Broadgate: Market News 28/11
28 November 2012
Stocks slid on Tuesday in a choppy session, losing ground in the last hour before the close after Senate Majority Leader Harry Reid expressed disappointment that there has been “little progress” in dealing with the “fiscal cliff.”
The market was flat for most of the session but fell sharply after Reid’s comments, a signal that investors remain skittish about the wrangling in Washington. The CBOE Volatility Index, or VIX, rose on Reid’s words.
“It may be that the market feels the goodwill before (last week’s) Thanksgiving is evolving into more political intransigence,” said Quincy Krosby, market strategist at Prudential Financial in Newark.
“The clock is ticking on Wall Street, regarding a framework for (political) consensus,” she said.
Markets are focused on whether Congress and the White House can agree on ways to avoid some $600 billion in automatic spending cuts and tax increases that are due to kick in early next year.
As budget talks linger, Las Vegas Sands and Supertex added their names to a growing list of companies announcing special dividends aimed at helping investors avoid a possibly higher tax burden next year.
Higher dividend and capital gains taxes are part of the negotiations in Washington and may rise even if a deal is crafted.
Las Vegas Sands jumped 5.3 percent to $46.36. Supertex rose 6.9 percent to $18.
The S&P 500’s modest losses on Tuesday marked its worst day in eight sessions – indicating traders are unwilling to sell aggressively as a deal probably would trigger a rally. The benchmark S&P 500 once again closed below 1,400, a key psychological level that it had reclaimed last week as it rose nearly 4 percent.
The VIX shot up 2.7 percent to 15.92 at the close. Between 2 p.m. and 3 p.m. in New York, the VIX was up 3.9 percent.
The Dow Jones industrial average fell 89.24 points, or 0.69 percent, to 12,878.13 at the close. The S&P 500 dropped 7.35 points, or 0.52 percent, to finish at 1,398.94. The Nasdaq Composite lost 8.99 points, or 0.30 percent, to end at 2,967.79.
Dealings in Washington obscured strong economic figures, including an increase in planned business spending and consumer confidence hitting its highest level in more than four years.
Strengthening the case for a sustained rebound in housing, single-family home prices rose for an eighth straight month in September. Shares of M/I Homes gained 2.1 percent to $22.36. KB Home added 1.1 percent to $14.61.
“As long as you have interest rates as low as they are right now, housing is definitely back,” said Brian Amidei, managing director at HighTower Advisors in Palm Desert, California.
In another good sign for consumer demand, Corning Inc shares rose 6.9 percent to $12.13 after the specialty glass maker said it expects full-year sales of its Gorilla glass, used in smartphones and tablets, to approach $1 billion.
Food maker Ralcorp Holdings shares jumped 26.4 percent to $88.80 after long-time suitor ConAgra Foods sealed a deal to buy it for $5 billion. ConAgra shares gained 4.7 percent to $29.63.
McMoRan Exploration Co shares tumbled 15.2 percent to $8.18 a day after the oil and gas driller gave a disappointing update on a key gas prospect in a Gulf of Mexico well.
About 5.9 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average so far this year of about 6.5 billion shares.
On the NYSE, roughly five issues fell for every four that rose. On Nasdaq, six stocks fell for every five that rose.
Yen jumps, euro drops on U.S. fiscal fear, Greece debt doubt
The yen soared and the euro moved away from the previous session’s one-month high against the dollar in Asian trading Wednesday as investors’ relief about a new debt target for Greece turned to unease over the looming U.S. fiscal crisis.
The U.S. Congress pushed toward compromise on Tuesday on the “fiscal cliff” of tax increases and spending cuts due to take effect from early next year, but an agreement still appeared elusive despite growing pressure from American business interests for action.
Comments by U.S. Senate Majority Leader Harry Reid on Tuesday about the lack of progress by Democratic and Republican lawmakers also fanned concerns.
Investors unwound long dollar and euro positions against Japan’s currency. The yen had lost about 4 percent against the dollar over the past two weeks as investors started to price in a possible shift in monetary policy after Japan’s December 16 election. Shinzo Abe, likely to emerge as the country’s next leader, has called for more aggressive easing.
“Worries about the U.S. fiscal cliff have increased, while the effects of the ‘Abe trade’ have faded for now,” said Masashi Murata, senior forex strategist at Brown Brothers Harriman. “The market wants to see what the Bank of Japan actually does,” he said.
Disappointment about the lack of details in the Greece deal added to pressure on the euro. While international lenders agreed on a plan to cut Greek debt, which will allow the country to secure more financial aid and avoid a chaotic default, market skepticism grew over a lack of detail on how Athens will implement the reforms needed to meet its new targets.
“The purpose of the meeting was supposed to have been not to just give Greece additional funding, but to consider the evidence that Greece deserved to receive additional funding,” said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.
“This purpose was not fulfilled, which is why the euro buying has halted,” he said.
Europe’s “muddle-through approach” on Greece threatens to amplify the outcome of the U.S. fiscal talks on the euro, strategists at Barclays wrote in a note to clients on Wednesday.
“If they go well, the relief on peripheral assets may have legs, including the euro. If it goes bad, even France may get questioned by an uncertain market, and we would expect the euro to suffer,” they said.
The euro had been in a rising trend against the dollar since last week, as investors’ hopes rose that a deal on Greece would be reached and that U.S. lawmakers would make progress on addressing the fiscal impasse. The single currency rose as high as $1.3010 on Tuesday on trading platform EBS, its highest level since late October.
The euro was down about 0.2 percent in Asia at $1.2920, after earlier breaking below support at its 55-day moving average at $1.2918. Support was also cited at the 38.2 percent Fibonacci retracement of its recent rally at $1.2877.
The European unit also skidded 0.6 percent to 105.69 yen, moving away from a seven-month high of 107.135 yen set on Monday. Stop-loss orders were said to be placed around 105.50 yen.
The dollar dropped about 0.4 percent to 81.81 yen, moving away from a 7-1/2 month high of 82.84 yen reached last Thursday.
The dollar got no help from starkly diverging messages from U.S. Federal Reserve officials on Tuesday. Charles Evans, president of the Chicago Federal Reserve and one of the Fed’s most outspoken doves, said interest rates should stay near zero until the jobless rate falls to at least 6.5 percent.
But Dallas Fed President Richard Fisher said the U.S. central bank needs to not set a limit on the amount of assets it is willing to buy.
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