Goldman, FXCM slammed by Swissie

January 16, 2015 09:25 AM

U.S. stock-index futures fell, indicating the Standard & Poor’s 500 Index will drop for a sixth straight day, as foreign-exchange brokers tumbled amid a fallout from the Swiss currency shock and Goldman Sachs Group Inc. earnings disappointed investors.

FXCM Inc. plunged 88% after the largest U.S. retail foreign-exchange brokerage said it may have breached some capital requirements after clients got caught out by the franc’s surge. Goldman Sachs lost 1.7% after posting the lowest annual trading revenue since 2005. Intel Corp. fell 0.9% after projecting sales that may fall short of analysts’ estimates.

“The overriding theme of the day is a continuation of deleveraging from market speculators after the massive shot to the solar plexus the Swiss franc move gave everyone,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion, said in a phone interview. “When you have these tremendous moves within the currency and commodity markets, the financial system tends to show its fragility.”

Futures on the Standard & Poor’s 500 Index expiring in March slipped 0.3% to 1,982.90 at 9:15 a.m. in New York, paring an earlier drop of as much as 0.9%. Dow Jones Industrial Average contracts retreated 62 points, or 0.4%, to 17,221, while futures on the Nasdaq 100 Index slipped 0.4%.

Economic Data

Equity futures pared losses as data showed the cost of living declined by the most in six years amid a plunge in energy costs, increasing speculation the Federal Reserve will remain patient in its plans to raise interest rates.

The consumer-price index dropped 0.4% after falling 0.3% in November, according to the Labor Department report. The biggest drop in clothing costs since 1998 combined with falling air fares and cheaper new and used cars signal the deceleration in inflation is spreading beyond energy as Japan and Europe are in or near a recession and some emerging markets cool.

Sustained broad-based price declines test Fed Chair Janet Yellen’s view that the drop in fuel won’t reverberate through the economy.

A separate report showed factory production cooled in December as capital spending and vehicle assemblies slowed, indicating U.S. manufacturers were adjusting to weaker overseas markets. The 0.3% increase in output followed a 1.3% November gain that was the strongest since February. Total industrial production fell 0.1% as utility use slumped.

Swiss Fallout

U.S. stock futures fell earlier amid fallout from the Swiss currency shock. Switzerland’s central bank surprised markets Thursday by removing its cap on the franc versus the euro, sending the franc surging as much as 41% versus the regional currency.

The Swiss National Bank decided to drop its currency cap, set in September 2011 to shield the economy from the euro area’s debt crisis, because it was no longer “sustainable,” central bank President Thomas Jordan said. The move is preempting possible pressure on the franc should the European Central Bank announce a government-bond purchase program, or quantitative easing, at its Jan. 22 meeting.

“A lot of nervousness continues to create uncertainty and selling in the market,” Patrick Spencer, head of U.S. equity sales at Robert W. Baird & Co. said by phone from London. “We have seen slightly weaker earnings numbers in the States, concerns about Europe and world growth.”

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