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Broadgate: Market News 23/1

23 January 2013

Bank and commodity shares led the benchmark Standard & Poor’s 500 Index to a fresh five-year closing high on Tuesday on hopes that the global economy continues to mend.

Travelers’ shares climbed after the insurer’s results and lifted the Dow Jones industrial average to a new five-year closing high.

On Friday, both the Dow and the S&P 500 ended at five-year highs after the quarterly earnings season got off to a solid start. On Monday, the U.S. stock market was closed in observance of the Martin Luther King, Jr., holiday.

In Tuesday’s session, the market also gained on signals that Republican leaders in the U.S. House of Representatives aim on Wednesday to pass a bill to extend the U.S. debt limit by nearly four months to May 19. The White House welcomed the move, saying it would remove uncertainty about the issue.

Investors, however, were cautious ahead of an increase in earnings reports and as the S&P 500 rose for a fifth straight session.

Jack de Gan, chief investment officer of Harbor Advisory Corp, in Portsmouth, New Hampshire, said better economic numbers in the United States and China, as well as more stabilization in Europe, were driving buyers into sectors associated with economic growth.

“Any (bearish) news could turn us down for a day or so,” he said, referring to the recent string of gains.

Freeport-McMoRan Copper & Gold led gains in the materials sector after it reported a 16 percent rise in fourth-quarter profit on higher production. Shares gained 4.6 percent to $35.19.

The Dow Jones industrial average rose 62.51 points, or 0.46 percent, to 13,712.21 at the close. The S&P 500 gained 6.58 points, or 0.44 percent, to 1,492.56. The Nasdaq Composite added 8.47 points or 0.27 percent, to 3,143.18.

Tuesday’s session marked the highest closes for both the Dow and the S&P 500 since December 2007.

Technology shares underperformed as concerns about Apple’s ability to continue to grow at hyper speed and a weak outlook from Intel Corp diminished optimism about the sector’s prospects. The S&P technology index added 0.16 percent for the day. In comparison, the S&P energy sector index, the S&P financials index .SPSY and the S&P basic materials index each gained 0.9 percent.

But Google shares rose 4.8 percent to above $736 in extended-hours trading after the world’s No. 1 search engine reported a jump in fourth-quarter revenue. Shares of IBM added more than 4 percent to trade above $204 after the world’s largest technology services company reported earnings and revenue that beat estimates.

“We expected Q4 for many tech vendors would be weak because we were expecting a lot of companies sitting on their wallets until it became clear what was going to become of the fiscal cliff,” Forrester analyst Andrew Bartels said about IBM.

“Given the fact it’s Q4 and the cloud of fiscal cliff within it, it’s a positive indication that especially tech software will be doing better in the next couple of months.”

During the regular session, shares of blue chips Travelers, DuPont, and Verizon Communications rose following earnings.

Travelers rose 2.2 percent to $77.95, a closing high. DuPont’s shares gained 1.8 percent to $47.82. Verizon’s stock rose 0.9 percent to $42.94.

Thomson Reuters data through Tuesday morning showed that of the 74 S&P 500 companies that have reported earnings so far, 62.2 percent have topped expectations, roughly even with the 62 percent average since 1994, but below the 65 percent average over the past four quarters.

Overall, S&P 500 fourth-quarter earnings are forecast to have risen 2.6 percent. That estimate is above the 1.9 percent forecast from the start of earnings season, but well below the 9.9 percent fourth-quarter earnings forecast from October 1, the data showed.

U.S.-listed shares of Research in Motion rallied 13 percent to $17.90 a day after its chief executive said the Canadian company may consider strategic alliances with other companies after the launch of devices powered by RIM’s new BlackBerry 10 operating system.

About 6.2 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below last year’s daily average of about 6.45 billion shares.

On the NYSE, advancers outnumbered decliners by a ratio of roughly 9 to 4. On the Nasdaq, five stocks rose for every three that fell.

Signs of improved sentiment toward world growth were also seen in European bond markets. The yield on Portugal’s benchmark 10-year note fell below 6 percent for the first time since late 2010 on news that the country was set to tap the bond market this week for the first time since it was bailed out in 2011.

Currencies

The yen soared 1 percent against the dollar and euro on Tuesday after the Bank of Japan said its open-ended commitment to buy assets would kick in only next year, disappointing those who had expected more aggressive monetary easing.

But the euro pared some losses against the yen and recovered versus the dollar after a German ZEW survey showed that economic sentiment was at the highest since May 2012.

The common currency had fallen to a session low against the dollar and yen on speculation that some large German banks could be asked to split their investment banking operations, driving European shares lower.

But the biggest mover was the yen, with the Bank of Japan once again falling short of expectations. The yen rose in the aftermath, even as some traders said the move higher would be limited.

“A dominate yen outshined its rivals after actions by the Bank of Japan were considered by many to be underwhelming and disappointing,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Japan’s central bank, which has been under intense political pressure to overcome deflation, doubled its inflation target to 2 percent, as had been widely expected.

It also said it had decided to switch to an open-ended approach of buying a certain amount of assets each month next year, without setting a deadline for completing the purchases.

The dollar was down 0.9 percent against the yen at 88.74. Earlier, it had fallen past reported stops at 88.50 yen to hit a session low of 88.35.

Traders cited bids at 88.00-88.20 yen while chart support was at the January 16 low. The dollar had risen to 90.06 yen immediately after the BOJ decision, not far from its 2-1/2-year high of 90.25 yen, but later retreated.

The yen’s recovery was likely to be short-lived and the dollar would rise against the yen in the coming months, analysts said.

“The general upward move in dollar/yen will continue due to expectations of more easing after a new BoJ governor is appointed in April,” said Bernd Berg, global FX strategist at Credit Suisse, adding that the dollar could rise to 92 yen in the next few months.

Current BoJ Governor Masaaki Shirakawa’s term ends in April and markets are positioned for further yen weakness as most expect him to be replaced by someone whose stance on aggressive policy easing matches that of Prime Minister Shinzo Abe’s.

EURO RECOVERS

The euro was down 1 percent on the day at 118.16 yen, though off a session low of 117.31. The euro was hurt against the yen by a German newspaper report saying Germany’s regulator had ordered large banks to simulate a break-up.

A report showing U.S. home resales unexpectedly fell in December added to volatility and pressure on the euro and dollar, though the data was not seen as enough to derail the boost housing will likely provide to the economy this year.

Against the dollar, the euro was little changed at $1.3317.

While the euro has struggled to break above the $1.34 level since it hit a near 10-month high a week ago, strategists said it was likely to remain firm as concerns around the euro zone crisis ease.

The German ZEW figures beat all expectations, a sign that the euro zone crisis was no longer hitting Europe’s largest economy as hard as it was last year.

“The euro can cross the $1.34 mark to reach $1.35 as early as the end of this week if data out of Germany continues to be strong,” said Joerg Angele, FX strategist at Raiffeisen Bank International in London.

But Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, cautioned that failing to breach $1.34 may mean a near term-top is in place for the euro.

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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