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Broadgate: Market News 27/2

27 February 2013

U.S. stocks rebounded from their worst decline since November on Tuesday after Federal Reserve Chairman Ben Bernanke defended the Fed’s bond-buying stimulus and sales of new homes hit a 4 1/2-year high.

The S&P 500 had climbed 6 percent for the year and came within reach of all-time highs before the minutes from the Fed’s January meeting were released last Wednesday. Since then, the benchmark S&P 500 has fallen 1 percent.

Bernanke, in testimony on Tuesday before the Senate Banking Committee, strongly defended the Fed’s bond-buying stimulus program and quieted rumblings that the central bank may pull back from its stimulative policy measures, which were sparked by the release of the Fed minutes last week.

Bernanke’s comments helped ease investors’ concerns about a stalemate in Italy after a general election failed to give any party a parliamentary majority, posing the threat of prolonged instability and financial crisis in Europe, and sending the S&P 500 to its worst decline since November 7 in Monday’s session.

Bernanke “certainly said everything the market needed to feel in order to get comfortable again,” said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.

“The fear is we were going to see a rollover, and the first shot over the bow was what we saw out of Italy yesterday with the elections,” Kenny said. “When it came to U.S. markets, we saw some of that bleeding stop because our focus shifted from the Italian political circus to Ben Bernanke.”

Gains in homebuilders and other consumer stocks, following strong economic data, lifted the S&P 500, and a 5.7 percent jump in Home Depot to $67.56 boosted the Dow industrials. The PHLX housing sector index rose 3.2 percent.

Economic reports that showed strength in housing and consumer confidence also supported stocks. U.S. home prices rose more than expected in December, according to the S&P/Case-Shiller index. Consumer confidence rebounded in February, jumping more than expected, and new-home sales rose to their highest in 4-1/2 years in January.

However, the central bank chairman also urged lawmakers to avoid sharp spending cuts set to go into effect on Friday, which he warned could combine with earlier tax increases to create a “significant headwind” for the economic recovery.

The Dow Jones industrial average gained 115.96 points, or 0.84 percent, to 13,900.13 at the close. The Standard & Poor’s 500 Index rose 9.09 points, or 0.61 percent, to 1,496.94. The Nasdaq Composite Index advanced 13.40 points, or 0.43 percent, to close at 3,129.65.

Despite the bounce, the S&P 500 was unable to move back above 1,500, a closely watched level that was technical support until recently, but could now serve as a resistance point.

The CBOE Volatility Index or the VIX, a barometer of investor anxiety, dropped 11.2 percent, a day after surging 34 percent, its biggest percentage jump since August 18, 2011.

The uncertainty caused by the Italian elections continued to weigh on stocks in Europe. The FTSEurofirst-300 index of top European shares closed down 1.4 percent. The benchmark Italian index tumbled 4.9 percent.

Home Depot gave the biggest boost to the Dow and provided one of the biggest lifts to the S&P 500 after the world’s largest home improvement chain reported adjusted earnings and sales that beat expectations.

Macy’s shares gained 2.8 percent to $39.59 after the department-store chain stated it expects full-year earnings to be above analysts’ forecasts because of strong holiday sales.

Volume was active with about 7.08 billion shares traded on the New York Stock Exchange, NYSE MKT and Nasdaq, above the daily average of 6.48 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 2 to 1, while on the Nasdaq, three stocks rose for every two that fell.

Currencies

The yen held onto its edge against its major counterparts in Asian trading on Wednesday as investors awaited an Italian bond auction later in the session which could give clues on the direction of the euro.

Italy’s borrowing costs have soared on the back of a political stalemate following its recent election, creating a challenging environment for the country’s sale of new 10-year bonds and five-year paper.

Markets are already uneasy after the election produced no clear winner and the single currency could lose ground again if Italy is forced to pay far higher borrowing costs than before the polls.

The dollar was at 91.90 yen, down about 0.1 percent from North American trading on Tuesday but still managing to hold above a one-month low of 90.85 touched on Monday. The euro stood at 120.05, down about 0.1 percent but above Monday’s one-month low of 118.74 yen.

The euro struck a 34-month high of 127.71 yen on February 6, and the dollar hit a 33-month high of 94.77 yen on Monday.

“The overall trend of yen weakness might still be intact, but there is a perception in the market that Monday’s move was overdone,” aid Marito Ueda, director at FX Prime Corp. in Tokyo.

The Japanese currency was caught between investors seeking to book profits on bearish positions and those building new short positions at these levels, market participants said.

The yen has been the worst performing major currency so far this year as investors bet on more aggressive policies from the Bank of Japan to whip deflation, and investors have positioned for more monetary stimulus.

This week’s sharp yen gains sparked by fears of political deadlock in Italy were a wake-up call to investors and a challenge to Prime Minister Shinzo Abe.

BERNANKE SOOTHES JANGLED NERVES

Comments from Federal Reserve Chairman Ben Bernanke on Tuesday helped alleviate some market concerns about an early end to the Fed’s bond buying program, which also somewhat cooled demand for the greenback.

The renewed market angst about the euro zone saw investors quickly switch focus to the euro from the yen.

The euro plumbed a seven-week trough of $1.3017 on the EBS trading platform on Tuesday. It last traded at $1.3065, nearly flat from Tuesday’s late U.S. levels. The common currency has shed about 5 percent since peaking at a 15-month high of $1.3711 on February 1.

“It seems likely that the stop of 1.2980 on our long EURUSD recommendation (from 1.3180 established last week) is at risk,” said BNP Paribas strategist Vassili Serebriakov.

“However we do not believe this is the start of the next round of a Europe-wide debt crisis, given that Italy’s overall fiscal position is relatively stable and that investors do not appear to be overweight European assets, which should limit the impact of any unwind.”

Renewed European concerns also took a toll on commodity currencies. The Australian dollar was slightly lower at $1.022, after it fell to four-month low of $1.0198 on Tuesday but did not sustain a break of $1.0200. A clean break below that level would bring into focus the October low of $1.0149.

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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