Logo

Passionate about investing

Broadgate: Market News 20/6

20 June 2012

Investors from JPMorgan Chase & Co. to BlackRock Inc. are trying to make money from the exploding popularity of iPads and increasing sales of hybrid cars by investing in producers of lithium for batteries.

Prices for the conductive metal, the lightest in the periodic table, have tripled since 2000 in a market now worth $1 billion a year as uses expand in vehicles, ceramics, electronics and lubricants. Apple Inc. and Toyota Motor Corp., maker of the Prius electric-gasoline car, have few alternatives as they pursue higher performance and mobility, leading Dahlman Rose & Co. analysts to forecast lithium demand will double by 2020.

Talison Lithium Ltd., whose shares have gained 26 percent in the last month, together with Soc. Quimica & Minera de Chile SA, Rockwood Holdings Inc. and FMC Corp., produce almost 95 percent of world supply. Rio Tinto Group, the third-biggest mining company, may join the largest suppliers if it goes ahead with a mine in Serbia it says is capable of producing 20 percent of global output of the metal.

“There are some companies now that we think are attractive to get a hold of lithium exposure,” Evy Hambro, who manages about $13 billion in mining stocks for BlackRock in London, said in an interview. “We’ve got a small exposure today and we’re looking for some more,” he said without naming any companies.

Demand for lithium-ion rechargeable batteries out of Asia has helped prices climb threefold in the last 12 years, London- based Roskill Information Services Ltd. analyst Robert Baylis said. Global use doubled from 2000 to 2011 according to Roskill, which has recently consulted on six lithium projects.

Stocks rose on Tuesday on hopes that the Federal Reserve will agree to extend stimulus measures as the economy struggles to recover and the euro zone’s debt crisis gets worse.

The S&P 500 has gained 7.2 percent from a five-month intraday low reached on June 4. On Tuesday, the benchmark index closed above its 50-day moving average of 1,346.90 for the first time in seven weeks. But the sharp gains leave the market vulnerable if the outcome of Wednesday’s Fed meeting doesn’t meet market expectations.

“People are anticipating some type of response from the Fed tomorrow, and are buying or covering shorts in anticipation of that,” said Paul Zemsky, head of asset allocation at ING Investment Management in New York. “There’s a risk the market gets disappointed.”

Growth-related stocks led the rally, with the S&P materials sector index up 2 percent and the financial sector index up 1.7 percent. U.S. Steel Corp jumped 9.5 percent to $20.15. Bank of America added 4.5 percent to $8.11.

Markets kept a wary eye on developments in Europe. A sharp decline in German business sentiment, alongside stubbornly high Spanish bond yields, raised expectations for stimulus from European policymakers as well.

British media reports earlier said German Chancellor Angela Merkel was poised to use Europe’s dual bailout funds, the European Financial Stability Facility and the European Stability Mechanism, to buy debt of countries like Italy and Spain.

“We went to the highs of the day on that, and we have the Fed tomorrow. This is a bailout, central bank largesse bounce, and we’ll see what follow-through (occurs) after the Fed tomorrow and whatever becomes of the ESM,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

A German government official told Reuters there was no discussion at the G20 summit in Mexico about using Europe’s rescue funds to buy the bonds of stricken members of the euro zone.

The Dow Jones industrial average gained 95.51 points, or 0.75 percent, to 12,837.33 at the close. The Standard & Poor’s 500 Index advanced 13.20 points, or 0.98 percent, to 1,357.98. The Nasdaq Composite Index rose 34.43 points, or 1.19 percent, to close at 2,929.76.

On Tuesday, the Federal Open Market Committee began the first day of a two-day meeting on interest-rate policy. The meeting got under way with expectations increasing that the U.S. central bank may extend its “Operation Twist” program, its effort to drive down long-term borrowing costs.

Spain’s government bond yields eased slightly after it raised 3 billion euros at a short-term debt sale, with the higher yields enticing investors. However, with its 10-year bond yield above 7 percent, investors worry how long the euro zone’s fourth-largest economy can survive without foreign help.

Oracle Corp rose 3.1 percent to $27.96 a day after it reported stronger-than-expected quarterly profit, releasing the results three days ahead of schedule after news of the pending departure of a senior sales executive fueled concerns that business was stagnating.

Walgreen Co tumbled 5.9 percent to $30.09 after the pharmacy chain reported quarterly earnings and said it would buy a 45 percent stake in Alliance Boots for $6.7 billion in a cash-and-stock deal.

FedEx Corp rose 2.8 percent to $91.01 after the package delivery company reported fourth-quarter earnings and provided an outlook for the first quarter and 2013.

Shares of J.C. Penney dropped 8.5 percent to $22.25 a day after its president abruptly left the department store operator following a botched advertising campaign.

Volume was light, with about 6.7 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, below last year’s daily average of 7.84 billion.

Advancers outnumbered decliners by a ratio of 5 to 1 on the New York Stock Exchange, while on the Nasdaq, slightly more than three stocks rose for every one that fell.

Commodities

Oil traded near the highest close in two days as rising imports by Japan and speculation the Federal Reserve will add stimulus to the U.S. economy countered concern that Europe’s debt crisis will derail the global recovery.

Oil for July delivery, which expires today, slid 12 cents to $83.91 in electronic trading on the New York Mercantile Exchange at 1:37 p.m. Sydney time. It rose 0.9 percent yesterday to $84.03, the highest close since June 15. The more-actively traded August contract decreased 9 cents to $84.26. Front-month prices are down 15 percent this year.

Brent oil for August settlement was at $95.75 a barrel, down 1 cent, on the London-based ICE Futures Europe exchange. The front-month price for the European benchmark contract was at a premium to West Texas Intermediate of $11.49, compared with $11.41 yesterday.

Gold may rebound, after dropping for the first time in eight sessions, on speculation that the U.S. Federal Reserve may take steps to boost the economy amid signs of faltering growth, increasing demand for a haven.

Spot gold was little changed at $1,620.55 an ounce at 12:24 p.m. in Singapore. Holdings in the SPDR Gold Trust, the biggest exchange-traded product backed by bullion, were unchanged at a one-month high of 1,281.62 metric tons yesterday, the company’s website showed.

Gold prices almost doubled after the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 to June 2011. The central bank will review new economic forecasts as it concludes a two-day meeting today, and may announce further measures to spur growth after recent data in the housing and labor markets missed projections.

Currencies

The euro fell, snapping yesterday’s gain, before Spain auctions bonds tomorrow with European leaders struggling to contain the region’s debt crisis.

The euro slid 0.1 percent to $1.2672 as of 1:52 p.m. in Tokyo from yesterday, when it advanced 0.9 percent. The shared currency lost 0.2 percent to 99.91 yen. The yen strengthened 0.1 percent to 78.85 per dollar.

New Zealand’s dollar, the so-called kiwi, fell 0.4 percent to 79.51 U.S. cents and declined 0.5 percent to 62.70 yen.

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.

Clientservices@broadgatefinancial.com