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Broadgate: Market News 11/1

11 January 2013

Stocks rose on Thursday and the S&P 500 ended at a fresh five-year high as stronger-than-expected exports from China spurred optimism about global growth prospects.

Buying accelerated late in the day after the S&P 500 broke through technical resistance at 1,466.47, which was the market’s closing level last Friday and the highest level since December 2007.

“Historically, January is a positive month for the market and you’re seeing that play out,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

Financial and energy stocks were the day’s top gainers. The financial sector index rose 1.4 percent and the energy sector was up 1 percent.

Analysts cited economic data out of China as the day’s catalyst, which showed the country’s export growth rebounded sharply to a seven-month high in December, a strong finish to the year after seven straight quarters of slowdown.

“It is being interpreted positively that they’ve stopped the downturn (in growth),” said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia.

“If they continue to produce good growth, that’s going to be supportive of our global manufacturers.”

Wall Street’s fear gauge, the CBOE Volatility Index suggested markets were relatively calm. The VIX was down 2.3 percent at 13.49.

At Thursday’s close, the S&P sits about 6 percent below its all-time closing high of 1,565.15, hit in October 2007.

The Dow Jones industrial average gained 80.71 points, or 0.60 percent, to 13,471.22. The Standard & Poor’s 500 Index rose 11.10 points, or 0.76 percent, to 1,472.12. The Nasdaq Composite Index added 15.95 points, or 0.51 percent, to 3,121.76.

Thursday’s session had earlier included a dip that traders said was triggered by a trade in the options market that prompted a large amount of S&P futures to hit the market at the same time. That sent the S&P 500 index down rapidly but those losses were reversed through the afternoon.

Financials benefited from events this week that added clarity to mortgage rules and banks’ potential exposure to the housing market.

The U.S. government’s consumer finance watchdog announced mortgage rules on Thursday that will force banks to use new criteria to determine whether a borrower can repay a home loan.

Earlier this week, several big mortgage lenders reached a deal with regulators to end a review of foreclosures mandated by the government.

“It’s a resolution. It’s not hanging over their heads,” said Brunner.

Bank of America gained 3.1 percent to $11.78, while Morgan Stanley was up 3.7 percent at $20.34, one day after sources said the bank plans to cut jobs.

Shares of upscale jeweler Tiffany dropped 4.5 percent to $60.40 after it said sales were flat during the holidays.

Herbalife Ltd stepped up its defense against activist investor Bill Ackman, stressing it was a legitimate company with a mission to improve nutrition and help public health. The stock ended down 1.8 percent at $39.24 after a volatile day.

After the closing bell, American Express said it would cut about 5,400 jobs, and take about $600 million in after-tax charges in the fourth quarter. The stock added 0.7 percent to $61.20 in after-hours trade.

Volume was above the 2012 average of 6.42 billion shares traded a day, with roughly 6.77 billion shares changing hands on the New York Stock Exchange, the Nasdaq and the NYSE MKT.

Advancers outnumbered decliners on the NYSE by 1,916 to 1,039, while advancers also outpaced decliners on the Nasdaq by 1,439 to 1,036.

Currencies

The yen slid to 2 1/2-year lows on Friday after Japanese Prime Minister Shinzo Abe said the Bank of Japan should consider maximizing employment as a policy goal on top of its current price stability mandate.

Abe’s comments, made in an interview with the Nikkei newspaper published on Friday, put renewed pressure on the yen as having a dual mandate, similar to the U.S. Federal Reserve’s, could make the BOJ undertake more aggressive easing.

The dollar rose to as high as 89.35 yen, its strongest since June 2010, before giving up some of its gains to trade at 88.90 yen, still up 0.2 percent from late U.S. levels.

Also adding pressure to the yen, data showed Japan posted a current account deficit of 222.4 billion yen ($2.5 billion) in November. It was the first deficit in 10 months and far larger than economists’ median forecast of an almost negligible deficit of 3.5 billion yen ($39 million).

Ayako Sera, a market economist at Sumitomo Mitsui Trust Bank, said the data underscored Japan’s slow trade with China after a territorial dispute sparked anti-Japan riots in September.

“The deficit in the current account is likely to continue in the next couple of months given its seasonal pattern,” she said.

The dollar’s gain accelerated after a break of the 88.50 option barrier triggered short-covering in thin early Wellington trade.

“Short-term players who had earlier taken profits are now re-entering. A rise above 90 is within sight now,” said a trader at a Japanese bank.

The euro also climbed to 118.58 yen, a high last seen in May 2011, and last stood at 117.79 yen, slightly above late U.S. levels.

The yen has been sinking since November on speculation of more easing from the BOJ. Traders expect the central bank to adopt an explicit two percent inflation target at its policy meeting on January 21-22 to fall in line with the aims of the Liberal Democrat Party-led government elected last month.

But with the yen’s climb having shot to about 10 percent against the dollar and 13.5 percent versus the euro in less than two months, some traders have begun to worry about friction with other countries.

Abe’s drive could be seen as a beggar thy neighbor policy aimed at devaluing the currency at the expense of its trading partners, they say.

“I can easily imagine the dollar falling a few yen quickly if, say, (U.S. Treasury Secretary nominee Jack) Lew raises even a slightest sign of concerns about Japan’s policy,” said a trader at a Japanese trading firm.

But underlying pressure on the yen remains constant as the BOJ’s deepening bias for easing stands in stark contrast to other major central banks.

For example, minutes of the U.S. Federal Reserve’s last policy meeting published last week and recent remarks by some officials at the bank showed concern about the potential side effects of its stimulus.

And on Thursday, European Central Bank President Mario Draghi gave no indication it would cut rates in the near future, disappointing euro bears who had thought the ECB would be inclined to cut rates to shore up the wobbly euro zone economy.

Draghi’s apparent about-face from last month’s dovish stance lifted the euro 1.6 percent on Thursday, its biggest daily gain in five months, and it kept that gain in Asia, trading at $1.3262.

The single currency is not far from an 8 1/2-month peak of $1.33085 hit last month.

The euro was also bolstered by solid demand at a sale of mostly two-year Spanish debt, which caused Spain’s benchmark 10-year bond yields to fall to a 10-month low.

The British pound, hurt by a string of weak economic data in recent days, also rebounded sharply on Thursday after the Bank of England left interest rates and its quantitative easing target unchanged.

The pound stood at $1.6155, maintaining its 0.8 percent gain on Thursday.

The Australian dollar clung near a four-month high hit on Thursday after strong Chinese trade data. The Aussie unit fetched $1.0586, near Thursday’s high of $1.0599.

Source:  Reuters.com

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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