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US: markets let off steam

Friday, March 15, was marked by a heavy flow of heterogeneous and conflicting US macro data, illustrating that the country’s economic recovery is unsteady.

Bullish sentiment was driven by the fact that US industrial production rose 0.7% in February, the highest monthly growth rate over the past three months, surpassing the forecast 0.4% and January numbers (left unchanged after the revision). Improvement was recorded mainly in the manufacturing sector, with output rising 0.8% in February against expectations of 0.5% and following a 0.3% contraction a month prior. Utilization of production facilities also increased from 79.2% in January to 79.6%.

Investors also greeted enthusiastically the Empire Manufacturing Index, which closely correlates with the national metric that improved in March for the second consecutive month, showing higher activity, while the gauge slightly retreated from 10.04 in February to 9.24 (10.0 had been expected).

CPI data looked weaker, although the index jumped the most in February since June 2009 - (0.7% vs. the expected 0.5% and after flat numbers in January). That was due a steep rise in gasoline prices. Higher inflation fueled investor concerns that the Fed would wind down stimulus measures ahead of schedule. However, not including food and energy prices, consumer prices in February, in line with the forecasts, rose 0.2% after a 0.3% rise in January, which leaves a chance for the Fed to extend its soft monetary policy further down the road before substantial inflationary pressure.

Meanwhile, investors were mostly disappointed by the preliminary reading of the University of Michigan Consumer Sentiment Index that unexpectedly slid in March to 71.8, the worst number since December 2011, from 77.6 in February, while analysts had projected further improvement to 78.

This disappointing figure played a major role in a long string of economic data and triggered a pullback on the stock market which was ripe for a breather after a long rally that helped the Dow chalk up the longest winning streak since November 1996 (10 days of unbroken gains). Trading was also influenced by the fact that Friday was a quadruple witching day for four major futures, option, stock and single stock index contracts, which, in the aggregate, usually leads to higher selling and heightened volatility.

Recapping the indices, the Dow Jones Industrial Average edged down 0.17% to 14,514.11, up 0.8% w-o-w. The Standard & Poor's 500 Index eased 0.16%, ending at 1,560.70, up 0.6% on the week. The Nasdaq Composite Index shed 0.30% to 3,249.07, adding 0.15% during the week.

In the blue-chip universe, most liquid plays (19 of 30) finished in the red. Friday’s top decliner was financial heavyweight JPMorgan Chase (-1.9%) which, after recent stress tests, was ordered by the Fed to present a new capital plan in September, since the lender’s announced capital plan, as the regulator thinks, lacks sustainability. Two other top underperformers were the world’s leading home improvement retailer Home Depot (-1.7%) and global consumer products leader Procter & Gamble (-1.4%). In the bull camp, the gains were led by leading US lender Bank of America (+3.8%), which got the go-ahead from the Fed to carry out a USD 5 bn stock buyback program, major aircraft maker Boeing (+2.1%) and technology giant Cisco Systems (+1.60%).

American operator of deal-of-the-day website Groupon spiked 6.1% after Legg Mason Opportunity Trust’s Bill Miller said in an interview with CNBC that he is upbeat about the company’s prospects and the stock holds upside potential.

No. 1 US satellite TV provider DirecTV added 4.5% to its market cap after deciding not to acquire Brazilian telecom carrier GVT, a company owned by French media company Vivendi.

Top 20 US bank BB&T sagged 2.4% after failing to pass the Fed’s stress tests, which caused the regulator to turn down BB&T’s request seeking permission to buy back its securities.

Youth apparel retailer Aeropostale plunged 5.2% on Q4 lackluster numbers because of weak Christmas sales and also forecast losses in the present quarter.

Manufacturer of robotic surgical systems Intuitive Surgical plunged 6.2% on news the US Food and Drug Administration (FDA) is conducting a probe to find out whether surgery performed using the company’s da Vinci equipment is safe.

In commodities, April gold futures closed up USD 1.90, or 0.1%, at USD 1,592.60/oz on COMEX.

Gold advanced slightly as the greenback weakened against all rival currencies and amid patchy economic data stateside, including much faster inflation in February. On the whole, April gold futures jumped 1% on the week.

April light, sweet crude rose 42 cents or 0.5% to USD 93.45/bbl on NYMEX.

Crude contracts jumped to the highest level since February 20 on a weaker dollar and a higher-than-forecast increase in US manufacturing the prior month. Oil futures added 1.6% compared to last Friday’s close.