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Broadgate: Market News 28/3

28 March 2013

Stocks rebounded from early declines to close little changed on Wednesday, but investors were still worried about the chance of a run on Cypriot banks and its possible implications for other euro-zone lenders.

Financial shares fell on both sides of the Atlantic on concerns that depositors at banks in other euro-zone countries will withdraw large amounts of money. Investors are worried that the Cyprus bailout would become a template for solving banking crises in the region.

The S&P 500 fell 0.8 percent in morning trading, but in line with recent market behavior, investors took the drop as a buying opportunity. By the close, late buying had helped the S&P 500 cut most of the session’s losses to end down less than a point.

The benchmark S&P 500 has traded within 10 points of its record closing high for 13 consecutive days, without once moving above the 1,565.15 level set October 9, 2007. It is on track to post its fifth consecutive month of gains.

“Any time you have a run like we’ve had, market participants will look for a reason to take profits,” said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.

“But pauses in this uptrend have been short and shallow. Everybody seems to want to buy in the slightest pullback.”

The KBW bank index fell 0.6 percent and a gauge of European banks’ stocks dropped 0.5 percent. The PHLX Europe sector index declined 1.1 percent.

Cypriot banks are due to reopen on Thursday while limiting withdrawals, banning checks and curbing the use of Cypriot credit cards abroad, after being closed for almost two weeks. Uninsured deposits in Cyprus are expected to be reduced as part of the rescue deal.

The Dow Jones industrial average fell 33.49 points or 0.23 percent, to 14,526.16 at the close. The S&P 500 lost just 0.92 of a point, or 0.06 percent, to finish at 1,562.85. The Nasdaq Composite added 4.04 points or 0.12 percent, to close at 3,256.52.

Cliffs Natural Resources shares hit a four-year low of $17.95 after Morgan Stanley downgraded the miner’s stock and Credit Suisse slashed its price target, citing difficulties from a surplus of iron ore pellets in the Great Lakes region.

Cliffs Natural Resources shares closed at $18.46, off 13.9 percent.

Gilead Sciences ended at a record high at $47.72, up 4.3 percent, after earlier reaching a lifetime intraday high at $47.83. Gilead’s advance buoyed the Nasdaq Composite and helped the S&P 500 healthcare sector index rise 0.5 percent as the best performer of the day.

Data showed contracts to buy previously owned U.S. homes fell in February, held back by a shortage of properties, but there was little to suggest that the housing market recovery was stalling.

The PHLX housing sector index edged up 0.12 percent.

Volume was light, with some market participants out for the observance of Passover.

About 5.1 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, one of the lowest volume levels so far this year, and far below the daily average so far this year of about 6.4 billion shares.

Advancers outnumbered decliners on the New York Stock Exchange by a ratio of about 8 to 7. On the Nasdaq, about 13 stocks fell for every 12 that rose.

Currencies

The euro languished at four-month lows on Thursday, having suffered a further setback as a rise in Italy’s funding costs weighed on markets already worried about the ramifications of Cyprus’ controversial rescue deal.

The yen firmed as Japanese exporters repatriated funds ahead of their financial year-end, though expectations of aggressive monetary easing by the Bank of Japan kept the currency in check.

The common currency was at $1.2785, flat on the day but down about 7 percent since peaking at $1.3711 last month and near four-month low of $1.2750 hit on Wednesday.

It has important technical support just below $1.27, including a 61.8 percent retracement of its July-Feb rally around $1.2680 and targeting the November trough of $1.2661.

Against the yen, the euro dipped to a fresh one-month low around 119.95 before edging back to 120.70.

The euro came under renewed pressure after a debt auction in Italy saw borrowing costs climb to five-month highs as investors demanded more premium in the face of prolonged political uncertainty.

Italian centre-left leader Pier Luigi Bersani was left with only slim hope of forming a government after talks with rival party leaders ended with rejection from Beppe Grillo’s 5-Star Movement.

“If Italy will have to hold a re-election, that will surely remind the market of a fall in the euro after Greece was forced to hold a re-election last year,” said Ayako Sera, market economist at Sumitomo Mitsui Trust bank.

Markets were also nervous as Cyprus prepares to reopen its banks for the first time in nearly two weeks after having secured aid from international lenders.

Fears of a bank run have prompted the government to impose a raft of tough controls including limiting withdrawals and banning cheques.

The Cyprus rescue plan, which imposes heavy losses on depositors in the country, spurred worries that depositors and bond investors may pull money out of some other euro zone countries perceived to be weak.

“Headline risks for the euro should persist, although a positive turn of events in either country would probably come as a greater surprise given the market’s subdued expectations,” said Vassili Serebriakov, strategist at BNP Paribas.

“Our technical analyst highlights that a break of the $1.2806 technical support level opens the way for a decline to $1.2737.”

The setback in the euro saw the dollar index jump to a near eight-month high. The index, which tracks the greenback’s performance against a basket of currencies, was last at 83.145, having touched 83.302 on Wednesday.

Against the yen, the dollar fell 0.3 percent 94.20, due largely to Japanese exporters’ selling ahead of their financial year end on March 31.

The yen is still waiting for the Bank of Japan to deliver aggressive easing polices already priced into markets. The dollar has rallied more than 20 percent against the yen since September, hitting a 4-1/2 year high of 96.71 earlier this month.

The dollar has firm support at 93.78 yen, kijun line on its daily Ichimoku charts.

The greenback also outperformed commodity currencies as some investors cashed in on recent solid gains ahead of the Easter holidays.

The Australian dollar fell 0.2 percent to $1.0425, pulling back from a two-month high of $1.0497 set on Tuesday, as Chinese shares tumbled after the country’s banking regulator ordered banks to strengthen checks on underlying assets of a range of wealth management products.

There is no major economic news out of Asia on Thursday, leaving the focus squarely on developments in Europe.

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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