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Broadgate: Market News 12/3

12 March 2013

Wall Street rose modestly on Monday, lifting the Dow to another record and giving the S&P 500 its seventh straight advance as early weakness enticed buyers. The gains briefly lifted the benchmark S&P 500 index to its highest intraday level since October 2007.

With the slight advance, U.S. stocks continued last week’s rally with the Dow Jones industrial average ending at a record closing high, up 50.22 points, or 0.35 percent, at 14,447.29. The Standard & Poor’s 500 Index rose 5.04 points, or 0.32 percent, to 1,556.22, just below its record closing high of 1,565.15 reached on October 9, 2007.

Earlier in the session the S&P 500 climbed as high as 1,556.27 – its highest intraday level since October 15, 2007.

The Dow has gained over 10 percent for the year, while the S&P 500 is up more than 9 percent.

The Nasdaq Composite Index added 8.51 points, or 0.26 percent, to close at 3,252.87.

Meanwhile, Wall Street’s “fear gauge” closed at its lowest level since February 2007, suggesting investors were not spooked by Monday’s brief pullback, despite expectations by many investors that a correction may be looming. The CBOE Volatility Index, known as the VIX, dropped 8.2 percent to 11.56.

U.S. equities have rallied since the start of the year, helped by signs of improvement in the economy and the support of equities by the Federal Reserve’s quantitative easing program. These factors have contained recent pullbacks as investors have used them as a buying opportunity.

“These dips are consistently bought. There is definitely a soft floor for the market,” said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.

“It’s a QE bid,” Kenny said, referring to the Fed’s policy of keeping short-term interest rates near zero since late 2008. “Quite frankly, earnings have not disappointed to the point where it is has been disrupted, and there is nothing out there that seems to be getting in the way of this slow but very consistent and methodical drift higher in the market.”

But volume was light, with about 5.39 billion shares traded on the New York Stock Exchange, NYSE MKT and Nasdaq, below the daily average of 6.47 billion, suggesting the rally may be losing steam.

Wall Street had traded slightly lower earlier in the day as Italy’s credit downgrade and disappointing Chinese economic data gave investors a reason to pause.

Earlier in the session, the Dow reached another lifetime intraday high, rising as high as 14,448.06.

Boeing Co rose to $83.03, its highest level since May 2008, after the U.S. aircraft manufacturer said strong demand was prompting it to increase its production rates of commercial planes. The stock, which rose 2 percent to $82.94 at the close, was the Dow’s biggest percentage gainer. Boeing also gave the biggest boost to the Dow in Monday’s session.

The U.S.-listed shares of BlackBerry surged 14.1 percent to $14.90 after AT&T said it will start selling the company’s new BlackBerry Z10 touchscreen smartphone in the United States on March 22.

Dell Inc has agreed to give Carl Icahn a closer look at its books less than a week after the activist investor joined a growing chorus of opposition to founder Michael Dell’s plan to take the world’s No. 3 personal computer maker private. Dell shares gained 1.5 percent to $14.37, above the take-private offer price of $13.65.

Genworth Financial Inc shares jumped 6.7 percent to $10.50 following a report by Barron’s that the mortgage insurer’s stock could almost double in the next year, boosted by gains in mortgage and healthcare pricing.

In contrast, Dick’s Sporting Goods Inc tumbled 10.8 percent to $45.11 after the retailer reported lower-than-expected fourth-quarter results and gave a disappointing forecast.

Advancing stocks outnumbered declining ones on the NYSE by 1,586 to 1,375, while on the Nasdaq, advancers beat decliners by 1,254 to 1,192.

Currencies

The yen carved out a fresh 3-1/2-year low versus the dollar on Tuesday and fell to a 4-1/2-year trough on the Australian dollar as traders bet the Bank of Japan’s stimulus may be bolder and come sooner than expected.

The Nikkei business daily reported the nominee for BOJ governor, Haruhiko Kuroda, had hinted on Monday he may launch new monetary easing steps soon after he takes office next week, rather than wait for his first scheduled policy meeting on April 3-4.

In addition, the minutes from the BOJ’s February meeting, where it kept its policy on hold, showed some board members considered buying JGBs with longer remaining maturities as an option.

“The minutes showed buying longer-dated bonds were discussed even among the current board members. The market has priced in more buying in bonds with up to five years to maturity. But if the BOJ is to go beyond that, that’s not priced in yet,” said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

The dollar rose as high as 96.71 yen, pipping the previous high of 96.60 and last stood around 96.40 yen, a gain of 0.1 percent from late U.S. levels.

The moves also came against a backdrop of optimism on the U.S. economy, with the Dow closing at yet another record high, while Wall Street’s “fear gauge”, the CBOE Volatility Index .VIX, hit its lowest since February 2007.

Positive risk sentiment, fuelled by Friday’s solid U.S. jobs data, also lifted yields on U.S. Treasuries, which tend to have strong positive correlation with dollar/yen as higher yields are thought to attract more bond investments in that currency.

“Dollar/yen was already very bid overnight, consistent with the backup in U.S. Treasury yields. The Nikkei story has just given it a bit of a kick and it’s certainly adding to yen weakness,” said Sue Trinh, senior currency strategist at RBC in Hong Kong.

“Speculation of an inter-meeting easing is probably going to be a focus on the day. It won’t be unprecedented to call an unscheduled meeting…it’s not about emergency easing but if he were to do so, it’s more symbolic and a signal to markets that he does mean business.”

The BOJ’s current chief Masaaki Shirakawa has said he would step down on March 19 with two deputy governors. The parliament is expected to approve Kuroda as the next governor by then to avoid a policy vacuum.

TARGET 100 YEN

“We had thought 95-96 yen would be the top of the range for the dollar, based on purchasing power parity, trade balance and interest rate gaps and so on. But now we see the dollar rising possibly to around 100 yen,” Bank of Tokyo-Mitsubishi’s Uchida said.

The Australian dollar touched 99.55 yen, a level not seen since August 2008, and edging towards the big round number of 100 yen as well.

The euro traded at 125.61 yen, less than two percent below a 34-month high around 127.71 reached last month.

Against the dollar, the common currency stood at $1.3028, down 0.1 percent so far on the day and not far from three-month low of $1.2955 hit last Friday.

The euro is seen under pressure as the austerity-hit euro zone’s economy is expected to face an uphill battle to recover from its recession.

Concerns about Italy’s political crisis could soon resurface as parliament will convene on Friday and President Giorgio Napolitano is expected to begin formal consultations with party leaders on March 19 to assess whether a government can be formed.

The Australian dollar popped to a two-week high of $1.0313, but gave up gains to trade at $1.0277, with its February 15 high of $1.0375 seen as a major resistance.

Despite the latest gains in Wall Street shares, commodity prices have faltered, taking the shine out of commodity currencies such as the Aussie.

The price of iron ore, one of Australia’s biggest export products, fell to its lowest since late December on slower steel demand in China.

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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