Logo

Passionate about investing

Broadgate: Market News 13/6

13 Jun 2012

European shares closed higher after a volatile session on Tuesday, led by gains in Frankfurt and Paris, although persistent fears over the Spanish and Greek debt crises caused many investors to hold onto their cash and avoid equities.

The FTSEurofirst 300 index ended up 0.7 percent at 990.18 points, its highest closing level in two weeks.

The index had at one stage fallen as much as 0.3 percent to an intraday low of 980.14 points, as Spanish 10-year bond yields hit their highest level of the euro era due to worries over a bailout deal for the country’s banks.

European stock markets then rallied, helped by comments from the European Central Bank’s Vice-President Vitor Constancio who told Reuters the ECB stood ready to act if the situation in the euro zone deteriorated further.

Germany’s DAX closed up 0.3 percent while France’s CAC-40 rose 0.1 percent, and CSS Investments analyst Ravi Lockyer said he had bought shares in both markets in recent days, especially on the Paris stock exchange.

“I’m quite keen on French stocks. I think the market is pretty cheap. The falls have been too steep and have come too quickly,” he said, adding that he had bought French financial stocks and energy stocks.

Traders also cited speculation about an asset allocation switch by some investors out of safe-haven government bonds and into equities as having helped boost European stock markets.

But they said European equities markets were unlikely to make much headway this week, due to lingering uncertainty over Spain’s debt problems and political deadlock in Greece, which holds new elections on June 17.

SPANISH BOND YIELDS REACH RECORD HIGH

Despite the stock market rally, which followed gains on Monday after European authorities agreed upon the bailout deal for Spain’s debt-ridden banks, many traders said it was still too risky to get back into equities.

The overriding nervousness in the market was highlighted by a 1.3 percent rise in the Euro STOXX Volatility index, while Spanish 10-year bond yields rose as rating agency Fitch delivered another downgrade to Spain’s banks.

The Spanish IBEX stock market, which is near a nine-year low, closed up 0.1 percent but Italy’s FTSEMIB index fell 0.7 percent, as fears grow that it may be the next domino in Europe’s sovereign debt crisis.

“People aren’t committing money to the market for the longer term here,” said Central Markets senior broker Joe Neighbour.

Several traders added that they planned to stay on the sidelines, away from equities markets, ahead of the Greek elections on June 17, which could determine whether or not the country remains within the euro zone currency bloc.

“I’ve been sitting tight. I want to buy but I can’t add onto any positions until the end of this week and the Greek elections,” said Hartmann Capital trader Basil Petrides.

Stocks took their cues from Europe’s troubled debt markets on Tuesday, staging a comeback rally to end up more than 1 percent as Spanish bond yields came off euro-era record highs.

Trading has been choppy this week as investors struggle for clarity over whether the $125 billion bailout for Spanish banks agreed over the weekend will be effective and have turned to bond yields as a thermometer for risk aversion.

Economically sensitive sectors that had sold off recently were the strongest performers, suggesting investors saw value in beaten down shares, while traders looked for an oversold bounce as the S&P 500 slipped back toward 1,300.

“We are just being held hostage by all the news flow,” said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago. “I don’t think anyone has a handle on this.”

“Right now everyone has got a pretty short-term trading mentality,” he said. “You have to be ready to abandon your thoughts and change your mind at a moment’s notice.”

Economically sensitive shares that rise and fall as fears ebb and flow were the biggest gainers. Materials, financial and industrial shares were up over 1.5 percent.

Boeing Co led the Dow, climbing 3.5 percent, helped by an upgrade by Sanford C. Bernstein, which said it saw a better outlook for the company’s new Dreamliner plane.

For the week so far, the S&P is close to flat, reflecting the uncertainty in the market.

For the day the Dow Jones industrial average gained 162.57 points, or 1.31 percent, to 12,573.80. The Standard & Poor’s 500 Index rose 15.25 points, or 1.17 percent, to 1,324.18. The Nasdaq Composite Index added 33.34 points, or 1.19 percent, to 2,843.07.

The S&P financial sector gained 1.7 percent, almost reversing Monday’s decline. Bank of America Corp said it will reduce its long-term debt by about $40 billion in the second quarter, reducing its interest expense by $230 million per quarter. Its shares rose 2.9 percent to $7.49.

The S&P 500 index lost 6.3 percent in May on concerns about the European financial crisis and signs of an economic slowdown in the United States and China.

Despite initial enthusiasm over the EU aid package for Spain agreed over the weekend, the S&P fell more than 1 percent on Monday on questions about the terms of the bank-rescue deal and the impact it could have on Spanish debt levels.

Trading was volatile during the day. Wall Street dipped earlier as yields on Spain’s 10-year bond hit 6.86 percent, the highest level since the 1999 launch of the euro, pointing to stress in the nation’s debt markets shortly after the bailout deal was agreed.

With the news flow so uncertain many traders are taking their cues from market levels, with 1,300 on the S&P 500 emerging again as a focus this week.

“We held 1,300 on the S&P, so OK I’ll buy against it and here’s what you got,” said Lesh. “But do I have any confidence to be holding the positions or feel comfortable with it short or long? This stuff reverses against you and usually overnight.”

“At this point I have at least a break-even stop so if the market does reverse it takes me out with no loss or a minimal loss,” he said.

Volume was low for a third day. Around 6.2 billion shares traded hands on the NYSE, the Amex and the Nasdaq, about 12 percent below the 20-day moving average.

Data late Monday showed that short interest on the NYSE jumped 6.1 percent to 14.3 billion shares in late May, the highest level since early October, indicating an increased expectation that stocks will fall.

Investors are also staring down the barrel of upcoming elections in Greece. The ballot on Sunday is viewed as a major risk that could result in the country leaving the euro zone. But it could also spark a rally if the outcome favors Greece’s bailout agreement with international lenders.

“It’s certainly possible that we recover all the May losses, I think that is on the table,” said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

Nasdaq halted short sales of Zynga Inc as shares of the social gaming company plummeted 10.3 percent on increased concerns that the craze for games on Facebook has already peaked. The stock was the most traded on Nasdaq.

Also in company news on Tuesday, shares of Michael Kors Holdings Ltd jumped 7.6 percent to $41.10 after the designer clothing company reported a stronger-than-expected fourth-quarter profit and gave a full-year outlook that exceeded Wall Street’s forecast.

Commodities

Brent crude fell 86 cents to settle at $97.14 a barrel, its fourth straight lower close and the lowest settlement since January 2011.

But Brent’s intraday low of $96.62 left the 2012 low of $95.63 from June 4 intact.

U.S. crude bounced after falling to an eight-month low and running into firm support just above $81 a barrel for the third time since June 4.

U.S. crude rose 62 cents to settle at $83.32 a barrel, after falling to $81.07, lowest intraday price since October 6, but only 4 cents below Monday’s low.

Gold perched above $1,600 an ounce on Wednesday, retaining most of its gains from the previous session as prices were supported by persistent worries over Spain’s surging borrowing costs.

Spot gold was little changed at $1,608.39 an ounce by 0259 GMT, after rising 0.8 percent in the previous session.

U.S. gold futures contract for August delivery edged down 0.3 percent to $1,609.70.

Currencies

The euro edged 0.2 percent lower to $1.2481, bang in the middle of its 2-year low hit on June 1 at 1.2288 and a three-week high reached on Monday at 1.2672.

The dollar was a tad higher against the yen at 79.63 yen, hovering below this week’s high at 79.92 yen. Crucial support was seen at 77.65 yen hit on June 1.

The Australian dollar was also barely changed at $0.9944, holding not far below its Monday high of $1.0010. It has a minor support around $0.9820, with resistance sitting at the peak reached above parity on Monday

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.

Clientservices@broadgatefinancial.com