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Broadgate: Market News 2/7

2 July 2012

Stocks surged on Friday to close out a sour quarter on a high note as investors cheered an agreement by European leaders to stabilize the region’s banks, a pact that helped remove some of the uncertainty that has plagued markets.

The broad rally was the S&P 500’s best day since December 20 and helped the benchmark index trim its quarterly loss to 3.3 percent.

The decline marked the S&P 500’s first down quarter in the last three after tumultuous Greek elections and concerns about the solvency of Spanish banks roiled financial markets around the world.

“You are going to be see a nice summer rally out of this. Think of where this market would be if it hadn’t been for the euro crisis,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

“The market is now looking at least six to eight months forward on what is the economic landscape going to look like in an improving European growth environment.”

Euro-zone leaders agreed that countries would be able to recapitalize banks directly without increasing a country’s budget deficit.

Such a move creates a catalyst to snap the cycle that markets fell into when policymakers bailed out Spanish banks with $125 billion, but ended up further exacerbating Spain’s sovereign debt problem and shunting existing bondholders down the food chain.

Among Wall Street’s few decliners in Friday’s session, Ford Motor Co fell 5 percent to $9.59 after the automaker became the latest large multinational to warn on weakness stemming from Europe, joining the likes of Procter & Gamble Co and Hewlett-Packard.

Sectors sensitive to euro-zone developments ranked among the best performers. U.S. bank stocks were among the market leaders as the KBW bank index .BKX jumped 2.7 percent. Shares of Bank of America Corp rose 5.7 percent to $8.18. The PHLX Europe sector index climbed 4 percent.

Investors also cited end-of-quarter portfolio adjustments as helping to fuel Friday’s gains, in addition to the EU agreement.

The Dow Jones industrial average jumped 277.83 points, or 2.20 percent, to 12,880.09 at the close. The Standard & Poor’s 500 Index rose 33.12 points, or 2.49 percent, to 1,362.16. The Nasdaq Composite Index climbed 85.56 points, or 3.00 percent, to 2,935.05.

For the week, the Dow gained 1.9 percent, the S&P 500 rose 2 percent and the Nasdaq advanced 1.5 percent.

For the month of June, the Dow rose 3.9 percent, the S&P climbed 4 percent and the Nasdaq added 3.8 percent.

But for the second quarter, the Dow fell 2.5 percent, the S&P 500 lost 3.3 percent and the Nasdaq dropped 5.1 percent.

Italian and Spanish borrowing costs fell, though they remained not far from recent highs. Investors’ expectations for any action during a two-day European Union summit had dissipated, giving markets room to bounce on the unexpected good news.

Brent and U.S. crude oil prices soared on the back of the EU agreement. Energy futures prices also got a boost from the euro’s jump of almost 2 percent against the U.S. dollar. The S&P energy sector index added 3.1 percent.

The EU summit news overshadowed a batch of mixed U.S. data. U.S. consumer spending stalled in May as auto purchases flagged while consumer sentiment hit a six-month low in June in the latest signs of trouble for the economy.

Although another report on Friday showed manufacturing activity in the Midwest picked up this month, factories saw a modest decline in new orders.

Attention in Europe now turns to next week’s European Central Bank meeting. The consensus is that the bank will cut its main refinancing rate by 25 basis points to 0.75 percent and may trim the deposit rate – the rate it pays banks for parking money with it – by 25 basis points to 0 percent.

“You have more fireworks coming next week when the ECB meets on the fifth because I have to believe they are going to cut their interest rates by at least a half to stimulate growth,” Mendelsohn said.

Shares of KB Homes jumped 12.6 percent to $9.80 after the fifth-largest U.S. homebuilder reported a narrower second-quarter loss, helped by higher sale prices and net orders.

Nike shares slumped 9.4 percent to $87.78 a day after the world’s largest sportswear maker missed quarterly profit estimates for the first time in at least two years.

U.S.-traded shares of Research in Motion tumbled 19.1 percent to $7.39 in the wake of the company’s decision to delay the make-or-break launch of its next-generation BlackBerry phones until next year.

Volume was active with about 7.69 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, above the daily average of 6.85 billion.

Advancing stocks outnumbered declining ones on the NYSE by 2,669 to 388. On the Nasdaq, advancers beat decliners by 2,174 to 376.

Commodities

Brent crude dropped towards $96 a barrel on Monday as weak factory data from top energy consumer China spurred caution, after oil prices posted their fourth biggest daily gain on record in the prior session.

Brent crude fell $1.45 to $96.35 a barrel by 11.46 p.m EDT on Sunday while U.S. crude shed $1 to trade at $83.96.

Gold prices edged down on Monday, taking a breather after a 3-percent rally in the previous session, as the initial euphoria over a euro zone deal to help its debt-laden members gave way to caution over its effectiveness.

Spot gold edged down 0.3 percent to $1,592.51 an ounce by 11.43 EDT on Sunday. The precious metal posted a monthly gain of more than 2 percent in June, its first in five months.

U.S. gold futures contract for August delivery lost 0.7 percent to $1,593.20.

Currencies

The euro fell against most peers before data today that may show the currency bloc’s jobless rate climbed to a record and manufacturing contracted, boosting prospects the European Central Bank will cut interest rates.

The euro dropped 0.4 percent to $1.2620 as of 11:50 a.m. in Tokyo from the close in New York on June 29. It fell 0.4 percent to 100.68 yen after rising 2.2 percent at the end of last week, the biggest advance on a closing basis since March 2011. The greenback was little changed at 79.77 yen.

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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