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Broadgate: Market News 17/1

17 January 2013

S&P 500 ends flat as bank profits temper growth concerns

The S&P 500 ended nearly flat on Wednesday as solid earnings from two major banks and a bounceback in Apple shares offset concerns about a lower forecast for global growth in 2013.

Shares of Goldman Sachs hit their highest since May 2011 as earnings nearly tripled on increased revenue from dealmaking and lower compensation expenses. JPMorgan Chase said fourth-quarter net income jumped 53 percent and earnings for 2012 set a record.

JPMorgan shares rose 1 percent to $46.82, while Goldman climbed 4.1 percent to $141.09.

They were among the first big banks to report results and helped to lift estimates for S&P 500 corporate earnings slightly, to a 2.2 percent gain, Thomson Reuters data showed.

“Pretty solid numbers from both JPMorgan and Goldman Sachs are putting a lot of momentum behind the financials, with a lot more names to report this week. But I think that’s helping to put a better bid to the market overall,” said Michael James, senior trader at Wedbush Morgan in Los Angeles.

Apple rebounded after three days of losses, helping the Nasdaq outperform the S&P 500 and Dow. Apple rose 4.2 percent to $506.09. It closed below $500 on Tuesday for the first time since February.

“There could not have been more negativity around Apple going into today. So was it due for an oversold bounce on a trading basis? Absolutely,” James said.

A slow economic recovery in developed nations is holding back the global economy, the World Bank said on Tuesday, as it sharply scaled back its forecast for world growth in 2013 to 2.4 percent from an earlier forecast of 3.0 percent.

The Dow Jones industrial average was down 23.66 points, or 0.17 percent, at 13,511.23. The Standard & Poor’s 500 Index was up 0.29 points, or 0.02 percent, at 1,472.63. The Nasdaq Composite Index was up 6.77 points, or 0.22 percent, at 3,117.54.

The biggest drag on the Dow was Boeing, whose shares fell 3.4 percent to $74.34 on concerns about its new Dreamliner passenger jets. Japan’s two leading airlines grounded their fleets of 787s after an emergency landing, adding to safety concerns triggered by a series of recent incidents.

After the bell, shares of eBay were trading up 0.7 at $53.28, reversing an initial decline following the release of its results. Also after the close, shares of CBS rose 8.3 percent to $41.10 after it said it will convert its Outdoor Americas division into a real estate investment trust.

Earlier in the day, U.S. economic data showed consumer prices were flat in December, pointing to muted inflation pressures that should give the Federal Reserve room to prop up the economy by staying on its ultra-easy monetary policy path.

Other data showed U.S. homebuilder confidence in the market for single family homes held steady near seven year highs in January, suggesting the outlook for the housing market remained upbeat.

Volume was roughly 5.6 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Decliners outpaced advancers on the NYSE by nearly 8 to 7 and on the Nasdaq by almost 7 to 5.

Currencies

The yen rose against the dollar and euro for a second straight session on Wednesday as a recent warning from a Japanese minister about excessive yen weakness continued to buoy the currency.

Forecasts of aggressive action by the Bank of Japan to weaken its currency drove the dollar sharply higher in recent months, with the greenback gaining nearly 11.3 percent in the fourth quarter of 2012 and 2.1 percent so far this year.

However, after the yen hit a 2-1/2 year low of 89.67 this week, most believe it was poised to recoup losses, with a correction ignited by Japanese Economics Minister Akira Amari’s comments on Tuesday. Amari cautioned that excessive yen weakness could boost import prices and hurt people’s livelihood.

“We are seeing consolidation and repricing of the yen right now, which was to be expected given its sharp move lower since late last year,” said Camilla Sutton, chief fx strategist at Scotiabank in Toronto.

“Action by the BoJ is mostly priced in right now, so now the real risk is if the BoJ disappoints next week,” she said. “A less-dovish-than-expected BoJ will disappoint expectations and cause the yen to continue moving lower.”

Investors have put on big bets against the currency with the new government in Tokyo very vocal about pressing the central bank to tackle deflation, calling for a 2 percent inflation target.

“After next week’s meeting, dollar/yen should settle into a new range,” Sutton said.

The BOJ is widely expected to agree to such a target at its policy meeting on Jan. 21-22, although some traders said there could be selling in dollar/yen afterwards, based on “buy on the rumor, sell on the fact.”

The dollar last traded at 88.54 yen, down 0.3 percent on the day. Traders cited supporting bids at 87.70/80 yen.

The sell-off in dollar/yen dragged all of the major currencies lower.

The euro also fell against the yen to trade down 0.2 percent lower at 117.94. The euro had climbed to its highest in 20 months earlier this week after the European Central Bank dashed expectations of a near-term rate cut.

“What we are witnessing is deleveraging,” said Kathy Lien, managing director of FX strategy for BK Asset Management in New York.

“Over the past 2 months, with the blessing of Prime Minister (Shinzo) Abe who pledged to ease monetary policy aggressively, many investors jumped back into yen-funded carry trades and now they are taking profits below key levels after Japanese officials expressed concerns about yen weakness,” she said.

EURO FLAT VERSUS DOLLAR

The euro held steady against the dollar as soothing comments about the currency’s recent strength made by an ECB policymaker was offset by profit-taking and concerns about the region’s economy.

The euro briefly bounced after ECB member Ewald Nowotny said the exchange rate was “not a matter of major concern,” a strong contrast to comments from Eurogroup head Jean-Claude Juncker, who on Tuesday prompted investors to sell the euro by saying it was “dangerously high.”

The euro last traded at $1.3304, flat on the day.

Weak economic data from Europe highlighted the disparity with the U.S. economy.

Demand for new cars in Europe fell to a 17-year low in 2012,

and even the German economy is suffering from the euro zone recession.

If economic data continues to weaken, the ECB may opt to cut rates, a negative for the euro.

Muted U.S. inflation pressures should give the Fed more room to prop up the economy by staying on its ultra-easy monetary policy path. U.S. consumer prices were flat in December.

The euro had rallied smartly in the days following last week’s ECB meeting. ECB President Mario Draghi downplayed expectations of another rate cut and painted a more positive outlook for the euro zone economy.

His supportive comments sent the euro to an 11-month high of $1.3403 this week, according to Reuters data.

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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