Broadgate: Market News 22/3
22 March 2013
Stocks fell on Thursday as Oracle’s revenue fell far short of expectations and worries intensified about the effect of Cyprus’ troubles on the euro zone.
Oracle Corp shares lost 9.7 percent to $32.30 and were the biggest drag on Nasdaq, a day after its revenue disappointment, which it blamed on sales execution. It was the stock’s biggest percentage drop since December 2011.
Stock losses accelerated late in the session as anxiety about Cypriot finances increased. Just before the U.S. market’s close, Standard & Poor’s cut Cyprus’ sovereign credit rating deeper into junk status.
The European Union gave Cyprus until Monday to raise the billions of euros it needs to get an international bailout – or face the collapse of its financial system and likely exit from the euro bloc.
“I think the realization is, there isn’t going to be a quick remedy to the situation, nor is it easy to forecast what’s going to happen. Uncertainty breeds selling, especially in a market that’s gone as far as we have in the previous two weeks,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
The latest euro-zone concerns hit the market after weeks of gains that drove the Dow up to break record highs and lifted the S&P 500 to within striking distance of its all-time record close of 1,565.15.
Investors fear a collapse of the banking system in Cyprus will tighten credit across Europe and become yet another hurdle on the region’s bumpy road out of economic crisis. Adding to those fears, data showed the region’s economy contracted more than expected in March.
The Dow Jones industrial average slid 90.24 points, or 0.62 percent, to end at 14,421.49. The Standard & Poor’s 500 Index dropped 12.91 points, or 0.83 percent, to finish at 1,545.80. The Nasdaq Composite Index lost 31.59 points, or 0.97 percent, to close at 3,222.60.
At its session low of 14,383.02, the Dow was down more than 120 points. The Nasdaq fell 1.2 percent to an intraday low of 3,215.69 during Thursday’s slide.
The CBOE Volatility Index or VIX, Wall Street’s favorite barometer of fear, shot up 10.4 percent to 13.99.
After the bell, shares of Nike rose 8.3 percent to $58.05 after it posted a profit that beat analyst expectations. In the regular session, the stock closed at $53.60.
During regular trading, Cisco was the Dow’s biggest percentage loser. Cisco fell 3.8 percent to $20.84 after brokerage FBR downgraded its rating on the network equipment maker’s stock and cut its price target. Among other tech shares, International Business Machines lost 1.3 percent to $212.26.
The S&P basic materials sector index fell 1.6 percent, making it the heaviest weight on the S&P 500. Copper prices also slid.
The benchmark S&P 500 index is on track to post only its second weekly percentage drop so far this year, a testament to its impressive 2013 run.
Among the day’s other falling shares, apparel retailers Guess, Tilly’s and Pacific Sunwear of California slid after they forecast first-quarter results significantly below analysts’ estimates.
Guess fell 7.2 percent to $25.01, Tilly’s shed 8.4 percent to $12.60, and Pacific Sunwear lost 9.8 percent to $2.20.
The euro-zone concerns overshadowed a batch of reports suggesting the U.S. economic recovery was on the right track and solid first-quarter growth in China.
A downward trend in jobless claims, an increase in factory activity and a rise in sales of existing homes pointed to growing momentum in the U.S. economy during the first quarter of the year.
Initial claims for U.S. unemployment benefits inched higher in the latest week, but the four-week average of new claims – a measure of labor market trends – fell to its lowest level in five years.
Volume was roughly 5.9 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.
Decliners outpaced advancers on both the NYSE and the Nasdaq by a ratio of nearly 2 to 1.
The yen held firm on Friday as investors scrambled to cover bearish positions after the new Bank of Japan governor played down the chances of an emergency meeting, while dour economic news and Cyprus debt crisis kept the euro pressured.
The dollar traded at 95.03 yen early in Asia, having fallen more than 1 percent on Thursday, while the euro was at 122.54 yen, down from Thursday’s session peak of 124.38.
The moves came after new BOJ governor, Haruhiko Kuroda, was coy about whether he would call a meeting ahead of the scheduled April 3-4 policy review. At his inaugural media conference on Thursday, Kuroda said the bank was ready to use all means available to beat deflation.
Markets, which had been speculating on an emergency meeting, were quick to reverse short positions that saw the yen rise across the board.
Yet, the Japanese currency remained contained in a well-worn range against the euro and was not far off a 3-1/2 year trough against the greenback of 96.71 set last week.
The U.S. dollar is up around 9 percent against the yen this year, while the euro is 7 percent higher, highlighting the extent of bearishness already priced in.
Over the next few days, yen weakness could be tempered by repatriation flows as Japan’s fiscal year-end on March 31 looms, traders said.
“We see further rallies above 96.00 meeting with increased resistance, while over the coming months we expect USD/JPY to eventually slide back towards 90.00,” said Vassili Serebriakov, strategist at BNP Paribas.
While Japan has laid the groundwork for some serious action to stimulate its economy, Cyprus continued to scramble for a solution to its debt crisis.
Trying to speed things along, the European Union gave Cyprus till Monday to raise the billions of euros it needs to secure an international bailout. Failing that, it could face a collapse of its financial system that could push it out of the euro currency zone.
Not helping sentiment, Standard & Poor’s cut Cyprus credit rating deeper into junk status and a survey showed the euro zone’s economic downturn has deepened this month, even before Cyprus’s bailout debacle.
Euro bulls may have beat a hasty retreat but they have not completely given up on a last minute deal to save Cyprus. The euro eased to $1.2892 but managed to keep off a 4-month trough around $1.2843 set on Tuesday.
Also helping the euro, demand rose and costs fell at a Spanish bond sale, suggesting yield-hungry investors are unconcerned that the financial turmoil in Cyprus might spread to other parts of the euro zone.
Still, analysts said the risk for the euro is to the downside.
“While we expect a constructive solution to emerge in the coming days, EUR/USD is likely to continue to face headline risk as capital controls will likely need to be imposed once banks re-open. There is also near-term risk for the euro from softer economic data Serebriakov added.
Commodity currencies were among the best performers overnight with the Australia dollar hitting a six-week high near $1.0460. The New Zealand dollar climbed to a two-week high of $0.8345.
Investors warmed to the Antipodean currencies after strong Chinese manufacturing data on Thursday pointed to ongoing demand for commodity exports from the two countries. The kiwi was further supported by data showing surprisingly strong growth in the fourth quarter.
There is no major economic data due in Asia on Friday, leaving the focus squarely on developments in Cyprus. Lawmakers there will on Friday debate emergency legislation tabled by the government to confront the island’s financial crisis.
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