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Broadgate: Market News 16/7

16 July 2012

Investors are looking at an onslaught next week. If it’s not corporate earnings, it’s Ben Bernanke talking about economic issues before Congress.

Recent warnings from a number of companies, including chipmaker Advanced Micro Devices, helped drag the S&P 500 lower for six straight days before a Friday rebound.

The S&P 500 and Dow erased losses for the week, barely finishing higher by 0.2 percent and less than 0.1 percent, respectively. The Nasdaq composite fell 1 percent for the week.

With a slew of companies set to report results next week, the hope among investors is that the bad news has been factored in, but the broader picture remains lackluster. That may limit the market’s gains even if companies clear a low bar.

“Expectations have been beaten down a lot,” said Robbert Van Batenburg, head of equity research at Louis Capital in New York. “The problem is we’re dealing with a global slowdown, and I’m sure that’s going to be reflected in some of the comments you’re going to be hearing.”

Data showing slower growth in Europe, China and the United States has weighed on the stock market, while U.S. companies have warned about overseas weakness and a stronger dollar hurting profits on exports.

The minutes from the Federal Reserve’s June meeting suggested it is not ready to inject more monetary stimulus into the economy, but traders will be hanging on Federal Reserve Chairman Ben Bernanke’s every word for mention of such a possibility and how he views the slowing economy.

Next week dozens of Standard & Poor’s 500 companies are to report. They run from top technology names, including Intel and Microsoft to General Electric and Coca-Cola Co.

Earnings estimates have already fallen sharply. S&P 500 earnings for the second quarter now are expected to rise just 5 percent from a year ago, down from an estimate of 9.2 percent at the beginning of April, according to Thomson Reuters data.

Nearly all sectors have seen estimates fall due in part to weak demand in Europe. Energy and utilities are expected to be the weakest performers this quarter after big declines in energy prices in the second quarter.

The fall in estimates could be enough so that the majority of companies end up beating expectations, as they typically do, inspiring a relief rally. That could bolster the S&P, where trading has narrowed to a range between 1,310 and 1,370 for most of a month.

Investors could see some downside surprises in high-end consumer companies, industrials and financials, said Paul Mangus, head of equity research and strategy for Wells Fargo Private Bank in Charlotte, in North Carolina.

For example, Bank of America Inc is expected to report earnings of 15 cents a share on Wednesday, but Thomson Reuters StarMine’s SmartEstimates put expectations at 13.5 cents per share, or a miss of about 9 percent.

The technology sector could end up being a mixed bag, Mangus said.

“On one hand, there are very good trends on the software side. (But) there may be some disappointments among some of the hardware manufacturers. In certain cases, we’re seeing some weak PC sales,” he said.

Besides Advanced Micro Devices, a weak forecast was issued by fellow chipmaker Applied Materials this week, while engine maker Cummins Inc warned on sales. AMD reports results on Thursday.

Negative to positive earnings guidance for the second quarter is 3.3 to 1, the worst since 2008, Thomson Reuters data showed.

Among other S&P companies scheduled to report are Goldman Sachs, Citigroup and Johnson & Johnson.

The final details of a Spanish bank bailout are expected next week among developments in the 2 1/2-year old euro zone debt crisis.

Commodities

Brent crude held steady above $102 per barrel on Monday on optimism over the outlook for demand growth as China’s Premier Wen Jiabao said the government would step up efforts to boost the economy of the world’s second-largest oil consumer.

Brent crude gained 11 cents to $102.51 a barrel by 1.20 a.m. EDT. Prices settled $1.33 higher on Friday, crossing the 50-day moving average below $102 for the first time since April.

U.S. oil fell 36 cents to $86.74 a barrel, after ending $1.02 higher. The contract also pushed above its 50-moving average of $87.50 for the first time since May on Friday.

Currencies

The euro eased against the dollar on Monday, with the near-term focus on whether U.S. Federal Reserve Chairman Ben Bernanke will give any hint of additional monetary stimulus when he gives testimony to Congress in coming days.

The euro dipped 0.1 percent to $1.2239, staying above a two-year low of $1.2162 hit on Friday on trading platform EBS.

The dollar fell 0.2 percent against the yen to 79.09 yen, hovering near support at around 79.04 yen, its 200-day moving average.

Elsewhere, the Australian dollar eased 0.1 percent to $1.0229, giving back a slight portion of its gains on Friday, when it climbed roughly 1 percent.

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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