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Broadgate: Market News 22/2

22 February 2013

U.S. stocks fell for a second straight day on Thursday and the S&P 500 posted its worst two-day loss since November after reports cast doubt over the health of the U.S. and euro-zone economies.

But a late-day rally helped stocks erase some of their losses with most of the pullback concentrated in the technology- heavy Nasdaq. The move suggested investors were still willing to buy on dips even after the sharp losses in the last session.

In Europe, business activity indexes dealt a blow to hopes that the euro zone might emerge from recession soon, showing the downturn across the region’s businesses unexpectedly grew worse this month.

“The PMI numbers out of Europe were really a blow to the market,” said Jack De Gan, chief investment officer at Harbor Advisory in Portsmouth, New Hampshire. “The market was expecting signs that recovery is still there, but the numbers just highlighted that the euro-zone problem is still persistent.”

U.S. initial claims for unemployment benefits rose more than expected last week while the Federal Reserve Bank of Philadelphia said its index of business conditions in the U.S. mid-Atlantic region fell in February to the lowest in eight months.

Gains in Wal-Mart Stores Inc shares helped cushion the Dow. The shares gained 1.5 percent to $70.26 after the world’s largest retailer reported earnings that beat expectations, though early February sales were sluggish.

The Dow Jones industrial average fell 46.92 points, or 0.34 percent, to 13,880.62 at the close. The Standard & Poor’s 500 Index lost 9.53 points, or 0.63 percent, to 1,502.42. The Nasdaq Composite Index dropped 32.92 points, or 1.04 percent, to close at 3,131.49.

The two-day decline marked the U.S. stock market’s first sustained pullback this year. The Standard & Poor’s 500 has fallen 1.8 percent over the period and just managed to hold the 1,500 level on Thursday. Still, the index is up 5.3 percent so far this year.

The abrupt reversal in markets, which started on Wednesday after minutes from the Federal Reserve’s January meeting suggested stimulus measures may end earlier than thought, looks set to halt a seven-week winning streak for stocks that had lifted the Dow and the S&P 500 close to all-time highs.

Wall Street will soon face another test with the upcoming debate in Washington over the automatic across-the-board spending cuts put in place as part of a larger congressional budget fight. Those cuts, set to kick in on March 1 unless lawmakers agree on an alternative, could depress the economy.

Semiconductor stocks ranked among the weakest of the day, pressuring the Nasdaq as the Philadelphia Semiconductor Index .SOX fell 1.8 percent. Intel Corp fell 2.3 percent to $20.25 while Advanced Micro Devices lost 3.7 percent to $2.60 as the S&P 500’s biggest percentage decliner.

The Dow also got a helping hand from personal computer maker Hewlett-Packard Co, which rose 2.3 percent to end the regular session at $17.10. The company was scheduled due to report first-quarter results after the closing bell.

Shares of Boeing Co rose 1.6 percent to $76.01 as a senior executive was set to meet with the head of the U.S. Federal Aviation Administration on Friday and present a series of measures to prevent battery failures that grounded its 787 Dreamliner fleet, according to a source familiar with the plans.

In other company news, shares of supermarket operator Safeway Inc jumped 14.1 percent to $22.97 after the company reported earnings that beat expectations.

Shares of VeriFone Systems Inc tumbled nearly 43 percent to $18.24 after the credit-card swipe machine maker forecast first- and second-quarter profits well below expectations.

Of the 427 companies in the S&P 500 that have reported results so far, 69.3 percent have exceeded analysts’ expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters, according to Thomson Reuters data through Thursday morning.

Fourth-quarter earnings for S&P 500 companies are estimated to have risen 5.9 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.

Berry Petroleum Co jumped 19.3 percent to $46.02 after oil and gas producer Linn Energy LLC said it would buy the company in an all-stock deal valued at $4.3 billion, including debt. Linn Energy shares advanced 2.8 percent to $37.68.

About two stocks fell for everyone that rose on the New York Stock Exchange and Nasdaq. About 7.64 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, well above the 20-day moving average of around 6.6 billion shares.

Currencies

The dollar dangled near a 5-1/2-month high against a basket of currencies on Friday, helped by doubts over just how long the U.S. Federal Reserve will keep its quantitative easing in place.

The euro tumbled to a six-week low against the dollar on disappointing euro zone economic data and uncertainty ahead of Italy’s election this weekend, though the common currency managed to hold above a key retracement level.

The dollar index, which measures its value against a basket of six major currencies, dipped 0.2 percent to 81.265, having gained 0.8 percent so far this week after having risen as high as 81.508 on Thursday, its highest level since September 5.

Minutes of the Federal Reserve’s last meeting, released on Wednesday, and comments from the bank’s two top officials on Thursday showed growing internal debate about scaling back its bond buying program.

Concerns that the Fed may stop providing a flood of cash to banks boosted the dollar, at the expense of many other assets, ranging from the euro and other risk currencies to stocks and commodities.

The euro fell to a six-week low of $1.31615 on Thursday but recovered slightly in Asia to trade at $1.3212, up 0.2 percent from late U.S. levels.

Business activity indexes dealt a blow to hopes that the euro zone might emerge from recession soon, showing the downturn across the region’s businesses unexpectedly worsened this month.

The data raised nervousness ahead of an influential German Ifo business sentiment index due at 0900 GMT on Friday.

“After the euro’s fall yesterday, we should be wary of risk that weak Ifo figures cement concerns on the euro zone economy. Given that the euro had been outperforming since late last year, its correction could be large,” said Junya Tanase, chief FX strategist at JPMorgan Chase Bank.

In addition, the anxiety that Italy’s national election this weekend could lead to a fragmented parliament and a weak government capped the euro.

But some market players think the euro is more likely to see a relief rally after the election, expecting Pier Luigi Bersani’s centre-left bloc will ally with a centrist group led by Prime Minister Mario Monti to form a stable government.

“The euro is capped now ahead of the Italian election but once that uncertainty will have been cleared, the euro is likely to rebound,” said Kyosuke Suzuki, director of foreign exchange at Societe Generale.

The currency is now trying to cling to an important chart point of $1.3186, a 50 percent retracement of its 10.5-cent rally from November to February.

Below that is another major support from its 90-day moving average, at $1.3135, though a break there will leave it open for a test of the January 10 low of around $1.3040.

NO FOREIGN BOND BUYING

While the dollar gained across the board, the U.S. currency failed to advance much against the yen as the Japanese currency’s three-month-old decline on monetary easing expectations is showing signs of losing momentum.

The dollar stood little changed at 93.28 yen, keeping some distance from its 33-month high of 94.47 hit last week.

“Judging from recent comments, most Japanese ministers don’t really wish to push the dollar/yen up beyond 95 yen. I suspect if the yen weakens further, (Finance Minister Taro) Aso will try to rein in the yen’s fall,” said Minori Uchida, chief strategist at the Bank of Tokyo-Mitsubishi UFJ.

The yen looks set to post its first substantial weekly gain since mid-November, when the announcement of a Japanese election spurred investors to bet more political pressure would be put on the Bank of Japan to take bold easing steps.

Speculators turned their gaze to the British pound, which has fallen about 1.5 percent so far this week, hitting a 2 1/2-year low of $1.5130 on Thursday, on expectations of more quantitative easing by the Bank of England.

Sterling has recovered a little to last trade at $1.5254 but it is still seen as vulnerable.

The Canadian dollar flirted with a seven-month low versus the U.S. unit hit on Thursday, trading at C$1.0165 per U.S. dollar, near Thursday’s low of C$1.0208.

The Australian dollar recovered, however, after hitting four-month low on Thursday, after the Reserve Bank of Australia’s (RBA) chief said there was already a good deal of policy stimulus in the economy, prompting markets to further widen the odds of an easing next month.

The Aussie rose 0.7 percent to $1.0315, after having hit a low of $1.0221 on Thursday.

Source:  Reuters.com

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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