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Broadgate: Market News 17/7

17 July 2012

A surprise decline in June retail sales was the latest worrying sign from the economy, pushing stocks slightly lower on Monday, but Citigroup’s earnings limited losses.

The S&P 500 has fallen in seven of the past eight sessions, pressured by concerns about economic growth. Still, in a sign of resilience, the index is up roughly 7 percent from a low hit early in June despite the worsening economic data.

Trading volume at 5.06 billion shares on the NYSE, Amex and Nasdaq was the second lightest day this year, according to preliminary data from Reuters.

The drop in retail sales in June, the third consecutive monthly decline, contrasted with economists’ expectations for a small increase and was the latest sign the recovery is flagging.

Citigroup’s earnings, which exceeded estimates, followed JPMorgan Chase’s forecast-beating earnings on Friday, which sparked a rally and broke a six-day streak of losses by the Dow industrials.

Shares of Citigroup gained around 0.6 percent to $26.81. Although the third largest U.S. bank by assets reported stronger-than-expected earnings, its profit fell 12 percent due to losses from credit crisis-era assets.

Giri Cherukuri, head trader at OakBrook Investments, which oversees $1.3 billion in Lisle, Illinois, said there was a tug-of-war between better-than-expected earnings in the financial sector and worries about the economy.

“The next week or so the market will be driven more by earnings than economic numbers,” he said, noting that recent cautious outlooks from U.S. corporations could translate into disappointing earnings as reporting season unfolds.

Many companies have warned on profits in recent weeks. Negative to positive earnings guidance for the second quarter is 3.3 to 1, the worst since 2008, Thomson Reuters data showed.

The Dow Jones industrial average dropped 49.88 points, or 0.39 percent, to 12,727.21. The Standard & Poor’s 500 Index fell 3.14 points, or 0.23 percent, to 1,353.64. The Nasdaq Composite Index lost 11.53 points, or 0.40 percent, to 2,896.94.

“Three months in a row of lower retail sales is pretty concerning. People are going to have to lower their GDP estimates,” said Paul Zemsky, head of asset allocation at ING Investment Management in New York. “Given that, I’m surprised the market is holding so well.”

Zemsky said expectations that earnings turn out better than feared could be one reason. Record low U.S. Treasury bond yields and expectations that the Federal Reserve could support the economy have also helped prop up stocks.

The IMF shaved its 2013 forecast for global growth to 3.9 percent from the 4.1 percent it projected in April, trimming projections for most advanced and emerging economies. It left its 2012 forecast unchanged at 3.5 percent.

The World Trade Organization ruled in favor of the United States, finding that China discriminates against foreign bank cards. The decision could help U.S. credit card companies like Visa, Mastercard and American Express.

In another credit card development, Visa Inc and MasterCard Inc and banks reached a $7.25 billion settlement with U.S. retailers in a lawsuit late on Friday.

Visa rose 2.5 percent to $127.15 and MasterCard shares gained 1.7 percent to $436.89. American Express shares rose 1.2 percent to $58.64.

In mergers and acquisitions news, GlaxoSmithKline is to acquire its long-time partner Human Genome Sciences Inc for $3 billion, ending a three-month hostile pursuit of the U.S. biotech company on friendly terms after sweetening its offer. Shares of Human Genome rose 4.5 percent to $14.19.

In another healthcare deal, private equity firm TPG said it would buy U.S.-based Par Pharmaceutical for $1.9 billion, sending Par shares up 36.7 percent to $50.

Commodities

Brent crude rose on Tuesday, staying above $103 per barrel on hopes of more policy steps by central banks to stimulate global economic growth ahead of U.S. Federal Reserve Chairman Ben Bernanke’s testimony.

Brent crude rose 10 cents to $103.47 a barrel by 0119 EDT. The contract rose to as much as $103.74, the highest since late May. U.S. crude was almost unchanged, after settling $1.33 a barrel higher at $88.43.

Gold edged up in quiet trading on Monday as weak U.S. retail sales cut into the dollar’s gains ahead of Federal Reserve Chairman Ben Bernanke’s Congressional testimony which will provide the latest clue on U.S. monetary policies

Spot gold was up 0.2 percent at $1,592.69 an ounce by 2:09 p.m. EDT (1809 GMT).

Currencies

The euro rose versus the dollar on Tuesday as purchases from hedge funds triggered a flurry of stop-loss buying, pulling the greenback to a seven-week low against a basket of currencies, exacerbating its losses after poor U.S. retail sales figures.

The euro gained 0.2 percent to 96.98 yen, while the Aussie was at 81.25 yen.

The rise against the Japanese currency helped the euro muscle in on the greenback. The common currency climbed to a one week high at $1.2314, having triggered stop-losses at 1.2300. It then settled around 1.2285.

The dollar stood at 78.92 yen, barely changed from late New York levels. Its support now rests at a June 15 low of 78.61 yen, while resistance looms at its 200-day moving average at 79.05. Traders reported a large bid supporting the pair at 78.50.

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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