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Broadgate: Market News 24/1

24 January 2013

The S&P 500 rose for a sixth day on Wednesday after stronger-than-expected profits from IBM and Google but the rally could be halted as Apple’s after-hours miss sent its shares lower.

The S&P was just 4.7 percent from its all-time closing high as IBM’s and Google’s earnings, released after Tuesday’s close, followed on the heels of stronger U.S. economic data.

“People were kind of nervous about earnings coming into this quarter but numbers have shown so far strength in earnings,” said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco.

But Apple, still the largest U.S. publicly traded company, fell 8 percent in extended trading after sales of its flagship iPhone came in below analyst targets and quarterly revenue slightly missed Wall Street expectations.

“One thing that stands out is the company’s ballooning balance sheet, where they now have $137 billion dollars in cash and investments,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut. “You’ve got to wonder when they’re going to put some more of that to work.”

Declining issues beat advancers in both the NYSE and Nasdaq during regular market hours, in a sign the market’s rally may be overstretched. The broad Russell 2000 index .RUT closed the day down 0.3 percent after earlier hitting and intraday historic high just below 900 points.

Shares in IBM Corp, the world’s largest technology services company, climbed 4.4 percent during regular market hours to $204.72, providing just about all of the Dow’s 67-point gain.

Also helping the tech sector was a 5.5 percent jump in Google Inc to $741.50. The Internet search company reported its core business outpaced expectations and revenue was higher than expected.

The S&P technology sector rose 1.2 percent.

The Dow Jones industrial average rose 67.12 points or 0.49 percent, to 13,779.33, the S&P 500 gained 2.25 points or 0.15 percent, to 1,494.81, and the Nasdaq Composite added 10.49 points or 0.33 percent, to 3,153.67.

The benchmark S&P 500 is a mere 0.35 percent away from hitting 1,500, a level not seen since December 12, 2007.

S&P 500 futures fell 4.1 points, or 0.3 percent, while Nasdaq 100 futures fell 20 points or 0.7 percent.

Netflix shares soared 32 percent, above $136, after the video subscription service said it added subscribers in the United States and abroad and posted a quarterly profit.

LED maker Cree Inc jumped 22 percent to $40.85 after it forecast a higher-than-expected third-quarter profit, and reported results above analysts’ estimates.

Upscale leather goods maker Coach Inc plunged 16.4 percent to $50.75 after reporting sales that missed expectations.

Clearing a market hurdle, the U.S. House of Representatives passed a Republican-led plan to extend the country’s borrowing authority until mid May. This delays a confrontation in Congress similar to one in 2011, which generated a stalemate that triggered the first-ever U.S. debt rating downgrade.

Thomson Reuters data through Wednesday showed that of the 99 S&P 500 companies that have reported earnings so far, 67.7 percent have topped expectations, above the 65 percent average beat over the past four quarters.

Overall, S&P 500 fourth-quarter earnings rose 2.8 percent, according to Thomson Reuters data. That estimate is above the 1.9 percent forecast at the start of earnings season.

Top U.S. manufacturers sounded a confident note about their expectations for 2013 on Wednesday as fears of the year-end “fiscal cliff” faded into memory.

In the regular session, about 6.1 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the 2012 daily average of about 6.45 billion.

On the NYSE, roughly 15 issues fell for every 14 that rose and on Nasdaq seven declined for every five gainers.

Currencies

The yen’s rebound came to an abrupt halt on Thursday with investors wary about cutting bearish bets further amid expectations the Bank of Japan will come under renewed pressure to ease policy.

Risk sentiment took something of a hit early when Apple disappointed the Street, sending its shares down 10 percent and hurting stock futures. High beta currencies such as the Australian dollar ticked down on the news, though the impact across the forex market was limited as yet.

Markets are now waiting for fresh cues including Japan’s trade numbers for December due at 2350 GMT and HSBC’s flash report on China’s manufacturing sector at 0145 GMT.

For its part, the U.S. dollar did climb back to 88.58 yen from a one-week trough of 88.06. On Monday, the greenback rose to a 2-1/2 year high of 90.25.

In a similar move, the euro was back near 118.00 yen, having slid to a one-week low of 117.06. It was still within reach of a 20-month high of 120.73.

Investors had reduced short yen positions earlier this week after the BOJ was deemed to have disappointed by not immediately upsizing its asset-purchasing program. This was despite the BOJ delivering its boldest policy yet to snap the economy out of years of stagnation.

But yen bears have not given up, suspecting that retiring BOJ Governor Masaaki Shirakawa will soon be replaced with a much more dovish governor, who could then bring forward any easing.

So far the yen’s rebound has proved shallow and while some traders expect the correction may not be over yet, most are of the view that dollar/yen will continue to climb over time.

“Dollar/yen looks vulnerable in the short-term, although its longer-term outlook is still for an attack on 100 over the coming year,” said Steven Barrow, an analyst at Standard Bank.

With the yen taking center stage this week, the other currencies were mostly sidelined. The euro appeared to have carved out a slim $1.3250/1.3400 trading range since its last burst higher on January 10. It last stood at $1.3315.

Traders, though, expect the euro can still outperform the dollar given the European Central Bank’s more upbeat outlook for the euro zone compared with the Federal Reserve’s cautious view on the U.S. economy.

ECB President Mario Draghi on Tuesday underscored that optimism, saying the euro zone can begin 2013 with more confidence than last year. But he warned it was up to governments to carry the bloc forward with reforms.

Among commodity currencies, the major mover was the Canadian dollar which slumped after the Bank of Canada pushed back the timing of any interest rate hike due in part to excess capacity in the economy and soft inflation.

That saw the U.S. dollar rise to a two-month high of C$1.0005. It was last at C$0.9995. The Aussie strongly outperformed its Canadian counterpart, scaling a 5-1/2 month high of C$1.0547. The New Zealand dollar surged to its highest since 2007.

“We see further upside risks for AUD/CAD above $1.0600 and NZD/CAD above $0.8400. At the same time, our preference is to sell USD/CAD on rallies above parity, with $1.0050 the first notable resistance level,” said Vassili Serebriakov, strategist at BNP Paribas.

Generally, demand for risk assets should stay buoyant with Europe looking better and the immediate threat of the U.S. government reaching its debt ceiling removed for now.

The U.S. House of Representatives passed a Republican plan to allow the federal government to keep borrowing money through mid-May, clearing it for fast enactment after the top Senate Democrat and White House endorsed it.

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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