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Broadgate: Market News 21/6

21 June 2012

Stocks edged lower on Wednesday after the Federal Reserve acted to aid the fragile economy with stimulus measures that were in line with market expectations but went no further.

Stocks rallied in recent days in the hope that the U.S. central bank would extend Operation Twist, a bond-buying program designed to lower long-term rates and stimulate growth. However, investor hopes of additional Fed action went unfulfilled.

In addition, the Fed slashed its economic projections for this year and cut forecasts for the next two years as well. Taken together, it left some investors wondering why the Fed did not signal a third round of quantitative easing.

“The short-term selloff is instigated by temporary frustration that QE3 is not in the immediate future,” said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey.

“In light of the Fed’s forecasts, which are somewhat more disappointing, one would consider that the Federal Reserve would be much more aggressive on that front.”

Concerns about weakened demand were highlighted by Dow component Procter & Gamble, which cut growth forecasts early on Wednesday. Shares of the world’s largest household product maker fell 2.9 percent to $60.39.

Another disappointing outlook came from Bed Bath & Beyond Inc, which projected a weaker-than-expected profit for the current quarter after the market closed. Shares of the home goods chain fell 10 percent to $66.25 in extended trading.

Trading was volatile after the Fed announcement about midday. Declines picked up during Fed Chairman Ben Bernanke’s afternoon news conference but then were mostly erased. The Nasdaq composite index even ended slightly higher.

The Dow Jones industrial average was down 12.94 points, or 0.10 percent, at 12,824.39. The Standard & Poor’s 500 Index was down 2.29 points, or 0.17 percent, at 1,355.69. The Nasdaq Composite Index was up 0.69 point, or 0.02 percent, at 2,930.45.

The Fed said it will extend until the end of 2012 Operation Twist, a stimulative program aimed at lowering long-term interest rates by swapping $267 billion in U.S. Treasury securities. The program had been scheduled to end this month.

The benchmark S&P 500 index had risen for four days in a row and accumulated gains of about 7 percent from a five-month low hit earlier in June as many investors anticipated some Fed action to aid the flagging recovery.

While the Fed is “willing to take action if needed, they’re not giving enough detail as the market wants. There’s a disconnect between what markets want and what the Fed is willing to commit to,” said Alec Young, global equity strategist at S&P Equity Research in New York.

Tech stocks were the day’s biggest gainers, rising 0.2 percent. Jabil Circuit Inc led the sector as expectations rose that it had retained a key mobile phone customer, sending shares 6.8 percent higher to $20.75.

Wall Street continued to keep a close watch on Europe for any development out of the region with respect to its sovereign debt issues.

German Chancellor Angela Merkel said that both of Europe’s bailout funds included mechanisms for buying state debt on the secondary bond market but stressed that this was a “purely theoretical” question and was not being discussed.

Adobe Systems slid 3 percent to $31.99 after the maker of Photoshop and Acrobat software cut its full-year revenue outlook and warned about weak demand in Europe.

About the same number of stocks traded on the New York Stock Exchanged rose as fell on Wednesday while slightly more stocks fell on the Nasdaq than rose.

Volume was light, with about 6.57 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year’s daily average of 7.84 billion.

Commodities

Commodities dropped to the lowest level in almost 19 months after the Federal Reserve lowered its growth outlook for the world’s largest economy and a pledge to extend its stimulus program fell short of expectations. China’s manufacturing data signaled a slowdown for an eighth month.

Crude futures also declined after stockpiles unexpectedly climbed 2.9 million barrels last week to 387 million, the most since July 1990, according the U.S. Energy Department. Oil for August delivery fell to $80.11 a barrel, the lowest price for a front-month contract since October in electronic trading on the New York Mercantile Exchange.

Corn for December delivery slid 2.3 percent to $5.5375 a bushel on the Chicago Board of Trade. Copper for three-month delivery lost 1.5 percent to $7,430 a metric ton on the London Metal Exchange

Currencies

The euro fell as Spain prepared to auction bonds today amid signs Europe’s debt crisis is blunting economic growth in the region.

The euro slid 0.2 percent to $1.2683 at 6:50 a.m. in London from yesterday, when it capped a two-day advance of 1 percent. It was little changed at 101.05 yen, after gaining 1.6 percent over the previous two days. The U.S. currency added 0.2 percent to 79.69 yen.

The kiwi fetched 79.74 U.S. cents from 79.62 yesterday

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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