Logo

Passionate about investing

Broadgate: Market News 28/2

28 February 2013

Stocks rose on Wednesday, with major indexes posting their best daily gains since early January, as Federal Reserve Chairman Ben Bernanke remained steadfast in supporting the Fed’s stimulus policy and data pointed to economic improvement.

In a second day before a congressional committee, Bernanke defended the Fed’s buying of bonds to keep interest rates low to boost growth. The market’s jump of more than 1 percent also came on better-than-expected data on business spending plans and the housing market.

Bernanke’s remarks helped the market rebound from its worst decline since November and put the S&P 500 index back above 1,500, a closely watched level that has been technical support until recently. The Dow Jones industrial average closed at a level not seen since 2007 as it again pulled within striking distance of an all-time high.

Speaking before the House Financial Services Committee, Bernanke downplayed signs of internal divisions at the Fed, saying the policy of quantitative easing, or QE, has the support of a “significant majority” of top central bank officials.

Bernanke removed a headwind from markets arising from concerns the Fed’s quantitative easing might end earlier than anticipated. Doubts about the Fed’s intentions had broken a seven-week streak of gains by stocks.

“The Fed continues to encourage risk-taking in markets, which is a powerful tool that makes the danger not being long stocks, not in being too long,” said Tom Mangan, a money manager at James Investment Research Inc in Xenia, Ohio.

The Dow Jones industrial average was up 176.32 points, or 1.27 percent, at 14,076.45. The Standard & Poor’s 500 Index was up 19.07 points, or 1.27 percent, at 1,516.01. The Nasdaq Composite Index was up 32.61 points, or 1.04 percent, at 3,162.26.

Pending home sales jumped 4.5 percent in January, three times the rate of growth that had been expected. While orders for durable goods fell more than expected in January, non-defense capital goods orders excluding aircraft – a closely watched proxy for business spending plans – showed the biggest gain since December 2011.

About 74 percent of stocks traded on the New York Stock Exchange closed higher while 64 percent of Nasdaq-listed shares closed up.

The S&P turned very slightly higher on the week, recovering from the index’s biggest daily drop since November on Monday. That drop came on concerns over Italy’s election, as well as over sequestration – U.S. government budget cuts that will take effect starting on Friday if lawmakers fail to reach an agreement on spending and taxes.

The index had climbed 6.3 percent for the year before pulling back on concerns about Fed policy and inconclusive elections in Italy, which rekindled fears of a new euro zone debt crisis.

“While the rally remains intact and there are reasons to be long-term bullish here, there are also reasons to not be surprised if we get a correction,” said Mangan, who helps oversee $3.7 billion.

In earnings news, Priceline.com gained 2.6 percent to $695.91 after reporting adjusted earnings that beat expectations. TJX Cos Inc jumped 2.5 percent to $44.75 after the retail chain operator posted higher fourth-quarter results.

The S&P retail index climbed 1.6 percent.

Target Corp offered a cautious outlook for consumer spending in 2013 following a weak holiday quarter. The stock dipped 1.1 percent to $63.32.

First Solar Inc plunged 14 percent to $27.04 after failing to give a full-year earnings and sales outlook, though it also swung to a quarterly profit.

Groupon Inc plunged 21 percent to $4.70 after the bell after reporting its fourth-quarter results.

With 93 percent of the S&P 500 companies having reported results so far, 69.5 percent beat profit expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters, according to Thomson Reuters data.

Fourth-quarter earnings for S&P 500 companies are estimated to have risen 6.2 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.

About 6.23 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, slightly below the daily average so far this year of about 6.48 billion shares.

Currencies

The euro held its ground against the dollar and yen on Thursday, with euro bulls taking heart after a relatively smooth auction of Italian government bonds helped temper concerns about the country’s political deadlock.

Strong U.S. business spending data also boosted investors’ sentiment, easing worries about looming U.S. fiscal spending cuts and prompting the yen to resume its descent after a brief spell of sharp gains earlier this week.

“Looking at the U.S. core capital goods orders, there’s absolutely nothing unhealthy in it. It shows American businesses do not seem to worry about the spending cuts. Considering that, there will be limited downside in the dollar/yen,” said Hideki Amikura, head of forex at Nomura Trust Bank.

The common currency edged up 0.1 percent to $1.3147, having pared more than four fifths of the losses it had made after the inconclusive Italian elections, which had taken the currency down to an eight-week trough of $1.3018 on Tuesday.

Technically, the single currency has managed to keep holding above an important chart support, the bottom of the daily Ichimoku charts, a break of which would have flashed a major bearish signal for the currency.

Against the yen, the euro rose 0.2 percent on the day to 121.45 yen, inching further up from a five-week low of 120.20 yen set on Monday.

A sale of Italian government bonds on Wednesday drew solid demand, helping soothe jitters that the political deadlock could destabilize Europe’s second-biggest sovereign debt market.

The euro was unfazed by diminishing hopes of a coalition government — and an increasing chance of new elections — in Rome, with two most likely coalition options falling apart.

Anti-establishment 5-star Movement boss Beppe Grillo slammed the door on overtures from the centre-left leader Pier Luigi Bersani while Bersani’s junior coalition partner ruled out an alliance with former prime minister Silvio Berlusconi’s centre-right.

While uncertainty on Italy could cap the euro, some market players say the euro’s recovery in the past couple of days suggested most investors do not regard the latest political turmoil in Rome as a major threat to Italy’s debt financing.

NEW GOVERNOR

The steadier euro, for now, saw the dollar index retreat from a six-month high of 81.948 reached earlier in the week. It was last at 81.559.

On the yen, the dollar was a tad firmer at 92.42, having found its footing after Monday’s slide to 90.85.

The yen showed no reaction after Japan’s prime minister nominated, as expected, Asian Development Bank President Haruhiko Kuroda as BOJ governor and Kikuo Iwata, an academic, as one of the two deputy governors.

Expectations of more aggressive easing had prompted investors to push the yen down to a 33-month low versus the dollar on Monday, which marked a 16 percent fall since mid-November.

The parliament is expected to approve the nominations, clearing the way for the central bank to unveil fresh easing steps in April, either at their first policy review on Apr 3-4, or the following one on Apr 26.

“The market will need a bit of consolidation after such a long period of one-way falls in the yen. But there’s no denying that the yen is in a downtrend in a longer term,” said Nomura Trust’s Amikura.

“I expect the yen to drop more in April, as the market will bet on fresh monetary easing at the BOJ’s meeting at the end of April,” Amikura added.

The dollar outperformed its Japanese counterpart even after Federal Reserve Chairman Ben Bernanke again defended the central bank’s forceful easing of monetary policy.

Bernanke, facing a congressional panel for a second day, also downplayed signs of internal divisions, saying the policy of quantitative easing has the support of a “significant majority” of top central bank officials.

The dollar was also propped up by data showing planned U.S. business spending recorded its largest increase in more than a year in January.

The dollar has so far weathered the threat from sharp U.S. fiscal spending cuts, known as “sequestration”, which analysts estimate will cut U.S. growth by about 0.5 percent.

The automatic spending cuts of $85 billion look increasingly likely to start as planned on Friday, with U.S. President Barack Obama and Republican congressional leader nowhere near a deal to avoid them.

“I guess the market is calm partly because payroll tax hikes that started earlier this year haven’t so far done much damage to risk appetite,” said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi-UFJ.

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.

clientservices@broadgatefinancial.com