three months earlier.
Alexion to Buy Synageva in $8.4 Billion Deal
Alexion Pharmaceuticals agreed to buy Synageva BioPharma in a cash-and-stock deal valued at $8.4 billion, paying more than double the market cap for the maker of rare-disease treatments.
MetLife's Operating Profit Rises
MetLife posted a 4.9% increase in first-quarter operating profit despite a slight decline in revenue, as the life-insurance industry wrestled with ultralow interest rates and companies were stung by the strong dollar.
Chesapeake Energy Swings to Loss on Write-Down
Chesapeake Energy swung to a heavy loss of $3.78 billion as the U.S. shale driller took a $3.6 billion write-down on some properties amid tumbling oil and natural gas prices. Revenue fell 45.3% to $2.76 billion.
RECENT DJ EXCLUSIVES:
French Prosecutors Launch Probe Against J.P. Morgan Unit
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Iranian Oil Minister to Meet German Energy Minister in Berlin Thursday
TODAY'S CALENDAR:
(All times GMT, followed by country and event)
2100 SKA Apr International Reserves
2330 AUS Apr Australian PCI
2350 JPN Apr Monetary Base
0130 SIN MF Asia and Pacific Regional Economic Outlook press conference
0130 AUS Apr Labor Force
0135 JPN Apr Japan Services PMI
0401 MAL Mar External Trade
0600 UK General Election
0600 GER Mar Manufacturing orders
0630 AUS Apr Official Reserve Assets
0645 FRA Mar Foreign trade
0645 FRA Mar Industrial production index
0700 UK Apr Halifax House Price Index
0800 UK Apr UK monthly car registrations figures
0800 ITA Italy's Economic Outlook released
0810 EU Apr Eurozone Retail PMI
0815 HK Apr Foreign Exchange Reserves
0900 SIN Apr Official Foreign Reserves
1000 MAL Malaysia Monetary Policy Committee Meeting
1130 US Apr Challenger Job-Cut Report
1230 US U.S. Weekly Export Sales
1230 US 05/02 Unemployment Insurance Weekly Claims Report - Initial Claims
1230 CAN Mar Building permits
1345 US Bloomberg Consumer Comfort Index
1430 US 05/01 EIA Weekly Natural Gas Storage Report
1600 US Apr Monthly U.S. Retail Chain Store Sales Index
1900 US Mar Consumer Credit
2030 US Foreign Central Bank Holdings
2030 US Money Stock Measures
2030 US Federal Discount Window Borrowings
2301 UK Apr REC and KPMG Report on Jobs
2350 JPN Apr Bank of Japan Monetary Policy Meeting Minutes
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(END) Dow Jones Newswires
May 06, 2015 17:43 ET (21:43 GMT)
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