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Broadgate: Market News 29/11

29 November 2012

Stocks rallied on Wednesday after comments from House Speaker John Boehner, the top Republican in Congress, on a possible compromise to avoid the “fiscal cliff” turned the market around.

The S&P 500 rebounded from a 1 percent decline, gaining more than 20 points from its low after Boehner, an Ohio Republican, said he was optimistic that a budget deal to avoid big spending cuts and tax hikes can be worked out. President Barack Obama added to the good feelings, saying he hoped to get a deal done in the next four weeks.

Whether or not those remarks reflect the reality of negotiations is another story.

“The fiscal cliff is dominating the discussion, and short term, we’re a little bit too optimistic on it being fixed right away,” said John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York.

In expectation of higher dividend tax rates in 2013, companies have been shifting dividends or announcing special payouts to shareholders.

Costco Wholesale Corp, up 6.3 percent at $102.58, was the S&P 500’s biggest percentage gainer after it became the latest company to announce a special dividend.

The market’s move marked the second straight day where a leading legislator dictated trading action. On Tuesday, stocks fell on pessimistic remarks from Senate Majority Leader Harry Reid, a Democrat from Nevada.

The market has been swinging for weeks now on headlines from Washington, with Wednesday’s gyrations once again highlighting the importance that Wall Street is giving to finding a solution to avoid the series of tax increases and spending cuts that could push the U.S. economy into recession.

The Dow Jones industrial average rose 106.98 points, or 0.83 percent, to 12,985.11 at the close. The S&P 500 gained 10.99 points, or 0.79 percent, to 1,409.93. The Nasdaq Composite added 23.99 points, or 0.81 percent, to close at 2,991.78.

The S&P 500 bounced off a strong support area near 1,385 that includes both its 200- and 14-day moving averages. It closed above 1,400 for the third session in four – an optimistic sign for stock bulls.

Knight Capital Group Inc shares jumped 15.2 percent to $3.42 on news that Getco Holding proposed a $1.4 billion merger with Knight, while Virtu Financial offered to buy Knight for at least $1.1 billion.

Apparel retailer Express Inc rose 8.9 percent to $14.15 after it forecast strong earnings for the current quarter as lower prices and easy-to-understand discounts led to robust Black Friday sales.

The S&P retail index .SPXRT gained 1.4 percent.

Green Mountain Coffee Roasters surged 27.3 percent to $36.86 a day after it forecast quarterly and full-year earnings well ahead of analysts’ expectations.

Nearly 6.1 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 6.48 billion shares.

On the NYSE, roughly seven stocks rose for every three that fell, and on Nasdaq, five issues rose for every three that fell.

Currencies

The yen held steady below a one-week high versus the dollar on Thursday, while the euro found some support as comments from U.S. policymakers rekindled hopes of a deal to avert a sharp fiscal tightening.

“For the moment, the U.S. fiscal cliff seems to be a dominant theme in the market,” said Katsunori Kitakura, associate general manager of market-making at Sumitomo Mitsui Trust Bank.

U.S. House Speaker John Boehner, the top Republican in Congress, voiced optimism that Republicans could broker a deal with the White House to avert a fiscal crisis, even though he repeated his opposition to raising income tax rates on high earners.

President Barack Obama said on Wednesday he hoped to reach an agreement with Congress before Christmas.

Investors fear the planned tax increases and spending cuts due to start at the beginning of next year totaling about $600 billion could tip the world’s biggest economy into recession and depress the global economic outlook.

The dollar held steady versus the yen from late U.S. trade on Wednesday at 82.08 yen, having bounced from Wednesday’s one-week low of 81.68 yen.

Expectations of big month-end dollar/yen bids helped lend support to the dollar, which had been in a corrective decline after hitting a 7 1/2-month high of 82.84 yen last week.

The yen has come under pressure over the past couple of weeks due to market speculation about the chances of aggressive monetary easing in Japan following a likely change in government next month.

Main opposition leader Shinzo Abe, a front-runner to become prime minister after the December 16 election, has called for radical change in monetary policy, including unlimited easing, sparking a four-percent fall in the yen earlier this month.

The dollar is likely to trade in a 81.00 yen to 83.00 yen range ahead of Japan’s election, said a trader for a Japanese bank in Singapore.

“Dollar/yen continuing to see some short-term players building on longs,” the trader said, adding that most market players he had contact with were expecting that sort of range for now.

The euro traded at about $1.2953, steady from late U.S. levels and above Wednesday’s low of $1.2880, supported by improved risk appetite due to revived optimism over the U.S. fiscal cliff negotiations.

Market players, however, remain concerned about some elements of the latest aid deal for Greece, agreed by euro zone finance ministers and the International Monetary Fund earlier this week, with one looming issue being whether Greece can successfully implement a debt buy-back.

Still, a positive technical sign for the euro is the bullish hammer pattern on candlestick charts that its bounce from Wednesday’s trough has produced.

A drop in the 10-year Italian government bond yield to its lowest level since February 2011 on Wednesday was another supportive factor for the euro, as it suggests that investor jitters over the euro zone’s sovereign debt crisis are diminishing.

The single currency faces resistance from the daily Ichimoku cloud top around $1.2994 but a break there could open the way for the euro to test a four-week high of $1.3010 hit on Tuesday after Greece’s international lenders agreed to unblock aid funds to Greece.

Against the yen, the euro changed hands at 106.33 yen, flat on the day and not far from a seven-month high of 107.135 yen hit on Monday.

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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