Broadgate: Market News 13/11
13 November 2012
Stocks were little changed in a lightly traded session on Monday, with investors limiting bets ahead of what could be a drawn-out battle over the “fiscal cliff.”
Volume was light, with the U.S. bond market and government offices closed for the Veterans Day holiday. Trading was also affected by problems on the NYSE Euronext. The Big Board suspended trading in more than 200 stocks due to problems with a trade-matching engine, though the stocks in question were still active on other exchanges.
Major averages vacillated between modest gains and losses throughout the session.
Worry about the fiscal cliff – a series of budget cuts and tax hikes that will start to go into effect in the new year – has investors cautious because of the potential for harm to U.S. economic growth.
Barclays cut its year-end target for the S&P 500 to 1,325 from 1,395, saying “there is little basis to believe a grand compromise is in the offing.”
Though most consider it unlikely that some deal will not be reached, analysts fear going over the cliff could push the economy back into recession. There are also concerns that a protracted debate could hurt business and investment sentiment.
“The concern is there may be an impasse every bit as bad as what we had in August 2011,” Brian Gendreau, market strategist with Cetera Financial Group in Gainesville, Florida, said, referring to the last-minute agreement policymakers reached on raising the U.S. debt ceiling.
Last year’s political logjam bruised consumer attitudes and led to a downgrade of U.S. debt.
Still, some recent comments from politicians suggest a compromise might be more likely this time, Gendreau said.
NYSE first alerted traders it was having problems with one of its cash equity matching engines at 9:38 a.m. and said it would not publish quotes on a total of 216 stocks, including CVS Caremark Corp and Lazard Ltd.
Nasdaq OMX Group, BATS Global Markets, and Direct Edge exchanges stopped sending orders to the NYSE, and investors wishing to trade in those shares did so on these exchanges rather than the NYSE. The NYSE said trading in those issues would return to normal on Tuesday.
The S&P index hovered around its 200-day moving average after last week closing below the level for the first time in five months. An extended run under it could signal further losses ahead.
The Dow Jones industrial average slipped 0.23 point to 12,815.16. The Standard & Poor’s 500 Index added 0.15 point, or 0.01 percent, to 1,380.00. The Nasdaq Composite Index was off 0.62 point, or 0.02 percent, to 2,904.25.
The S&P 500 is still up about 10 percent for 2012, though recent months have eroded those gains. The Nasdaq has fallen for five straight weeks.
Volume was roughly 4.62 billion shares on the New York Stock Exchange, the Nasdaq and the NYSE MKT, well below the year-to-date average daily closing volume of 6.52 billion.
Decliners outnumbered advancers on the NYSE 1,539 to 1,406 on the New York Stock Exchange. On the Nasdaq, decliners outpaced advancers by 1,304 to 1,121.
Merger activity bolstered the price of specific stocks. Precision Castparts Corp offered to buy Titanium Metals Corp for $2.9 billion, while Leucadia National Corp agreed to buy investment bank Jefferies Group for $3.6 billion.
Shares of Titanium surged 42.6 percent to $16.50, while Jefferies climbed 14 percent to $16.27. Precision rose 4.7 percent to $179.46. In contrast, Leucadia fell 3 percent to $21.14.
The S&P 500 dropped more than 2 percent last week, the worst week for the benchmark index since June. The drop was partly propelled by concerns about whether there will be a timely solution to avoid the fiscal cliff.
Gilead Sciences supported the Nasdaq after the company reported over the weekend a 100 percent cure rate using a combination of drugs in a small number of patients with the most common and hardest to treat form of hepatitis C. Gilead was up 13.7 percent at $73.93.
Also in the biotech sector, Celgene Corp rose 5.8 percent to $75.66 after a late-stage clinical trial showed its drug Abraxane improved survival in patients with pancreatic cancer.
The euro dipped to a two-month low against the dollar on Tuesday after the euro zone and the International Monetary Fund failed to agree on a long-term plan to reduce Greece’s debt, preventing disbursement of immediate aid to Athens.
While market players expect Greece to manage to get by this week without the aid money it was counting on, uncertainty over its short-term financing and long-term debt reduction plan was enough to put off investors.
“Few people would think that the euro zone will desert Greece. Still, the market will be frustrated by lack of a clear picture. I expect the euro to keep falling gradually,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
With the aid funds from international lenders blocked, Greece plans to sell treasury bills on Tuesday to refinance a 5 billion issue maturing on Friday.
But some market players are not sure if they can take successful auction for granted.
“Although the market was indeed not expecting progress this time, there remain concerns about Greece’s funding, putting pressure on the euro,” Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo, wrote in a note to clients.
The euro fell to as low as $1.2676, having erased about four-fifths of its gains made after the European Central Bank unveiled a program to buy government bonds with aim to buy Spanish debt on September
It last stood at $1.2684, down 0.2 percent on the day, having constantly declining since it peaked at $1.3140 mid-October as the euphoria over the ECB’s scheme faded.
Against the yen, the common currency fell to 100.74 yen, threatening to break below one-month low of 100.43 yen hit on Friday.
Euro zone finance ministers agreed to grant Athens two more years to reach its budget goal but the IMF and the euro zone are at loggerheads over who should shoulder the cost — around 33 billion euro — as well as on a longer-term target date to shrink the country’s debt pile.
“If you extend the deadline by two years, you need more money, and countries like Germany and Finland will need to go to the parliament. The market will be concerned if all of that goes so smoothly,” said a trader at a Japanese bank.
Eurogroup Chairman Jean-Claude Juncker said on Monday another Eurogroup meeting would take place on November 20, before the EU summit from Nov 22, though officials said more negotiations could be required the week after that to nail down a new deal.
ANOTHER FISCAL PROBLEM
On top of concerns about the euro zone, fears of a recession in the United States if policymakers in Washington fail to repeal the fiscal cliff of automatic spending cuts and higher tax rates due to kick in early next year undermined risk sentiment, helping the dollar.
The dollar index, a measure of the dollar against a basket of six major currencies, rose to 81.20 its highest level since early September.
On the daily Ichimoku chart, the index rose above the top of the cloud, which stood at 81.054, in a major bull signal for the index.
But market players also said the fiscal cliff could haunt the dollar, if investors start betting the Federal Reserve will take easing steps to counter the effect of the fiscal cliff.
In such case, the dollar’s weakness may become notable particularly against the yen, which often tends to outperform when risk appetite wanes because of Japan’s net creditor status.
The dollar fetched 79.43 yen, little changed on the day and off three-week low of 79.07 yen.
The U.S. currency briefly rose to 79.64 yen on speculation Japanese Prime Minister Yoshihiko Noda may soon dissolve the parliament and hold a snap election by the end of year.
Opinion polls have shown the conservative opposition Liberal Democratic Party, whose leader Shinzo Abe is seen as putting more pressure on the Bank of Japan to ease its policy, is in the lead.
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