Getting a Fair Share from ETFs

Simplicity sells. That's a lesson from the success of exchange-traded funds, which let investors trade bundles of stocks quickly and cheaply. But behind the easy execution, some ETF managers are using a little-known technique to pocket extra cash.

Take the different performances of two ETFs invested in similar financial-sector stocks. The iShares Dow Jones U.S. Financial ETF saw its net-asset value fall 21.06% in the year through September 2009, underperforming the index it tracks by 0.01 percentage point after fees. Over the same period, the Financial Select Sector SPDR Fund lost 23.21%

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FOREX-Dollar in pole position, at 4-mth high vs yen

The U.S. dollar was broadly firmer on Friday as growing expectations for an upbeat U.S. jobs report helped it hit a fresh four-month high against a struggling yen.

The yen underperformed on the crosses also, as traders in Asia sold the Japanese currency after after Japan's new finance minister said he wanted the yen to weaken more.

Speaking after his appointment as finance minister, Naoto Kan said many Japanese firms were in favour of dollar/yen around 95 yen, higher than the pair traded in late 2009. [ID:nTOE60607E].

The comments raised the possibility of intervention by Japanese authorities if the yen strengthened, sparking a sell-off by yen bulls.

The dollar was up at 93.69 yen JPY=, from 93.27 yen late in New York on Thursday, having risen to as high as 93.76 yen, its strongest level since late August, according to Reuters data.

Against a basket of six major currencies, the dollar index .DXY =USD was up at 78.064. It received a boost in the previous session from a stronger-than-expected weekly U.S. initial jobless claims report that added to the view that the U.S. economy continues to improve. [ID:nN06156563]

The euro EUR= fell to $1.4304, from $1.4316 late on Thursday, and not far from a recent low of $1.4255 struck on January 4, with investors increasingly positioning for the U.S. payrolls data.

"The potential for the first positive non-farm payrolls print since December 2007 has the U.S. dollar in pole position, aided by its main competitors either spinning into the wall, or trying to change drivers at full speed," said David Watt, senior foreign currency analyst at RBC Capital.

Forecasts for payrolls have been creeping higher all week and the median is now for a flat outcome, with some as high as a 100,000 rise . [ID:nN07192946]

An upbeat payrolls report would fuel talk of an early tightening from the Federal Reserve and perhaps discourage leveraged positions in carry currencies and commodities.

On the other hand, any recovery in payrolls would brighten the outlook for U.S. and global growth, and thus support demand for commodities in the long run.

Still, commodity currencies were lower on Friday with the Australian dollar AUD=D4 down below 92 U.S. cents and the New Zealand dollar NZD=D4 at $0.7311, having lost 0.75 percent on Thursday.

Commodities took a hit after China set the stage for monetary tightening by hiking the interest rate on its three-month bills on Thursday. The CRB index .CRB dropped 1.1 percent, while crude oil fell

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CANADA FX DEBT-C$ falls with commodities on China concerns

The Canadian dollar fell against
the U.S. currency on Thursday as commodity prices weakened in
response to possible indications from China that it plans to
cool its economy to keep a lid on inflation.

A stronger U.S. dollar on the back of weaker than expected
data out of the euro zone and on comments by Japan's new
finance minister that he wanted a weaker yen also weighed on
the Canadian currency. [ID:nN07203903]

The Canadian dollar finished the North American session at
C$1.0350 to the U.S. dollar, or 96.62 U.S. cents, down from
Wednesday's finish of C$1.0325 to the U.S. dollar, or 96.85
U.S. cents.

The price of oil [O/R], a key Canadian export, slipped to
below $83 a barrel after a 10-day rally, on worries that demand
would ease if China took more substantial steps to remove
excess liquidity from its system in order to keep growth in
check. [ID:nTN0720799]

China's central bank surprised markets by raising the
interest rate on its three-month bills for the first time since
August. Markets took the move as a sign the central bank could
be getting ready to use more forceful measures to cool growth
and fight inflation. [ID:nTOE60503R]

"This is the first real indication that China's intention
is to shift away from gunning the engines to maybe starting to
tap the brake -- and we saw commodity prices pull back a little
bit and that weighed on the Canadian dollar," said Doug Porter,
deputy chief economist at BMO Capital Markets.

The price of gold, another major Canadian export, [GOL/]
also softened.

Early in the day, the Canadian dollar shot as high as
C$1.0291 to the U.S. dollar, or 97.17 U.S. cents, largely on
bullish hopes that U.S. and Canadian jobs data on Friday would
further signal the economic revival. [ID:nN0595130]

Porter said the market was looking for a flat number in the
U.S. jobs report and slight rise in the Canadian employment
number.

"I think the underlying trend is toward recovery here in
Canada and it does seem like the job market has turned the
corner,"

BONDS MOSTLY LOWER

Canadian bond prices were mixed, but mostly lower, after a
top U.S. Federal Reserve policymaker said the central bank
should tighten policy sooner, rather than later, to contain
long-term inflation pressures. [ID:nN07200067]

"This afternoon we got a press release that had the Fed and
others warning the banking system about interest rate risk and
a possible rate rising rate environment and that's kept yields
(which move in the opposite direction of prices) on the front
end a little bit higher and has had modest influence in
Canada.

The two-year government bond CA2YT=RR rose 1 Canadian
cent to C$99.75 to yield 1.384 percent, while the 10-year bond
CA10YT=RR shed 11 Canadian cents to C$100.92 to yield 3.633
percent.

Canadian government bonds notched a mixed performance
against U.S. issues, with the two-year yield widening to 38.7
basis points above its U.S. counterpart from 36 basis points in
the previous session.

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Chile Stocks End At Record High On Rising Commodities Prices

SANTIAGO (Dow Jones)--Chile's blue-chip Ipsa index kept on trucking Wednesday, closing at another record high, led by commodities-related companies and banks.

The Ipsa ended at 3639.95, up 0.4%. Market volume fell to 97.8 billion Chilean pesos ($197.0 million) compared to CLP178.4 billion the prior session.

As Chile pulls itself out of its worst economic slump since the late 1990s and international commodity prices strengthen, the Ipsa has continually closed at a record high since late December.

The Andean nation produces about 35% of the world's copper

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Peru's Main Stock Indexes End Sharply Higher; Sol Weakens

LIMA (Dow Jones)--Peru's main stock market indexes ended sharply higher Wednesday, driven up by rising mineral prices that lifted various mining companies.

The Lima Stock Exchange's broad General index ended 2.15% higher ...

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FOREX-Dollar falls vs euro after Fed meeting minutes

The dollar fell against the euro on Wednesday after minutes from the U.S. Federal Reserve's latest policy meeting suggested the possibility of more stimulus measures for the economy.

The dollar also pared gains versus the yen, although it remained higher on the day. The yen has been pressured by uncertainty surrounding the resignation of Japan's finance minister. See [ID:nT79774]

Over the past month, the dollar had risen on expectations an improving economy would prompt the Fed to hike interest rates sooner rather than later -- a move that would boost the value of dollar-based assets.

Analysts said Wednesday's Fed minutes are likely to dampen speculation the central bank would tighten anytime soon.

In the minutes, members of the Fed expressed concern the winding down of the central bank's massive purchases of mortgage securities, among other factors, could snuff out a fragile housing market recovery. [ID:nWEQ003714]

Fed officials expect unemployment to remain high for "quite some time" and some said persistently high unemployment might make it desirable at some point to expand or extend large-scale purchases of assets, according to the minutes.

"The Fed headline discussing the possibility of more stimulus for the U.S. economy was surprising and has caused the dollar to weaken especially against the euro," said Amelia Bourdeau, senior currency strategist at UBS in Stamford, Connecticut. "What that suggests is that the U.S. economy is not out of the woods yet."

The euro rose to a session high of $1.4434, according to Reuters data, and was last up 0.5 percent at $1.4432 EUR=.

The dollar rose 0.7 percent to 92.34 yen, off a high of 92.74 yen JPY= hit earlier in the day.

Major currencies are likely to trade in ranges ahead of a key U.S. jobs report on Friday, which could help shape the outlook for U.S. interest rates and the direction of the dollar

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Stocks struggle on jobs outlook

Stocks struggled Wednesday morning as investors mulled a pair of reports on the job market and a stronger U.S. dollar.

The Dow Jones industrial average (INDU) lost 8 points, or 0.1%, in the early going. The S&P 500 index (SPX) slipped 2 points, or 0.2%. The Nasdaq composite (COMP) was barely changed.

Stocks ended a choppy session little changed Tuesday as investors digested a seesawing dollar and reports including auto sales, pending home sales and factory orders.

Robert Brusca, chief economist at Fact and Opinion Economics, said that a "pall of pessimism" is making investors "reluctant to jump in," and that's partly because they don't see any reason to trust the gains made in 2009. This might mute the traders' reaction to positive data in the job market, he said.

"This is a week where, arguably, we're expected to see the employment numbers do something good, but whenever that happens, there are people who say, 'Yeah, but it's not better,'" he said.

Economy: Two jobs reports were released before the market open.

Outplacement firm Challenger, Gray & Christmas reported that 45,094 job cuts were announced in December, 10% less than November's 50,349 job cuts. That's the lowest total since December 2007, when 44,416 cuts were announced.

The ADP private nonfarm employment report for December showed an 84,000 decrease in payrolls. This was the smallest decline in jobs since March, 2008. But it was steeper than the expected decline of 75,000, according to a consensus forecast from economists surveyed by Briefing.com. In November, there was a 169,000 decrease. (Job picture gets a little brighter)

The reports are preliminaries to the most closely watched jobs report, the government's December reading of nonfarm payrolls, scheduled for release Friday.

After trading begins, the Institute for Supply Management will release a report expected to show an index of services activity rose to 50.5 in December, from 48.7 the previous month, according to a survey of economists by Briefing.com. A reading above 50 indicates expansion.

The government's weekly crude oil inventories report is due at 10:30 a.m. ET.
0:00 /4:32Commerce Dept. sees slow road ahead

Later in the session, at 2 p.m. ET, the Federal Open Market Committee will release the minutes from its most recent meeting.

World markets: Asian markets ended higher. In Europe, London's FTSE 100 fell 0.2%, France's CAC 40 and the German DAX were both little changed.

Commodities and the dollar: The dollar gained versus the euro and the yen.

COMEX gold for February delivery gained $9.40 to $1,128.10 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.

U.S. light crude oil for February delivery fell 2 cents to $81.75 a barrel on the New York Mercantile Exchange, after ending the previous session at $81.77 a barrel, the highest close since October 2008.

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Treasurers Embrace Pay-in-Kind Bonds as Ghost of Lehman Fading

Companies are selling debt with terms last seen before credit markets froze, showing why the world’s biggest bond fund manager says another bubble may be brewing.

JohnsonDiversey Holdings Inc., a Sturtevant, Wisconsin, maker of cleaning supplies, and Wind Acquisition Holdings Finance SpA, parent of Italy’s third-largest mobile-phone company, sold bonds that can pay interest in new debt instead of cash, the first such deals since 2007, according to Bloomberg data. Goodman Global Inc. raised $320 million to pay its owner, leveraged buyout firm Hellman & Friedman, a dividend, one of at least seven similar offerings since November.

Two years after credit markets seized up, treasurers are luring investors to junk bonds that returned a record 58 percent last year, as measured by Bank of America Merrill Lynch indexes. U.S. sales of $162 billion beat the all-time high of $149 billion in 2006, Bloomberg data show. The rally means “choices are limited and the value is diminishing,” according to Bill Gross, who runs the world’s biggest bond fund at Newport Beach, California-based Pacific Investment Management Co.

“Six months ago I wouldn’t have imagined being able to do this deal,” said Karim-Michel Nasr, head of corporate development in Paris at Weather Investments SpA, Wind’s holding company. “It is an issuer’s market, but in the sense that investors are looking for companies that are pushing maturities out, storing up cash for a rainy day.”

Capital Access

At least two dozen borrowers since November have asked lenders to change terms of debt agreements to permit bond sales, extend loan maturities or pay dividends to their owners, Bloomberg data show. Access to capital means defaults will likely drop to 3.9 percent by November from 12.7 percent a year earlier, New York-based Moody’s Investors Service says.

Speculation that companies will have less difficulty making payments has led investors to accept lower interest rates and looser borrowing terms. The extra yield demanded on junk bonds instead of Treasuries narrowed to 6.39 percentage points at the end of 2009 from almost 19 percentage points on March 9, Merrill Lynch indexes show. Speculative grade debt is rated below Baa3 by Moody’s and BBB- by Standard & Poor’s.

“Investors are beginning to let their guard down and consider some riskier structures in the credit markets,” Scott Minerd, who helps supervise more than $100 billion as Guggenheim Partners LLC’s chief investment officer, said in an e-mail.

‘More Cautious’

Gross said Nov. 13 that he’s growing more concerned about corporate bonds because the economic recovery isn’t assured. The firm is “more cautious,” Paul McCulley, a money manager and member of the firm’s investment committee, said Jan. 4 in his 2010 outlook posted on Pimco’s Web site.

The U.S. unemployment rate was at or above 10 percent in October and November, compared with an average of 4.6 percent in 2006 and 2007.

Fund managers have little choice but to buy high-yield debt with looser restrictions as investors pour into the market, said Edward Altman, creator of the Z-Score that calculates bankruptcy probabilities.

“Very lenient terms” show “there’s definitely been a shift back to the issuer,” said Altman, a finance professor at New York University’s Stern School of Business. “I don’t see the fundamentals justifying it.”

Investors added a record $153.2 billion to U.S. bond funds in 2009, according to Cambridge, Massachusetts-based research firm EPFR Global. Of that, $21.3 billion went to funds focusing on junk-rated debt, compared with outflows of $1.9 billion in 2008.

‘We Forget’

Bondholders lost 26 percent on junk debt in 2008, according to Merrill Lynch indexes. The collapse of Lehman Brothers Holdings Inc. caused yield spreads to widen from a record low 2.41 percentage points the previous year as investors fled all but government debt.

“I’m looking at some of the things that are being priced and I’m saying, ‘Wow, how quickly we forget,’” said JohnsonDiversey Chief Financial Officer Joseph Smorada. The market is “starting to get a little dangerously aggressive,” he said.

The company sold $250 million of so-called toggle debt due in May 2020 on Nov. 20 that allows it to pay a 10.5 percent interest rate either in cash or notes for the first five years. The first pay-in-kind bonds since 2007 were part of a $2.6 billion recapitalization in which New York-based LBO firm Clayton Dubilier & Rice Inc. agreed to buy a 46 percent equity interest in the company.

Moody’s gave the notes its fifth-lowest ranking of Caa1, saying the debt is five times more than adjusted earnings before interest, taxes and amortization costs. It has had negative free cash flow the past three years, though it’s expected to break even in 2010, Moody’s said.

‘Dangerously Aggressive’

“In early 2009, I don’t think we could have borrowed a nickel if our life depended on it,” Smorada said. Investors submitted bids for almost four times the amount of notes offered, he said.

Investors haven’t lost discipline and companies are mainly selling bonds to refinance or cut interest expenses, said William Cunningham, the head of credit strategy and fixed-income research at State Street Corp.’s investment unit in Boston.

Companies in the S&P 500 Index held 8.2 percent of their assets, or about $2 trillion, in cash and short-term investments during the third quarter, up from $1.6 trillion, or 6.4 percent, a year earlier, Bloomberg data show.

‘A Difficult Time’

“It’s something we need to watch,” Cunningham said. “But is it the early signs of froth and excess? Not when you look at the numbers. I’m pretty confident that were an aggressive deal to come, or any sort of deal that has much looser credit standards or covenants, if it were to come by a company that had deteriorating fundamentals, investors would give that credit a difficult time.”

Wind Acquisition of Luxembourg raised $1.1 billion last month selling 7.5-year, 12.25 percent notes in dollars and euros that allow it to pay interest with more debt until 2014. Wind, controlled by Egyptian billionaire Naguib Sawiris and the parent of Wind Telecomunicazioni SpA, boosted the offering 50 percent as demand rose.

S&P cut Wind’s credit rating one level to B+ from BB- as the company used the sale to pay a dividend to its parent. The Dec. 9 downgrade reflects “a more aggressive financial policy” as the company sustains “weaker” units, S&P analyst Leandro De Torres Zabala in Madrid said in a statement.

Undercutting Efforts

The investment flood has undercut efforts to toughen restrictions that protect investors, said Alexander Dill, senior covenant officer at Moody’s in New York. Many covenants are “largely replicating” rules from 2006 and 2007, Dill said in a Dec. 10 report.

TRW Automotive Inc., the world’s biggest supplier of vehicle-safety equipment, sold $250 million of eight-year notes in November rated Caa1 with covenants “substantially unchanged” from its 2007 indenture for debt graded four steps higher at Ba3, according to the Moody’s report. The Livonia, Michigan-based company said Dec. 22 it raised $400 million in term loans as lenders amended and extended its revolving credit facility.

The restructuring, made possible by improved earnings and investors discounting an “Armageddon” scenario, provided cash until at least 2014 and reduced secured debt, said Chief Financial Officer Joseph Cantie. Companies looking at the “wall of maturities” in 2012 are “saying it’s going to be difficult, better to take care of that stuff early on,” he said.

Quintiles Dividend

Two weeks after JohnsonDiversey’s deal, Quintiles Transnational Corp., the world’s biggest tester of medicines for drugmakers, sold $525 million of 9.5 percent toggle notes due in 2014 to yield 10.06 percent, or 7.77 percentage points more than Treasuries. The deal was increased from $400 million.

Quintiles said it will use some of the proceeds to pay a dividend to its owners, which include a group led by founder and Chief Executive Officer Dennis Gillings, Fort Worth, Texas-based TPG and Bain Capital LLC in Boston. The notes have rallied since the sale, driving the yield down to 9.42 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

David Coman, a spokesman for Durham, North Carolina-based Quintiles, declined to comment.

Goodman Global, the second-largest U.S. maker of residential and light-commercial heating, ventilation and air conditioning systems, sold five-year senior discount notes last month that yield about 12.5 percent to pay a dividend. Lenders that financed Houston-based Goodman Global’s $2.6 billion leveraged buyout approved the payment of as much as $115 million.

Reduced Debt

As of Sept. 30, Goodman had reduced debt to about 4 times earnings before interest, taxes, depreciation and amortization costs from 5.6 times in the first quarter, Moody’s said in a Dec. 10 report. Pen Pendleton, a spokesman for San Francisco- based Hellman & Friedman, declined to comment.

“The companies that have done well are being rewarded by being given a little more latitude in how they operate,” said Jason Rosiak, a fund manager overseeing $3 billion at Pacific Asset Management, an affiliate of Pacific Life Insurance Co. in Newport Beach, California. “But that just leads to inferior companies down the line having the same type of access.”


--With assistance from John Glover in London and Pierre Paulden in New York. Editors: Robert Burgess, Alan Goldstein

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Jumping With The Mexican ETF

Along with airline stocks, Mexican shares are hitting new highs and inspiring bullish trades. Check these out.


Today's tickers: EWW, UAUA, NBR, PTEN & FIGiShares Mexico Index Fund (amex: EWW): Shares of the exchange-traded fund, which seeks to replicate the performance of the Mexican market (as measured by the MSCI Mexico Investable Market index), rose to a new 52-week high of $51.57 on Tuesday. One bullish investor established a bullish risk reversal in the February contract in order to position for continued gains. The trader apparently sold 10,000 puts at the February 52 strike for $2.30 each in order to offset the cost of buying 10,000 calls at the same strike for $1.70 apiece. The reversal results in a net credit to the investor of 60 cents per contract, which he keeps in full if EWW shares trade at or above $52 by expiration. Additional profits accumulate if the price of the underlying stock trades above the $52-per-shar

UAL Corp ( UAUA - news - people ):Healthier passenger loads in December sparked a break to a 52-week high above $13 as high as $14.14 for United Airlines' parent, UAL Corp. The news inspired an interesting option play in the January 2011 options. The play involved 2,500 contracts in each of the $10 strike puts and the $20 strike call options. The trade is marked by the exchange as a spread indicating one was bought and one was sold, although data also suggested options were bought at both strikes. What we believe makes the most sense on today's price move is that an investor has most likely written the $10 strike puts and bought the $20 strike calls.
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Post recovery bullishness is possibly making UAL shares look more appealing especially as they test higher ground not seen since October 2008. Option implied volatility at around 80% helps keep the premiums swollen, which is possibly why the investor is reaching almost unreasonably high for a bullish play while writing off any prospects to the downside. The combined premium of $4.60 to us looks unreasonably high on a break-even basis to make this combination a long strangle, although such a play would benefit from a surge in implied volatility. Many analysts argue that the VIX is ridiculously cheap at present, but a net premium of zero in the event of a reversal play makes us believe that this trade is a bullish play on the airline.

Nabors Industries ( NBR - news - people ):Land drilling contractor, Nabors Industries, attracted options-optimists to the February contract Tuesday with shares of the company trading up nearly 8% to a new 52-week high of $25. Plain-vanilla call buying activity took place at the February 25 strike with 1,500 calls purchased at the strike for about 95 cents premium apiece. Another 1,500 calls were probably bought at the higher February 26 strike for an average premium of 80 cents each. Higher-strike call buyers stand ready to profit if NBR's shares increase 7% to surpass the break-even point at $26.80 by expiration next month.

more conservative bullish trader initiated a covered call spread by buying Nabors shares and writing call options. It looks like the investor sold 6,000 calls at the February 26 strike for an average premium of 73 cents per contract. The sale of the calls reduces the price paid per share of the stock by the amount of premium received. Additionally, the short call position establishes an effective exit strategy for the investor if the calls land in-the-money by expiration.
Click here for buy-sell-hold updates on Green Mountain Coffee Roasters, and Baidu.com in the January 2010 Oberweis Report.

Patterson-UTI Energy (nasdaq: PTEN): Shares of the provider of contract services to the North American oil and natural gas industry jumped nearly 7.5% during the trading session to $17.40. Option bulls dominated the February contract on PTEN Tuesday, suggesting perhaps that shares will continue higher by expiration next month. Approximately 6,200 calls were picked up at the February 17.5 strike for an average premium of one dollar per contract. Call-buyers amass profits if PTEN shares appreciate 6% from the current price to $18.50--the break-even price on the calls--by expiration.

Fortress Investment Group ( FIG - news - people ):Asset management firm, Fortress Investment Group, realized a nearly 8% increase in the price of its shares Tuesday to $5.07. The rally in shares spurred a bullish feeding frenzy in January 2011 contract call options. Investors purchased approximately 6,000 calls at the now in-the-money January 2011 5.0 strike for an average premium of $1.19 per contract. Call-buying option traders break even on the transaction if FIG shares surge 22% to $6.19 in the next twelve months to expiration.

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Latin America And Leveraged Bulls Lead Fund Pack

Domestic and international funds both post double-digit returns in 2009, but the real hot spot is Latin America.


Mutual funds rebounded in 2009 after taking a big hit in 2008. Domestic diversified equity funds returned 30% as of Dec. 31, according to Lipper, a New York division of Thomson Reuters that tracks fund performance. Sector funds and world equity funds returned 35% and 42%, respectively. This is compares to the 23.45% annual return for the S&P 500 last year.

Diversified leverage funds led all domestic equity funds with a 52% return for the year and a 10% return for the fourth quarter of 2009. A top performer, up 119% for the year and 16% for the fourth quarter, is Rydex NASDAQ-100 2x Strategy Fund (RYVYX). This fund has $226 million in assets and runs annual expenses of $1.76 for every $100 in assets.

Coming in behind diversified leverage funds are mid-cap growth funds, with a 40% return for the year, and multi-cap growth funds, up 38% in 2009.

The biggest losers in 2009, a year in which stocks exploded off of their lows, were dedicated short bias funds, posting a loss of 41% for the group. This was the only group of domestic equity funds to finish the year in the red. One egregious performer was the ProShares UltraShort Real Estate ( SRS - news - people ), an exchange traded fund that produces twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index. This dedicated short ETF lost 85% in 2009.

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Among sector funds, global science and technology funds led the group with a return of 69% for the year. Basic materials funds also performed well with a 65% return. The best-performing basic materials fund was Market Vectors Steel ( SLX - news - people ). This ETF has $309 million in assets under management and tries to match the performance of the AMEX Steel Index.

International equity funds regained its spot as the best performer among all fund categories with a healthy 42% return for the year. Latin American and emerging markets funds were the year's biggest winners, returning 113% and 76% respectively. iShares MSCI Brazil Index Fund ( EWZ - news - people ) was a top performer in 2009 with a return of 124% for the full year.

The tables below list winners and losers among U.S. and non-U.S. funds during the last quarter of 2009, as well as for the entire year. Performance data in both text and tables are as of Dec. 31, 2009.

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Commodities mixed, metals higher on recovery hopes

Commodities were mixed Tuesday as investors grabbed profits from a surge the day before.

"Today seems like a consolidation phase," said Carlos Sanchez, an analyst at CPM Group. Traders bid up prices on commodities Monday to kick off the new year as they realigned portfolios, he said.

Precious metals were the biggest gainers. Sanchez said metals with industrial uses, like silver, palladium and platinum, have risen in recent weeks because of mounting optimism for a global economic recovery. A rebound would push demand for the metals higher.

Upbeat manufacturing reports in the U.S., China and Europe on Monday boosted hope for growing industrial output.

Silver for March delivery rose 33.7 cents to $17.80 an ounce. Palladium for March delivery climbed 55 cents to settle at $421.95 an ounce, while platinum for January deliver rose $13.50 to $1,530.80 an ounce.

Gold rose 40 cents to settle at $1,118.70 an ounce after jumping more than $20 Monday.

Precious metals were the biggest gainers. Sanchez said metals with industrial uses, like silver, palladium and platinum, have risen in recent weeks because of mounting optimism for a global economic recovery. A rebound would push demand for the metals higher.

Upbeat manufacturing reports in the U.S., China and Europe on Monday boosted hope for growing industrial output.

Silver for March delivery rose 33.7 cents to $17.80 an ounce. Palladium for March delivery climbed 55 cents to settle at $421.95 an ounce, while platinum for January deliver rose $13.50 to $1,530.80 an ounce.

Gold rose 40 cents to settle at $1,118.70 an ounce after jumping more than $20 Monday.

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Gasoil Rallies on Icy Weather; Stocks, U.S. Futures Fluctuate

Jan. 6 (Bloomberg) -- Gasoil rose to an 11-week high in Europe and crude oil remained above $81 a barrel as freezing weather in much of the northern hemisphere boosted demand for fuels. European stocks and U.S. index futures fluctuated, while the yen rose the most in four weeks against the dollar.

Gasoil futures, the European equivalent of heating oil, gained 0.6 percent at 8:57 a.m. in New York. Crude oil for February delivery advanced as much as 0.6 percent to $81.99. Europe’s Dow Jones Stoxx 600 Index and futures on the Standard & Poor’s 500 Index were little changed. The yen rose against 15 of the 16 most-traded currencies, strengthening as much as 0.9 percent against the dollar on speculation last month’s 7.7 percent decline was excessive.

Below-average temperatures from Beijing to Berlin this week boosted energy prices as crude neared a 14-month high, adding to last year’s 78 percent advance. The National Weather Service forecast below-normal temperatures across the eastern U.S. states through Jan. 14. The Met Office said Britain endured the coldest December since 1995 and the freeze is set to continue.

“Colder weather than average in the U.S., even hitting the north of Florida, has been pretty good news for oil,” said Hannes Loacker, an analyst with Raiffeisen Zentralbank Oesterreich AG in Vienna. “If the cold remains, the inventory gain we normally see in mid-January may be delayed.”

Oil has rallied from a low of $32.70 in January 2009. Gas for delivery today in the U.K. rose to the equivalent of $7.46 a million British thermal units. White sugar advanced as much as 1.7 percent to $734.10 a metric ton on the Liffe exchange in London, the highest price since at least 1989. Copper fell 0.6 percent to $7,456 a metric ton on the London Metal Exchange. Gold for immediate delivery slipped $1,120.05 an ounce.

Europe, Asia

The MSCI World Index of 23 developed nations’ stocks fluctuated between gains and losses as shares in Europe fell while those in Asia gained. U.S. futures were little changed after the S&P 500 yesterday posted its biggest gain in two months. A report due at 10 a.m. in Washington may show the number of contracts to buy previously owned U.S. homes fell in November for the first time in 10 months.

Cadbury Plc. tumbled in U.K. trading after Warren Buffett’s Berkshire Hathaway Inc., the top stockholder in Kraft Foods Inc., voted against the foodmaker’s proposal to issue as many as 370 million shares to help buy the candymaker. Cadbury dropped 5.1 percent to 764 pence.

The MSCI Emerging Markets Index advanced 1.1 percent, heading for its highest close since August 2008. Stock indexes of energy producing countries were among the biggest gainers, with Kazakhstan’s KASE Stock Exchange index climbing 1.9 percent in its first day of trading this year.

Stock Valuations

The 10-month rally in stocks has driven the valuation of the MSCI World Index to about 34 times its companies’ reported earnings, the highest level since 2002, according to Bloomberg data.

The International Monetary Fund will boost its forecast for global economic growth this year from 3.1 percent as government efforts to prevent a wider financial crisis were successful, Deputy Managing Director John Lipsky said. Central banks, including the Federal Reserve, are exploring ways to end programs that have bolstered the financial system.

The cost of insuring against losses on corporate bonds fell, extending a five-week slide, as the high-yield Markit iTraxx Crossover Index declined 6.5 basis points to 408.5, the lowest level since May 2007, JPMorgan Chase & Co. prices showed.

“We are now nearing the end of our fiscal and monetary ability to bail out the system, and some longer-term liquidity measures are already being unwound,” Simon Ballard, a strategist at Royal Bank of Canada in London, wrote in a research note. “Rising public debt and withdrawal of liquidity support programs could thwart recovery.”

The yen advanced 0.8 percent against the dollar and 0.7 percent against the euro amid speculation some Japanese exporters took advantage of its declines to convert overseas earnings back into their own currency. The won strengthened against all 16 major counterparts, trading at a 15-month high against the dollar.

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Nigerian naira gains vs dollar at forex auction

Nigeria's central bank sold $122 million at 147.60 naira to the dollar at its first foreign exchange auction of the year on Monday, less than the $200 million on offer, traders said on Tuesday.

The naira currency closed at 148.10 to the U.S. dollar at the previous bi-weekly auction last month.

On the interbank market, the naira was trading at 149.28 per dollar compared to 149.43 on Monday, driven by the appreciation of the currency at the central bank's auction.

Traders said most corporates had not yet resumed bidding for hard currency as they are waiting for the central bank's decision on monetary policy later on Tuesday.

"We expect demand for the dollar to pick up by next auction as soon as the central bank releases its monetary policy direction for the year," one dealer said.

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WORLD FOREX: Dollar Slides On Renewed Demand For Risk

NEW YORK (Dow Jones)--The dollar is lower against the euro and the yen early Tuesday, as investors are booking profits for a second day after the greenback's rally in December went too far.

The euro climbed to the highest level in more than two weeks against the dollar overnight, while the dollar dipped below Y92.

A rally in oil, gold and stocks at the start of the year also helped demand for riskier assets, luring investors away from the U.S. currency. Oil hovered close ...

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Oil tops $81 mark on positive data, weaker dolla

Crude-oil futures rose more than 2%, climbing above $81 a barrel, boosted by upbeat economic data in the U.S. and China and by a weaker dollar.

The U.S. manufacturing sector expanded in December for the fifth straight month, and China's manufacturing activity accelerated in December at its fastest pace in several years.

Crude for February delivery was last up $2.04, or 2.6%, to $81.40 a barrel on the New York Mercantile Exchange. Oil is trading near its highest level in more than two months.
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"Renewed hope of a strong global economic recovery and increased tensions across the Middle East are significant contributing factors," said Brian Niemiec, analyst at Susquehanna Financial Group.

Oil ended last year's trading up 78%, the biggest annual gain since 1999.

The economy is still the "big question, and controls the present oil demand," said Charles Perry, president of energy-consulting firm Perry Management.

The Institute for Supply Management reported Monday the ISM manufacturing index rose to 55.9% from 53.6% in November. It was the highest in nearly four years. Economists surveyed by MarketWatch were expecting a modest gain to 54.2%.

Readings over 50% indicate that more manufacturing firms said business was improving than said it was worsening.

In China, industrial activity, as measured by output, climbed for a ninth straight month in December, according to the HSBC purchasing managers' index released Monday, with overall conditions during the December-ended quarter the most robust in the survey's six-year history.

An alternative purchasing managers' index, published Friday by the official China Federation of Logistics and Purchasing, showed manufacturing reached a 20-month high in December. See story on China's manufacturing indexes.

The dollar fell sharply against the euro to start the week in foreign-exchange trading, with the European currency moving up 0.7% to stand at $1.443. The dollar index /quotes/comstock/11j!i:dxy0 (DXY 77.49, -0.38, -0.49%) was last down 0.6% at 77.394.

A weaker dollar tends to push up dollar-denominated commodities prices, including those for energy products and metals.

In other energy trading, February gasoline rose 2.6% to $2.1063 a gallon, February heating oil gained 3% to $2.1773 a gallon.

February natural gas rallied 5.2% to $5.86 per million British thermal units.

The United States Oil Fund /quotes/comstock/13*!uso/quotes/nls/uso (USO 40.14, +0.86, +2.19%) added 2.2%, and the United States Natural Gas Fund /quotes/comstock/13*!ung/quotes/nls/ung (UNG 10.51, +0.43, +4.27%) rose 3.4%.

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Gold tops $1,110 on weaker dollar

Gold futures climbed nearly 2% Monday to above $1,110 an ounce as the U.S. dollar weakened on the first full trading day of the new year, raising the metal's investment appeal.

Other commodities also gained, getting a lift after purchasing managers in China and Great Britain reported stronger-than-expected manufacturing activity. Palladium rose to the highest level in more than 17 months.

Gold for February delivery rose 1.9% to $1,117.30 an ounce on the Comex division of the New York Mercantile Exchange, after rising as high as $1,119.70 earlier.

Futures prices ended the year's trading up 24% to mark their ninth-consecutive yearly gain, but they are off their record high above $1,220 an ounce seen in early December.
The Dollar Rally Will Slow Down in 2010

U.S. recovery will keep the dollar rising this year but its rally will slow as monetary policy may not be tightened as fast as the market thinks. Also, diversification of currency reserves and a shift in speculative positions will work against it.

"Positive manufacturing data from China has given equities and commodities a lift," said James Moore, an analyst at TheBullionDesk.com. Gold prices "in the short-term will continue to look to the dollar for direction."

Investors will increase "their exposure as a way to offset devaluation of fiat currencies and take advantage of improving fundamentals."

In currencies trading, the dollar was lower against the euro and the Japanese yen. The dollar index /quotes/comstock/11j!i:dxy0 (DXY 77.49, -0.38, -0.49%) was last down 0.4% at 77.514.

Industrial activity in China, as measured by output, climbed for the ninth straight month in December, according to the HSBC purchasing managers' index, with overall conditions during the December-ended quarter the most robust in the survey's six-year history. See story on Chinese manufacturing data.

"A strong Chinese economy would suggest increased consumer purchases of gold in the country, as well as possible future purchases by China's central bank," said Martin Hennecke, an associate director at Tyche Group Ltd.

"There is also renewed fear of inflation in China and globally," he said. "Gold is widely bought as a hedge against inflation and becomes more attractive when inflation risks are on the rise."

Holdings in the SPDR Gold Trust /quotes/comstock/13*!gld/quotes/nls/gld (GLD 110.02, +2.71, +2.53%) , the biggest gold exchange-traded fund, stood at 1,133.62 metric tons at the end of last year, up 45% in 2009.

In other metals Monday, March palladium rallied 3.6% to $423.50, the highest level since July 2008. April platinum gained 2.5% to $1,508 an ounce, and March silver added 2.5% to $17.275 an ounce.

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Stocks Rally, Dollar Falls on Manufacturing; Weather Lifts Oil

Stocks and commodities rallied and the dollar slumped on the first trading day of 2010 amid signs that manufacturing is improving around the world. Oil climbed above $80 a barrel after freezing weather hit the U.S.

The Standard & Poor’s 500 Index gained 1.4 percent at 10:28 a.m. in New York. The MSCI Emerging Markets Index added 1.2 percent to a 17-month high. Natural gas for February delivery gained as much as 5.8 percent, crude oil rose for an eighth day and orange-juice futures surged the most allowed amid cold temperatures in the U.S. The dollar weakened against all 16 major currencies, sending gold up the most in two months.

Manufacturing in China, which led the recovery from the first global recession since World War II, expanded by the most since April 2004 last month, an industry report showed. The U.S. Institute for Supply Management’s factory gauge climbed to 55.9, the highest level in more than three years.

“We expect 2010 to mark a further period of economic recovery, albeit in most instances with the growth upturn remaining moderate rather than very strong,” Richard Urwin, London-based head of asset allocation and economics at BlackRock Inc., which manages about $1.4 trillion, wrote in a note.

Exxon Mobil Corp. and Chevron Corp. climbed at least 1 percent to pace gains in U.S. energy shares. The S&P 500, which rallied 23 percent rally in 2009, climbed to a one-month high.

Dollar Weakens

The dollar’s retreat was led by a 1.7 percent decline against the Swedish krona and a 1.4 percent drop versus the Canadian dollar. Asian currencies advanced on speculation overseas investors will pour more funds into regional assets as the global economy recovers.

Europe’s Dow Jones Stoxx 600 Index gained 1.1 percent as all 19 industry groups rose. The measure rallied 28 percent last year, its biggest annual gain since 1999. BHP Billiton Ltd., the world’s largest mining company, added 2.3 percent in London.

Nestle SA gained 1.3 percent in Zurich after Novartis AG exercised an option to acquire its stake in Alcon Inc., the world’s largest eye-care company, for a total of $39.9 billion. The maker of Nescafe coffee also today announced an additional share buyback worth 10 billion Swiss francs ($9.65 billion).

Air Berlin Plc advanced 4.5 percent in Frankfurt. Europe’s third-biggest discount carrier was upgraded to “buy” from “hold” at Deutsche Bank AG. Renault SA, France’s second- largest carmaker, added 4.8 percent in Paris. Sales volumes will be “very strong” in the first half of 2010, Bernard Cambier, sales director for France, said in an interview on BFM radio.

Asia Gains

The MSCI Asia Pacific Index climbed 0.9 percent, building on its 34 percent gain last year, the best annual advance since 2003. Japan Airlines Corp. soared 31 percent in Tokyo after the government said the Development Bank of Japan will double the amount of credit for the carrier.

Yields on Treasury 10-year notes were near the highest level since June after the ISM report added to evidence the U.S. economy is gaining momentum.

Pacific Investment Management Co., which runs the world’s biggest bond fund, is reducing holdings of U.S. and U.K. debt as government borrowing expands, and is “more cautious” on corporate debt, according to the 2010 outlook of Paul McCulley, a money manager and member of the investment committee. “We’re making a very active decision to run light on risk,” he wrote.

Energy Rally

U.S. natural gas for February delivery rose as much as 32.2 cents to $5.894 per million British thermal units on the New York Mercantile Exchange. Cold, windy weather enveloping the U.S. from the northern Plains to the East Coast may continue to break records today, forecasters said.

Spot U.K. gas prices surged and U.S. crude oil for February delivery rose as much as 2.9 percent $81.68 a barrel in Nymex trading. Orange-juice futures for March delivery rose 10 cents, or 7.8 percent, to $1.3905 a pound following a cold snap in Florida. The ICE Futures U.S. exchange limits daily movements in prices to 10 cents.

Gold for February delivery added 2.4 percent to $1,122.10 an ounce in New York. Copper for delivery in March rose 2 percent to $3.413 a pound in New York after earlier reaching a 16-month high of $3.429.

The MSCI emerging markets index added to last year’s record 75 percent rally as Credit Suisse analysts Sakthi Siva and Kin Nang Chik said in a report that the index may rise more than 20 percent this year.

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Time Warner Cable, News Corp., Wells Fargo

Among the shares expected to see active trade in Monday's session are Time Warner Cable, News Corp., and Wells Fargo & Co.

Goldman Sachs Group /quotes/comstock/13*!gs/quotes/nls/gs (GS 168.61, -0.23, -0.14%) has threatened to sue China state-owned Shenzhen Nanshan Power Co. for defaulting on two oil-hedging contracts, the Times Newspaper in London reported. Shenzhen Nanshan said this week that J Aron & Company--the commodities business of Goldman Sachs--had threatened to sue it for $80 million compensation for terminating the contracts in October 2008. In a statement to its local stock exchange, Shenzhen said it won't accept the demand by J Aron. It is negotiating with J Aron to resolve the dispute, the Times reported.

Time Warner Cable /quotes/comstock/13*!twc/quotes/nls/twc (TWC 41.39, 0.00, 0.00%) said it has agreed to a 30-day cooling-off period and called on Fox to do the same. The move came after New York Congressman Steve Israel urged Time Warner and News Corp. /quotes/comstock/15*!nws/quotes/nls/nws (NWS 15.92, 0.00, 0.00%) to a cooling-off period in their dispute over carrier fees. During this time, Time Warner Cable will continue to carry Fox programming. News Corp. is the parent company of Fox and MarketWatch, the publisher of this report.
International Forecast for 2010

Mike Lenhoff, chief strategist of Brewin Dolphin in London, runs down what to expect in China, Europe and the U.S. as 2010 gets underway.

Wells Fargo's /quotes/comstock/13*!wfc/quotes/nls/wfc (WFC 26.96, -0.03, -0.11%) board approved granting retention performance shares to President and Chief Executive John Stumpf and three other executive officers. The shares are forfeited if the executive receiving the shares leaves the company to work for a competitor. The shares will vest after three years, only if the company meets specified performance goals, and must be held for as long as the executives remain with the company. These same executives also will not receive cash incentive bonuses for 2009. Read why Wells Fargo executives don't get cash bonuses in 2009

Trucking firm YRC Worldwide /quotes/comstock/15*!yrcw/quotes/nls/yrcw (YRCW 0.84, 0.00, 0.00%) staved off a possible bankruptcy filing after reaching a debt-for-equity exchange with its bondholders. The deal will enable YRC, which has been scrambling to shore up its liquidity this year, to defer $19 million in lender interest and fee payments in the fourth quarter as well as $20 million to $25 million per quarter during 2010. The company launched the offer Nov. 2.

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Commodities on a high as 2009 closes

Commodity markets ended 2009 on a high with US crude oil touching the $80 a barrel mark in the final trading session while white sugar extended its record-breaking run and copper, lead and zinc all enjoying price gains of more than 100 per cent over the year.

On new year’s eve, Nymex February West Texas Intermediate hit the $80 mark before settling 8 cents higher at $79.36 a barrel, a rise of 77.9 per cent in 2009.
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ICE February Brent slipped 10 cents to $77.93 a barrel, up 70.9 per cent in 2009.

Oil prices were able to maintain upward momentum over the Christmas period amid ongoing tensions in Iran between opposition supporters and the government and by cold winter weather in the US which has boosted demand for heating oil.

Some traders think crude prices have moved into “overbought” territory amid lower trading volumes due to the Christmas holidays and that there could be a correction early in 2010 as market participants resume business and liquidity returns to normal.

Paul Horsnell of Barclays Capital expects 2010 to be a “bridging year” in a transition between demand-side weakness in 2009 and a return to supply-side tightness in 2011.

Geopolitical concerns are likely to play a role of “heightened importance” in energy markets next year, according to Barclays which predicted that crude oil prices would breach the $100 a barrel mark and average $85 a barrel over the whole of 2010.

Mr Horsnell said Chinese demand growth had been the main factor tightening the global oil market in 2009.

“The main reasons the bears got the price direction wrong over the past ten months in particular were insufficient attention to Chinese demand dynamics and insufficient attention to Opec dynamics,” said Mr Horsnell.

Sugar prices doubled in 2009 as bad weather affected output in Brazil and India, the world’s largest sugar producers. Global sugar stocks have shrunk to a record low and concerns that the market will face acute supply shortages early in 2010 helped prices maintain strong upward momentum in the final trading sessions of 2009.

White sugar prices extended their record breaking run above the $700 a tonne mark with Liffe March white sugar hitting an all-time high of $710.5 a tonne on new year’s eve, a gain of 123.4 per cent in 2009.

ICE March raw sugar up 1 per cent at 26.95 cents a pound, up 128.2 per cent in 2009.

Among the base metals, copper maintained its strong momentum amid concerns about potential supply disruptions as strikes threatened production in Chile.

Copper hit a 15-month high at $7,420 a tonne on new year’s eve before ending at $7,375, a gain of 140.2 per cent in 2009.

John Meyer, analyst at Fairfax, said he expected further gains for mining equities and base metals in 2010 helped by ongoing recovery in the global economy and that strong growth in China, India and other emerging economies could drive copper and some other commodity prices back towards record price levels over the next 12 to 18 months.

Gold ended 2009 just below the $1,100 mark at $1,096.35 a troy ounce, up 24.8 per cent over the year.

Gold hit a record $1,226.10 an ounce in early December and the bull market for bullion has now lasted for nine years.

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Stocks: Good year, bad decade

Since cratering at 12-year lows in March, the S&P 500 has staged a powerful rebound as investors turned what could have been an abysmal 2009 into the second best year of the decade for stock returns.

Between war, recession, corporate malfeasance, and the collapse of the housing market, investors have had a tumultuous 10 years. The S&P 500 plunged 23%, seeing its first losing decade in close to a century.
But the decade could have been even worse, if not for the turnaround in 2009.

In the just-completed year, the S&P 500 gained 23.4%, the Dow industrials gained 18.8% and the Nasdaq added 44%. That's trumped only by 2003, when the S&P 500 gained 26.4%, the Dow added 25.3% and the Nasdaq climbed 50%.

Like 2009, 2003 marked a big turnaround for the stock market as the economy emerged from a recession brought on by the 9/11 attacks and the collapse of the tech bubble.

For 2009, the big recovery has come in the aftermath of the housing market collapse and credit crisis and the worst recession since the Great Depression.

Although 2009 gains are strong historically, gains are even more substantial since stocks bottomed in March at the height of the financial market crisis. Since closing at a 12-year low on March 9, the Dow has gained 59% and the S&P 500 has gained 65%. Since closing at a 6-year low on the same date, the Nasdaq has risen 79%.

All 10 S&P 500 economic sectors managed gains this year, with technology the leader, rising 62% versus a year ago. Materials took second place, rising 47.1% from a year ago. The biggest losers were telecom, up just 3.6% and utilities, up just 8.4%.

Gains this year were driven by several factors, notably the government injection of trillions in fiscal and monetary stimulus into the economy.

A weak dollar also played a big role, boosting commodity prices and shares as well as the stocks of big blue chips that do a lot of business overseas who benefit when the U.S. currency is weaker.

Investor psychology also contributed, as investors went from factoring in another Depression to a recession to an eventual recovery.

But the year ahead is unlikely to see similar gains, either for the major indexes or the individual sectors, as investors look for signs that the slow-growing economy can charge ahead without unusual assistance.

"The biggest question is employment and whether the economy can start creating enough jobs to create a sustainable economic recovery," said Michael Sheldon, chief market strategist at RDM Financial Group.

He said that as this issue works its way through the market, stocks could be vulnerable, particularly if the dollar continues to firm up, as it has through most of December. The other potential catalyst for a selloff later in the year ahead could be rising interest rates, although the Ben Bernanke-led Federal Reserve is unlikely to change its policy stance until the second half of next year.

"I think that prices will drift moderately higher in the year ahead, at least until Ben Bernanke decides to land the helicopter," said Mark Travis, president and CEO at Intrepid Capital Funds. "We could end up as much as 8% higher by this time next year."

Next year also starts what is likely to be a better ten-year period for Wall Street, after a rough decade.
0:00 /2:28Your biggest financial worry in 2010

The awful 00s: A tumultuous 10 years brought two recessions, two major wars, one contested presidential election, terrorist attacks in the U.S. and abroad, the credit crisis, the housing market bust and the near collapse of the financial market.

In light of the events that took place, perhaps its unsurprising that the stock market experienced its worst decade in nearly a century. The S&P 500 plunged 23%, seeing its first decade of losses in 90 years. Compare that to the 1990s, when the S&P 500 gained 316%.

The Dow lost 8% this decade after gaining 418% in the 1990s and the Nasdaq, still reeling from the bursting of the tech bubble, is down 44% in the 10-year period. In the 1990s it gained 794%.

For a look at the best and worst stock performers of the decade, click here

The best-performing sector of the decade was energy, up 104%, according to Standard & Poor's. That's roughly the same gain it made in the 1990s, but in that decade, nine of the S&P's 10 sectors added at least 100%, with utilities the lone exception. Utilities gained 37%.

In this decade, only half of the ten sectors gained, with the rest sliding. Telecom and technology were the two worst performers of the decade, notable in that both were stars of the 1990s, in particular tech. Telecom lost 66% in this decade after gaining 223% in the 1990s. Technology lost 57% this decade after gaining 1,148% in the 1990s, the decade it defined. To top of page

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Stocks Struggle In Year's Final Session

Stocks Struggle In Year's Final Session

So far, the final session of 2009 has been both sluggish and anticlimactic as many investors have opted to step away from trading desks in order to protect the strong gains that have been made since earlier this year. The lack of action also comes amid a lack of headlines.

News flow has been slow all week, but participants did get a bit of notable data this morning. According to the latest jobless claims figures, initial claims fell to their lowest level in more than 15 months. Meanwhile, continuing claims came in below 5.0 million for the first time since February.

The data were released ahead of the opening bell, but they didn't cause much of a reaction among participants, who directed stocks toward a modestly higher open. However, stocks soon slipped into negative territory and have since traded with broad-based weakness.

The dollar's reversal from an overnight loss of 0.6% against a basket of foreign currencies hasn't helped the tone of trade. The greenback actually made its way to a fractional gain, but it is now back in negative territory with a fractional loss.

Despite the dollar's move, commodities continue to sport strong gains. In turn, the CRB Commodity Index is up 0.7%. Materials stocks have failed to rally behind that gain, though. The sector is down 0.5%.

Financials have steadily outperformed the broader market for nearly the entire session and currently make up the only major sector to trade with a gain. Diversified banks (+0.8%) and diversified financial services players (+0.6%) underpin the sector's strength. They have also been pivotal in the financial sector's 250% surge from its March low. Though that is a sharper rise than what any other major sector made from its 2009 low, the financial sector is on track for an annual gain of nearly 16%, which is below the 24% gain that the broader market has in its sight.

Overall action has been rather anemic as fewer than 250 million shares have traded hands on the NYSE so far this session. The light volume comes ahead of a long, holiday weekend for New Year's Day.

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