Broadgate: Market News 18/3
18 March 2013
Stocks slipped on Friday, ending the Dow Jones industrial average’s longest winning streak since 1996 as investors paused just below the S&P 500’s record high.
A decline in JPMorgan Chase shares after the bank was hit by a one-two punch of bad news also weighed on the market.
A day after ending within 2 points of the all-time closing high of 1,565.15 hit in October 2007, the benchmark S&P 500 ended Friday’s session about 5 points away. For the week, the S&P 500 rose 0.6 percent.
The Dow snapped its 10-day winning streak, when it racked up a series of all-time highs. Equities have rallied since the start of the year on signs of improvement in the economy and supported by the Federal Reserve’s efforts to bolster the recovery.
Investors could use the pause to consolidate bets before pushing the market higher again, said Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors in Wilmington, Delaware.
“I don’t think that one or two days’ movement is really going to change the underlying momentum of this market, which I still think is pretty strong at this point,” Albright said.
JPMorgan Chase & Co was the biggest drag on the S&P 500 and one of the biggest weights on the Dow, falling 1.9 percent to $50.02.
The Federal Reserve told JPMorgan and Goldman Sachs Group Inc that they must fix flaws in how they determine capital payouts to shareholders, though the central bank still approved their plans for share buybacks and dividends.
A Senate report alleged that JPMorgan had ignored risks, misled investors, fought with regulators and tried to work around rules as it dealt with mushrooming losses in a derivatives portfolio. A former top JPMorgan official told lawmakers on Friday she was not to blame for the losses.
In contrast, Goldman shares recovered from early weakness to gain 0.5 percent to $154.84. The stock of rival Bank of America rose 3.8 percent to $12.57. The S&P financial sector index edged up 0.3 percent.
The Dow Jones industrial average slipped 25.03 points, or 0.17 percent, to 14,514.11 at the close. The Standard & Poor’s 500 Index shed 2.53 points, or 0.16 percent, to 1,560.70. The Nasdaq Composite Index dropped 9.86 points, or 0.30 percent, to end at 3,249.07.
For the week, the Dow rose 0.8 percent and the Nasdaq gained just 0.15 percent.
Volume was robust because of ‘quadruple witching’ – the quarterly settlement and expiration of four different types of March equity futures and options contracts.
Roughly 8.2 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.
Supporting the Nasdaq, shares of Apple Inc rose 2.6 percent to $443.66.
Data from Thomson Reuters’ Lipper service showed investors in U.S.-based funds poured $11.26 billion of new cash into stock funds in the latest week, the most since late January.
A busy day of economic reports reinforced investors’ view that the economic recovery has momentum to it. Manufacturing output bounced back in February, though the pace of manufacturing growth in New York state cooled slightly in March and consumer sentiment fell.
The S&P 500 retail sector index lost 0.8 percent after the consumer sentiment data from Thomson Reuters/University of Michigan.
Consumer prices registered their biggest increase in nearly four years as the cost of gasoline rose. But a smaller gain in the core U.S. Consumer Price Index, which excludes volatile food and energy prices, left the door open for the Federal Reserve to continue its bond-buying program, which has contributed to the stock market’s rally.
The euro plunged and traders squeezed the yen sharply higher on Monday in Asia as news that Cyprus’ bailout plan includes taxing depositors was taken as a dangerous precedent that could ultimately trigger bank runs elsewhere in the region.
Euro zone finance ministers want to tap Cyprus’ savers in order for the country to receive a 10 billion euro ($13 billion) bailout, and this decision caused a run on cash after its announcement on Saturday morning. Cyprus was working on a last-minute proposal to soften the blow after a parliamentary vote on the measure was postponed until Monday, a government source said.
“There are unclear points about Cyprus, so that’s why nobody wants to buy the euro right now, at least in the Tokyo and London session,” ahead of the Cyprus vote, said Masashi Murata, a currency strategist at Brown Brothers Harriman in Tokyo.
The common currency was changing hands at $1.2901, down 1.3 percent from Friday’s North American level after falling as low as $1.2888 on the EBS trading platform, its lowest since December 10. Support was said to lie at 200-day moving average, now at $1.2872.
The euro last bought 122.34 yen, down 1.9 percent. The 55-day moving average provided support during the yen’s correction at the end of last month and a close below the average, now at 121.69 yen, could herald a deeper correction.
The euro also lost ground on the Swiss franc to 1.2178 francs, from around 1.2275.
The yen shot higher across the board as speculative sellers were caught badly short of the currency, and had to quickly unwind carry trade positions.
Borrowing in yen to buy higher yielding assets has been a heavily-favored trade in recent weeks on expectations of more aggressive easing steps from the Bank of Japan.
Japan’s parliament on Friday formally approved Haruhiko Kuroda as the next BOJ governor as well as Kikuo Iwata and Hiroshi Nakaso as his deputies, putting in place the leadership to aggressively pursue its 2 percent inflation target.
An improving U.S. economy has also underpinned the greenback in recent weeks. Data on Friday continued to show growth in U.S. manufacturing, though U.S. consumer sentiment weakened to its lowest in over a year and inflation picked up.
“The U.S. economy remains solid,” Brown Brothers Harriman’s Murata said. “I don’t think dollar-yen will drop a lot, below 93 or 92 yen, and will probably gradually show a recovery today,”
The dollar fell back to 94.80 yen, from 95.38 yen late on Friday. It dropped to 93.45 yen, its lowest since March 6, moving away from a 3-1/2-year peak of 96.71 struck on March 12.
The Australian dollar lost almost two full yen to a low of 97.74 yen, its lowest since March 8, in volatile early trading before steadying at 98.06.
The U.S. dollar was up 0.7 percent against a basket of currencies at 82.792.
Euro zone leaders and Cyprus agreed on Saturday that depositors should be taxed up to 10 percent – 6.7 percent on amounts below 100,000 euros and 9.9 percent on figures above that – to raise 5.8 billion euros so the island country could be eligible for an international bailout.
Cyprus was discussing with lenders the possibility of changing the levy to 3.0 percent for deposits below 100,000 euros, and to 12.5 percent for those above that, the source said.
Taxing depositors would be a radical change from usual practice, and would give depositors in other debt-ridden countries an incentive to shift their money to banks in EU countries with lower financial system risks, such as Germany.
Some strategists expected limited fallout from the move in the longer term, but nonetheless recognized it as a clear short-term signal to sell the euro.
“The news on Cyprus may well elicit some negative euro reaction on the back of fears of capital flight from peripheral Europe, although if managed properly, it shouldn’t spark the start of a contagious bank run,” said Brian Martin, a senior strategist at ANZ in London.
“We do not think this will cause a sustained run on bank deposits in the euro area, as Cyprus appears a special case.”
Still, for the moment he recommended selling the euro against the Swiss franc, yen and sterling, and selling bonds from EU periphery countries.
He noted one early sign that the Cyprus deal was causing contagion would be a widening in peripheral bond spreads.
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