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Broadgate: Market News 18/7

18 July 2012

Stocks rose on Tuesday after Coca-Cola and Goldman Sachs joined the growing roster of S&P companies that beat profit forecasts and as Federal Reserve Chairman Ben Bernanke left the door open to more stimulus.

Fears of a collapse in earnings have not been borne out thus far. Though the earnings season has been under way a short time, some 72 percent of companies have beaten estimates, albeit from a significantly lowered bar.

Goldman Sachs shares ended up 0.3 percent at $97.98 even as its quarterly profit fell 12 percent. Coca-Cola Co, which also topped consensus forecasts, rose 1.6 percent to $77.69.

Frustration over Bernanke’s lack of specifics about stimulative quantitative easing measures, or QE3, in testimony before a Senate committee drove equities lower early in the trading session.

But the Fed chief said policymakers would consider a range of tools to further stimulate growth if it became clear unemployment was not falling or if deflation risks mounted.

“We do expect the Fed to launch QE3, possibly by as early as August,” said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York. “The only game in town to revive or raise GDP growth is the Fed.”

Pursche cautioned about reading too much into earnings that beat lowered forecasts. Analysts sharply cut their estimates over the last year. Second-quarter S&P 500 earnings are expected to rise 6 percent from a year ago, down from an estimated of 9.2 percent on April 1, according to Thomson Reuters data.

“When you look at Coke, when you look at Goldman, when you look at some of the reports last week the beats were there, but they’re based on pretty low expectations,” he said.

In the last month, most gains on the S&P have come from the telecommunications services, consumer staples and healthcare sectors, which are considered defensive, safer plays. Industrials, technology and materials have posted losses in that period.

Healthcare products maker Johnson & Johnson cut its full-year profit forecast on Tuesday. But the shares, which have risen 12 percent since the start of June, climbed 0.8 percent to $69, hitting their highest level in more than 3 years.

The basic materials sector was among gainers on the S&P 500, with a 5.1 percent jump in shares of fertilizer company Mosaic after it reported better-than-expected quarterly results.

The Dow Jones industrial average rose 78.33 points, or 0.62 percent, at 12,805.54. The Standard & Poor’s 500 Index added 10.03 points, or 0.74 percent, at 1,363.67. The Nasdaq Composite Index gained 13.10 points, or 0.45 percent, at 2,910.04.

“If the economy is weakening, it means (Bernanke) will probably come back to the table. He hasn’t spent that bullet yet and until he does, the markets are probably going to hold up,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.

“From a technical side we see improvement in the trend in the market, but the leadership remains with defensive sectors, which tells us there’s not a lot of appetite for risk.”

The S&P has posted losses in seven of the last nine sessions, falling about 1 percent.

The relatively slight losses amid a worsening economic picture has been credited in part to historic low bond yields and to a vigilant Fed.

Shares of financial company State Street Corp fell 6.4 percent to $41.31 after it said second-quarter net income fell.

Excitement around Yahoo Inc’s new chief executive, Marissa Mayer, formerly a top executive at Google, faded and Yahoo shares slipped 0.3 percent at $15.60 after a 2 percent rise. Yahoo has cycled through three CEOs in a year.

About 6.31 billion shares changed hands on the New York Stock Exchange, the Nasdaq and Amex, compared with the year-to-date daily average of 6.22 billion shares.

Advancers beat decliners by a ratio of about 2 to 1 on the NYSE and on the Nasdaq by about 5 to 4.

Commodities

Brent crude slipped below $104 a barrel on Wednesday, snapping five days of gains as Federal Reserve Chairman Ben Bernanke offered no signs of further monetary stimulus to boost growth in the world’s top oil consumer.

Brent crude slipped 67 cents to $103.33 a barrel by 0258 GMT, after settling 63 cents higher. U.S. oil slipped 40 cents to $88.82 a barrel after ending 79 cents higher.

Gold stayed put above $1,580 an ounce on Wednesday, after dropping in the previous session when the U.S. Federal Reserve Chairman Ben Bernanke disappointed gold bugs by offering no signs of imminent monetary stimulus measures.

U.S. gold futures contract for August delivery lost half a percent to $1,581.70

Currencies

Euro bolstered by hopes of U.S. easing

The euro made limited gains against the dollar on Wednesday after Federal Reserve Chairman Ben Bernanke said the central bank is ready to support the U.S. economy if needed, without being more specific.

It was last at $1.2292, below Tuesday’s one-week high of $1.2317 but well off a two-year low of $1.2162 hit last week.

The Aussie hit a session high of $1.0325, just shy of resistance at the July 5 high of $1.0330, and was last at $1.0296.

It also rose to a record high against the euro of A$1.1884 overnight, but came off slightly to A$1.1930 as the euro firmed against the greenback.

The euro rose off an overnight low of 78.27 pence versus sterling, its lowest since November 2008. It was last buying 78.49 pence.

Against the yen, the single currency edged up to 97.21, off a six-week low of 96.17 yen touched on Monday

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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