Broadgate: Market News 14/12
14 December 2012
The S&P 500 ended its six-day winning streak on Thursday, retreating as worries intensified that Washington’s “fiscal cliff” negotiations were dragging on with little progress.
Anxiety about the drawn-out talks between Democrats and Republicans was enough to offset encouraging data on retail sales and jobless claims on Thursday.
There is concern that tax hikes and spending cuts, set to begin in 2013 if a deal is not reached in Washington, will hurt growth. The stock market has taken the heated rhetoric in stride of late, but downbeat remarks from Republican House Speaker John Boehner prompted some selling on Thursday.
Boehner accused President Barack Obama of “slow walking” the economy off the fiscal cliff. He is scheduled to meet with Obama later on Thursday.
“There is no conviction here and Boehner’s comments – as harsh as they were – were realistic,” said Jason Weisberg, managing director at Seaport Securities Corp., in New York.
“The fiscal cliff is already built in. That being said, people don’t like to be told the apocalypse is coming over and over and over again. The real players in this market have already closed their books.”
After coming close to a 1 percent decline for the day, the S&P 500 pared losses late in the session. The index had posted six straight sessions of gains through Wednesday’s close, and at one point on Wednesday, the S&P touched its highest intraday level since October 22.
While the Federal Reserve’s announcement on Wednesday of a new round of economic stimulus bolstered stocks, Chairman Ben Bernanke’s comments that monetary policy would not be sufficient to offset the impact of the fiscal cliff weighed on sentiment.
Apple’s stock, down 1.7 percent at $529.69, was among the biggest drags on the Nasdaq in Thursday’s session, while International Business Machines, down 0.5 percent at $191.99, was among the biggest weights on the Dow. A U.S. jury found that Apple’s iPhone infringed three patents owned by MobileMedia Ideas.
Among the day’s biggest gainers, Best Buy Co shares shot up 15.9 percent to $14.12 after a report that the company’s founder is expected to offer to buy the consumer electronics retailer by the end of the week.
The Dow Jones industrial average tumbled 74.73 points, or 0.56 percent, to 13,170.72 at the close. The Standard & Poor’s 500 Index fell 9.03 points, or 0.63 percent, to 1,419.45. The Nasdaq Composite Index slid 21.65 points, or 0.72 percent, to end at 2,992.16.
Energy and information technology sectors were the S&P 500’s weakest performers, with the S&P energy index down 0.9 percent.
In the energy sector, shares of Nabors Industries Ltd dropped 4.7 percent to $13.85 after Jefferies cut the drilling company’s rating. Shares of U.S. refining company Phillips 66 lost 1.6 percent to $52.21.
The day’s economic data sent some positive signals on the economy, with weekly claims for jobless benefits dropping to nearly the lowest level since February 2008, and retail sales rising in November after an October decline, improving the picture for consumer spending.
In Europe, European Union finance ministers reached agreement to make the European Central Bank the bloc’s top banking supervisor, which could boost confidence in EU leaders’ ability to confront the euro zone’s sovereign debt crisis.
After the bell, shares of Adobe Systems Inc rose 5.8 percent to $37.60 after the maker of Photoshop and Acrobat software posted a better-than-expected fourth-quarter profit. The stock ended the regular session at $35.53, down 1.2 percent.
Volume was roughly 6.16 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the year-to-date average daily closing volume of 6.52 billion.
Decliners outnumbered advancers on the NYSE by a ratio of about 7 to 3, and on the Nasdaq, more than five stocks fell for every three that rose.
The yen slipped to a nine-month low on Friday as expectations grew that the Bank of Japan will step up its money-printing to stimulate the world’s third biggest economy after the country’s key election this weekend.
Japanese media reported that conservative Liberal Democratic Party (LDP) is set for a stunning victory on Sunday, further cementing speculation that LDP leader Shinzo Abe will be in a strong position to push for bold monetary easing.
“The market is growing confident the next government will be one of the most aggressive about easing that you could think of,” said a trader at a Japanese bank.
“Those who had been hoping to buy the dollar/yen on possible dips after the Fed’s meeting are now buying the dollar after the dollar didn’t fall much,” he added.
The dollar bought 83.71 yen, having risen as high as 83.95, a level not seen since March, and within sight of its March peak of 84.187.
The euro also rose to an eight-month high of 109.63 yen, and was on track to end the week almost 3 percent higher on the yen.
The BOJ’s tankan survey also showed Japanese business sentiment worsened as expected, bolstering expectations that the central bank will take fresh easing steps at its policy meeting on Wednesday and Thursday.
“We forecast more yen weakness in 2013… eventually, the yen must weaken because the economy needs help so badly,” said Kit Juckes, strategist at Societe Generale in London.
Still, option-related flows are putting a brake on the yen’s slide for now especially at around 84 yen per dollar and some market players think position-unwinding ahead of the holiday season could set in after key events in the next week.
“Given high expectations, it is hard to think the BOJ will come up with surprises. The BOJ is already buying shares, the only central bank that’s doing such things,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.
At present, all the expectations about BOJ easing have created “a bit of a festival but the market may be in for a hangover after that,” she added.
The dollar found a steadier footing against a basket of major currencies after an initial bout of selling triggered when the Federal Reserve on Wednesday announced fresh bond-buying plan from next year.
The dollar index was little changed at 79.885, having survived a fall to a one-week low of 79.711.
Frustration over the U.S. ‘fiscal cliff’ talks is giving the greenback a bit of a safe-haven lift as negotiations to avert steep tax hikes and spending cuts between congressional Republicans and the White House hit a wall.
The euro was at $1.3089, almost flat on the day, after having found the going tough above $1.3100. Even news that European governments have clinched a landmark deal on bank supervision and approved long-delayed aid to Greece failed to give the single currency much of impetus.
The Australian dollar also recoiled to $1.0531, from a three-month peak of $1.0585 set earlier in the week, though a small improvement in HSBC’s early reading of China’s December manufacturing activity helped to underpin the Aussie.
The Aussie has also enjoyed support from foreign central banks. Russia’s First Deputy Chairman Alexei Ulyukayev was quoted as saying on Thursday that country’s central bank has increased the share of the Australian dollar in its forex reserves to 1.5 percent.
The British pound was off a six-week high hit on Wednesday after Standard and Poor’s cut its outlook for UK government debt to negative, putting the country’s triple A rating at risk.
It was little changed on the day at $1.6118 but stood below Wednesday’s high of $1.6173.
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