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Broadgate: Market News 27/7

27 July 2012

Stocks rode a wave of hope inspired by comments from European Central Bank President Mario Draghi on Thursday, ignoring mixed corporate results to focus on the strongest signal yet of the ECB’s intentions to protect the euro zone.

Europe’s debt woes have taken a toll on stocks at times during the past two years and more recently have manifested themselves in lackluster corporate results. The most recent disappointments came from United Technologies and Dow Chemical, which blamed overseas demand for weak results.

Draghi hinted the ECB would target high sovereign bond yields, a measure the ECB has been reluctant to take in the past. Policymakers have made similar statements about saving the euro before, but if these remarks result in decisive action in European bond markets, it could spur a sizable rally in stocks.

“It’s certainly a vote of confidence,” said Kathy Karlic, chief client officer at Wilmington Trust Investment Advisors in Buffalo, New York, which has $20 billion in assets under management.

“The wall of worry for the euro zone has always been there, but another round of liquidity is very positive.”

Shares in sectors more sensitive to risks in Europe and economic demand, such as energy-related stocks and industrials, were among the day’s best performers, with the S&P 500 energy index up 2.7 percent.

Worries about Europe have also pressured earnings forecasts, with third-quarter S&P 500 earnings now seen falling for a year-over-year decline.

Diversified manufacturer 3M, whose stock rose 2.1 percent to $90.59 after its results beat estimates, helped boost the Dow and was among the brighter spots of the earnings season.

Zynga shares ended down 37.5 percent at $3.17 after hitting an all-time low, a day after the company slashed its profit outlook after fading enthusiasm for its games on Facebook.

After the closing bell, shares of Facebook tumbled 11 percent to $23.87 after reporting its first quarterly results since Facebook’s market debut. During the regular sessions its shares lost 8.5 percent.

Amazon.com shares were down 0.5 percent at $218.88 after the close following the release of its results. The online retailer forecast third-quarter revenue that lagged Wall Street’s projections.

During the regular session, shares of Sprint Nextel Corp jumped 20.2 percent to $4.05 after the company posted earnings.

Sales performance this reporting period has lagged earnings. With results in from about half of the S&P 500 companies, 65 percent have beaten analyst earnings estimates but just 41 percent have beaten on revenue, Thomson Reuters data showed.

The Dow Jones industrial average was up 211.88 points, or 1.67 percent, at 12,887.93. The Standard & Poor’s 500 Index was up 22.13 points, or 1.65 percent, at 1,360.02. The Nasdaq Composite Index was up 39.01 points, or 1.37 percent, at 2,893.25.

Shares of United Technologies ended up 0.4 percent at $72.93 while shares of Dow Chemical dropped 3.6 percent to $29.18.

The S&P 500 ended above the technically important 1,333 level, and a sustained move above that level is seen as bullish. The level marks a convergence of several technical factors, including the index’s 50-day moving average, and has served as support for stocks.

In economic news, the number of Americans filing new claims for jobless benefits fell last week near a four-year low, although the figures have been volatile due to summer factory shutdowns. Durable goods orders for June were better than expected, but a slip in pending home sales underscored the fragility of the economy.

Volume was 7.44 billion shares on the New York Stock Exchange, the Nasdaq and Amex, compared with the year-to-date daily average of 6.74 billion shares.

Advancers beat decliners on the NYSE by about 11 to 4 and on the Nasdaq by about 2 to 1.

Commodities

Brent remained over $105 per barrel on Friday, buoyed by a European Central Bank pledge to protect the euro zone and hopes for fresh stimulus in the United States, though it stayed on track for its biggest weekly drop in more than a month.

Brent crude was up 39 cents at $105.65 per barrel by 13.30 p.m. EDT, while West Texas Intermediate (WTI) had risen 22 cents to $89.61 per barrel. Both Brent and U.S. crude remained on course for their biggest weekly drop in a month, however.

Gold held steady above $1,600 an ounce on Friday, on course for its biggest weekly gain in more than a month, after European Central Bank President Mario Draghi signaled the bank would do whatever was necessary to hold the euro zone together.

Spot gold was little changed at $1,614.46 an ounce by 11.49 p.m. EDT, after rising to a three-week high of $1,621.41 an ounce on Thursday. Prices were headed for an almost 2 percent gain this week, the best week in more than a month.

U.S. gold futures contract for August delivery edged down $1.30 to $1,613.80.

Currencies

The euro steadied in Asian trading on Friday after rallying on European Central Bank chief Mario Draghi’s vow to hold the euro zone together, as investors prepared for U.S. second-quarter gross domestic product data later in the session.

The euro traded at $1.2276, down from a two-week high of $1.2330 hit overnight but well above a two-year low of $1.2042 marked on trading platform EBS earlier this week. The next upside target is $1.2395-$1.2407, which is 50 percent retracement of the decline from 1.2748 on June 18 to this week’s low.

The dollar held steady at 78.27 yen, above a seven-week low of 77.94 yen hit on Monday.

The increase in risk appetite benefited the Australian dollar, which rose to a one-week high of $1.0423 on Thursday and was last buying $1.0392.

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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