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Broadgate: Market News 18/12

18 December 2012

The S&P 500 ended at its highest level in almost two months on Monday on rising hopes that negotiations over the “fiscal cliff” were making progress and that a deal could be reached in days.

After weeks of stalemate, President Barack Obama and Republican House Speaker John Boehner met at the White House on Monday, raising hopes that Washington will be able to head off steep tax hikes and spending cuts that threaten the economy.

All of the S&P 500’s 10 sectors were higher, led by financials and other growth-oriented sectors. The S&P Financial Index gained 2.1 percent, and shares of Bank of America jumped 4 percent to $11. In a research note Monday, Meredith Whitney Advisory Group shifted to a positive stance on financials and upgraded Bank of America, Citigroup and Discover Financial shares.

The S&P consumer distretionary index, up 1.8 percent, was the second-best performing sector. Investors worry the U.S. economy could slide into recession if the tax and spending changes are implemented.

Boehner has edged closer to Obama’s position by proposing to extend lower tax rates for everyone who earns less than $1 million. Still, his position remains far from that of President Obama.

“Trumping everything right now are the fiscal cliff talks. It seems like progress is being made. I think it’s getting to the nitty gritty,” said Alan Lancz, president of Alan B. Lancz & Associates Inc. in Toledo, Ohio. “The bet right now is that something will come by the end of this week.”

The Dow Jones industrial average was up 100.38 points, or 0.76 percent, at 13,235.39. The Standard & Poor’s 500 Index was up 16.78 points, or 1.19 percent, at 1,430.36, its highest close since October 22. The Nasdaq Composite Index was up 39.27 points, or 1.32 percent, at 3,010.60.

The gains, which came on lighter-than-usual volume, ended a two-day losing streak on the S&P 500. The index also had its best daily percentage gain since November 23. Volume was roughly 6.2 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 6.4 billion.

In the financial sector, American International Group Inc. shares rose 3 percent to $34.95 on plans to sell as much as $6.5 billion of AIA Group Ltd. Advancing stocks also included those in the home construction sector, which rose 4.5 percent.

“People are looking for sectors to play, and I think Bank of America broke out of some long-standing price levels, and it got everything going in that sector,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

Shares of Citigroup were up 4.1 percent at $39.15 while shares of Discover Financial were up 1.6 percent at $40.18.

Clearwire Corp agreed to sell the rest of the company to Sprint Nextel Corp for a slightly sweetened $2.2 billion offer just days after minority shareholders criticized the previous bid as too low. Clearwire tumbled 13.6 percent to $2.91, while Sprint was up 0.2 percent to $5.56.

Apple Inc shares edged up after recent losses, rising 1.8 percent to $518.83 even though two firms cut their price targets on the stock Monday.

The tech giant said it sold more than 2 million of its new iPhone 5 smartphones in China during the three days after its launch there on Friday, but the figures did not ease worries about stiffer competition. Apple shares have tumbled more than 25 percent in about three months.

Compuware Corp rose 12.9 percent to $10.76 after hedge fund Elliott Management offered to buy the business software maker for $2.3 billion and S&P Capital IQ raised the target price and moved it to “hold” from “strong sell.

Advancers outnumbered decliners on the NYSE by about 2 to 1, and on the Nasdaq by nearly 9 to 4.

Currencies

The yen edged lower and neared a 20-month low versus the dollar on Tuesday, dogged by expectations that a new Japanese government would nudge the Bank of Japan toward more drastic monetary stimulus.

The yen had skidded to its lowest level in over a year and a half on Monday after Japan’s conservative Liberal Democratic Party (LDP), which is committed to aggressive monetary easing, won a landslide election victory.

While the yen could find some support in the near term if position squaring sets in, traders and analysts said the yen’s downtrend was likely to remain in place.

“There is a good chance that the yen weakness may persist, especially heading into the end of the first quarter (of 2013),” said Sim Moh Siong, FX strategist for Bank of Singapore.

A focal point will be a forthcoming change in BOJ leadership and the implications for monetary policy, he said.

“It’s more of an expectation that the BOJ’s conservative character could change,” he added.

Japan’s next prime minister Shinzo Abe wants someone more in tune with his expansionary thinking to replace BOJ governor Masaaki Shirakawa when his term expires in April. In addition, two deputy governor posts are opening up in March.

Abe is set to form his cabinet on December 26.

The dollar edged up 0.2 percent to 84.07 yen, nearing a high of about 84.50 yen that had been hit on Monday, the greenback’s strongest level against the yen since April 2011.

The dollar retreated on Monday after hitting that 20-month peak against the yen, but the pull-back was relatively shallow.

“The corrective fall in the dollar/yen after the election was small and it’s crawling up because the yen weakening trend is still intact,” said Yuji Saito, director of the foreign exchange department in Tokyo at Credit Agricole Corporate & Investment Bank.

The yen had slid on Monday after the LDP surged back to power in an election on Sunday. The LDP and its ally, the New Komeito party, secured the two thirds majority needed to overrule parliament’s upper house, meaning the new government has a greater chance of pushing though its policies.

BOJ RATE DECISION

Market players said the dollar could come under pressure and the yen could edge higher in the near term, especially after the Bank of Japan’s interest rate decision due on Thursday following a two-day policy meeting.

“It’s likely that they will not ease enough for the market’s satisfaction and we should see a little pull-back on that,” said Gareth Berry, G10 FX strategist for UBS in Singapore.

“The actual hurdle to impressing the market is now quite high,” Berry said, referring to how the dollar had fallen against the yen right after the BOJ expanded its asset buying scheme by 11 trillion yen on October 30.

Most analysts expect the central bank to ease policy further this week, and sources familiar with the BOJ’s thinking have said that the most likely option is for the central bank to increase its asset-buying and lending program, currently at 91 trillion yen, by another 5-10 trillion yen.

Saito at Credit Agricole said profit-taking ahead of year-end holidays was likely to weigh on the dollar once the BOJ meeting is over, adding that the dollar could then drop by 1-2 yen.

The euro edged up 0.1 percent to $1.3172, hovering near a high of $1.3191 touched in the previous session, its highest in more than seven months, according to Reuters data.

The euro was supported by an improvement in risk appetite on hopes of a progress on the U.S. budget stalemate. U.S. President Barack Obama and top Republican John Boehner met at the White House on Monday to discuss how to avert tax hikes and spending cuts that economists fear could push the economy into recession.

The euro mostly shrugged off comments on Monday from European Central Bank President Mario Draghi, who reiterated concerns over slow growth of Europe’s economy.

“It seems that policymakers are still worried about the euro zone’s economic outlook but euro/dollar continues to hold steady thanks to the rally in equities and the Federal Reserve’s balance sheet expansion,” said BK Asset Management managing director Kathy Lien in a research note.

At its policy meeting last week, the U.S. Federal Reserve announced a new round of monetary stimulus steps.

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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