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Broadgate: Market News 27/9

27 September 2012

The S&P 500 fell for a fifth straight trading day on Wednesday as protests in Spain and Greece over euro zone austerity measures raised fresh concerns over Europe’s ability to get its debt crisis under control.

Investors sold risk-sensitive sectors such as energy and tech, while they poured money into more defensive areas like utilities and consumer staples. The S&P technology sector declined 0.8 percent and the energy sector fell 0.9 percent, while S&P utilities ended up 0.2 percent.

Violent protests in Madrid against expected austerity measures and growing talk of secession in the wealthy Catalonia region increased pressure on Spanish Prime Minister Mariano Rajoy as he moves closer to asking euro zone policymakers for rescue money.

Meanwhile, Greece faced its biggest anti-austerity protest in more than a year as international lenders admitted to difficulty in working out how to solve Athens’ debt crisis.

“When it gets down to it, there is real disagreement between the people in the streets and the policy makers” in Europe, said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

“I think it’s certainly causing some concerns” for investors, he said, adding, “The market’s probably looking for an excuse to have a correction.”

The S&P 500 is up 5.2 percent so far for the third quarter and 1.9 percent for September, historically a weak month for equities. Gains were largely tied to actions taken by the U.S. Federal Reserve and European Central Bank to prop up their economies.

For the day, the Dow Jones industrial average was down 44.04 points, or 0.33 percent, at 13,413.51. The Standard & Poor’s 500 Index was down 8.27 points, or 0.57 percent, at 1,433.32. The Nasdaq Composite Index was down 24.03 points, or 0.77 percent, at 3,093.70.

Longer term, the outlook for stocks appeared more positive. While the S&P 500 wasn’t expected to move much from its current level through the end of the year, according to a Reuters poll of analysts, it should advance in the first half of 2013, largely on central bank actions.

Also weighing on tech shares Wednesday, Jabil Circuit tumbled 9.9 percent to $18.90 after the technology company reported fourth-quarter earnings that missed expectations and forecast weak first-quarter results.

Other recent earnings warnings from companies including FedEx Corp, the world’s second biggest package delivery company, and Caterpillar Inc, the biggest maker of earth-moving equipment, have sparked concerns about global growth.

Outlooks for the third quarter are at the most negative since 2001, according to Thomson Reuters data. The negative-to-positive ratio for the upcoming earnings period stands at 4.3 to 1.

On the plus side for the day, American Greetings Corp jumped 17.3 percent to $16.82 after the company said it received an offer to go private from a group led by its chief executive, valuing the greeting card company at about $580 million.

Economic data showed prices of new U.S. single-family home sales vaulted to their highest level in more than five years in August, the latest evidence the housing market was making progress.

Volume was roughly 6.54 billion shares traded on the New York Stock Exchange, the Nasdaq and the Amex, compared with the year-to-date average daily closing volume of 6.53 billion, even though many participants were out for the observance of the Jewish holiday of Yom Kippur.

Decliners outnumbered advancers on the NYSE by about 17 to 12, and on the Nasdaq by about 5 to 3.

Central bank cash filtering through financial markets will nudge global stocks higher between now and year-end, Reuters polls showed on Wednesday, with gains in the first half of next year likely to be more modest.

Since last year’s disastrous showing, most of the world’s major stock indexes have gained steadily this year and over 400 analysts surveyed around the globe over the last week largely expect that trend to continue into the new year.

All but one major index – crisis-hit Spain’s – was expected to be higher at the end of December than it is now.

Analysts tipped major indexes in Russia, Brazil, and mainland China for the biggest rise between now and mid-2013.

Still, the overall tone of the survey was cautious in comparison with previous polls, even among notoriously over-optimistic equity strategists.

They predicted double-digit gains between now and midway through next year for six out of the 20 stock markets covered in the latest poll, compared with expectations for 14 this time a year ago.

Feeble economies were cited as the biggest reason why most markets can expect fairly muted gains in the months ahead, acting against the hundreds of billions of dollars in central bank cash that have bloated stock markets.

“I’ve never been faced with a time in my career where the next six months were so critical and that includes the crisis of 2007-08,” said Peter Gibson, chief portfolio strategist at CIBC World Markets.

Although the risk of a euro zone disaster seems to have eased for now, analysts are worried U.S. politicians will fail to avert some $600 billion in automatic spending cuts and expiring tax breaks early next year – dubbed the “fiscal cliff”.

The outlook for major European economies remains dire, as most have floundered badly this year, and there seems little prospect of a sudden upturn soon.

Europe’s economic misfortunes hit Asian exporters hard this year, dampening the outlook for emerging market stocks.

Still, as usual in the stock markets poll, emerging market stocks were tipped for the heartiest gains from now.

RALLY IN RECESSION

European shares have rallied since the European Central Bank revealed plans to buy the government debt of struggling euro zone countries – welcomed by economists as an important step to prevent the region’s debt crisis escalating.

German shares, rather than fast-growing emerging market stocks, have soared the most this year, with the DAX 30 up more than 25 percent since the start of the year.

But that rally is likely coming to an end, with Germany’s economic peers in Europe struggling badly.

Analysts expect the DAX will manage little better than a 2 percent gain from now until mid-2013 – the weakest rise projected for any of the poll’s 20 indexes.

U.S. stocks also look set for some low-key few months ahead, having achieved double-digit gains so far this year. The S&P 500 is expected to rise less than 3 percent between now and the end of the year.

There was a palpable sense of uncertainty in forecasts for American stocks, partly reflecting the presidential election coming in November. The fiscal cliff was foremost among worries for U.S. stock watchers.

“I’ve become a little more bearish about an adverse outcome from the fiscal cliff, which I think Wall Street has gotten complacent about,” said David Joy, chief market strategist at Ameriprise Financial, which has about $570 billion in assets.

“I’m going to predict it gets triggered,” said Joy, who sees the S&P 500 falling to 1,350 by mid-13, largely because of these events. The S&P closed at 1441.59 on Tuesday, its worst day since June.

In common with previous polls, analysts earmarked Brazilian and Russian shares among the strongest performers from now.

Moscow’s RTS .IRTS could rise 15.8 percent from now until mid-2013, while respondents tipped Brazil’s Bovespa for a 15.7 percent gain over the same timeframe.

And, as with almost all the other indexes, analysts cited the wall of cash central banks have been throwing at markets as critical for their positive outlook.

“Even though (Brazil’s) economy is accelerating and confidence is rising, the motor is really external,” said Katherine Rooney Vera, a strategist with Bulltick Capital Markets in Miami.

“It’s the Fed flooding the market with liquidity, absolutely pushing investors to look for yields.”

Commodities

Brent futures held steady above $110 on Thursday on renewed worries of supply disruptions from the Middle East, while an escalating euro zone debt crisis reinforced oil demand growth concerns and capped gains.

Front-month Brent crude rose 9 cents to $110.13 a barrel by 0522 GMT, partly recouping the previous session’s losses, while U.S. oil gained 24 cents to $90.22.

Gold edged up on Thursday from a two-week low hit in the previous session, but continued worries over the euro zone debt crisis that has lifted the dollar and weakened oil is expected to cap bullion’s gains.

Spot gold rose about 10 percent in the last five weeks to a near 7-month high on stimulus measures by central banks. But prices have come off this week, dropping to a two-week low of $1,737.50 on Wednesday.

By 0525 GMT, gold edged up 0.3 percent $1,756.99 an ounce. U.S. gold had inched up 0.3 percent to $1,759.60.

Spot platinum was up 0.1 percent to $1,630.

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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