Broadgate: Market News 7/1
7 January 2013
The benchmark Standard & Poor’s 500 index ended at a five-year high on Friday, lifted by reports showing employers kept up a steady pace of hiring workers and the vast services sector expanded at a brisk rate.
The gains on the S&P 500 pushed the index to its highest close since December 2007 and its biggest weekly gain since December 2011.
Most of the gains came early in the holiday-shortened week, including the largest one-day rise for the index in more than a year on Wednesday after politicians struck a deal to avert the “fiscal cliff.”
The Dow Jones industrial average gained 43.85 points, or 0.33 percent, to 13,435.21. The Standard & Poor’s 500 Index rose 7.10 points, or 0.49 percent, to 1,466.47. The Nasdaq Composite Index edged up 1.09 points, or 0.04 percent, to 3,101.66.
For the week, the S&P gained 4.6 percent, the Dow rose 3.8 percent and the Nasdaq jumped 4.8 percent to post their largest weekly percentage gains in more than a year.
The CBOE Volatility index, a measure of investor anxiety, dropped for a fourth straight session, giving the index a weekly decline of nearly 40 percent, its biggest weekly fall ever. The close of 13.83 on the VIX marks its lowest level since August.
In Friday’s economic reports, the Labor Department said non-farm payrolls grew by 155,000 jobs last month, slightly below November’s level. Gains were distributed broadly throughout the economy, from manufacturing and construction to healthcare.
Also serving to boost equities was data from the Institute for Supply Management showing U.S. service sector activity expanding the most in 10 months.
With the S&P 500 index at a five-year closing high, analysts said any gains above the index’s intraday high near 1,475 in September may be harder to come by.
“We are getting to a point where we need a strong catalyst, which could be earnings, it could be three months of good economic data, it could be a variety of things,” said Adam Thurgood, managing director at HighTower Advisors in Las Vegas, Nevada.
“What is going on right now is this conflicting view of fundamentals look pretty good and improving, and then you’ve got these negative tail risks that could blow everything up,” Thurgood said.
He referred to “a fiscal superstorm brewing” of issues still left unresolved in Washington, including tough federal budget cuts and the need to raise the government’s debt ceiling all within a couple of months.
The rise in payrolls shown by the jobs data did not make a dent in the U.S. unemployment rate still at 7.8 percent.
A Reuters poll on Friday of economists at Wall Street’s top financial institutions showed that most expect the Fed in 2013 to end the program with which it bought Treasury debt in an effort to stimulate the economy.
A drop in Apple Inc shares of 2.6 percent to $528.36 kept pressure on the Nasdaq.
Adding to concerns about Apple’s ability to produce more innovative products, rival Samsung Electronics Co Ltd is expected to widen its lead over Apple in global smartphone sales this year with growth of 35 percent. Market researcher Strategy Analytics said Samsung had a broad product lineup.
Eli Lilly and Co was among the biggest boost’s to the S&P, up 3.7 percent to $51.56 after the pharmaceuticals maker said it expects its 2013 earnings to increase to $3.75 to $3.90 per share, excluding items, from $3.30 to $3.40 per share in 2012.
Fellow drugmaker Johnson & Johnson rose 1.2 percent to $71.55 after Deutsche Bank upgraded the Dow component to a “Buy” from a “Hold” rating. The NYSEArca pharmaceutical index climbed 0.6 percent.
Shares of Mosaic Co gained 3.3 percent to $58.62. Excluding items, the fertilizer producer’s quarterly earnings beat analysts’ expectations, according to Thomson Reuters.
Volume was modest with about 6.07 billion shares traded on the New York Stock Exchange, NYSE MKT and Nasdaq, slightly below the 2012 daily average of 6.42 billion.
Advancing stocks outnumbered declining ones on the NYSE by 2,287 to 701, while on the Nasdaq, advancers beat decliners 1,599 to 866.
The dollar climbed to a nearly 2-1/2 year peak against the yen on Friday after Federal Reserve meeting minutes the previous day showed growing concern about further stimulus for the economy, with speculation of more monetary easing in Japan also weighing on the Japanese currency.
Injecting stimulus into the economy involves flooding the market with dollars, which would tend to lower the currency’s value. Any doubts about that stimulus are viewed as positive for the greenback.
The U.S. currency, however, erased its gains versus the euro after a key U.S. jobs report showed U.S. hiring eased slightly in December, which suggested the Fed may be in no rush to tighten monetary policy.
U.S. nonfarm payrolls grew by 155,000 last month, in line with analysts’ expectations and falling short of the levels needed to bring down the country’s unemployment rate, which remained at 7.8 percent.
The data came a day after minutes from the Fed’s December meeting showed some policymakers were contemplating an end to their bond-buying program, also known as quantitative easing, as early as this year.
Richmond Fed President Jeffrey Lacker said on Friday that the U.S. central bank’s latest bond-buying plan threatens the central bank’s credibility and raises the risk of future inflation. Lacker dissented at every Fed policy meeting last year.
“While the Federal Reserve is not expected to make a decision about ending QE3 for at least the next 4 to 6 months, the fact that they are even considering terminating QE3 in 2013 is in our opinion, a game changer for the U.S. dollar,” said Kathy Lien, managing director, at BK Asset Management in New York.
The dollar rose as high as 88.40 yen, according to Reuters data, the highest since July 2010. It briefly pared gains after the jobs data before rallying again to last trade at 88.13 yen, up 1 percent. Traders cited barriers at 88.50 and 89 yen.
The dollar posted gains of 2.7 percent this week, its largest weekly rise in more than a year.
The yen has struggled in recent weeks on expectations Japan’s new government, led by Prime Minister Shinzo Abe, will push to weaken Japan’s currency and force the Bank of Japan to implement aggressive monetary stimulus to beat deflation.
YEN UPTREND INTACT
Analysts said the dollar’s break above the 88-yen level is significant, with some expecting yen weakness to continue.
“The recent bullish trend (in dollar/yen)…remains intact, suggesting an intraday pullback later today or early next week could still present a strong buying opportunity,” said Matthew Weller, currency strategist with GFT in Jersey City.
“The confluence of trend line support and previous-resistance-turned-support around 87.40 should put a floor under rates, giving traders an opportunity to join the established uptrend at value,” he added.
The euro was last up 0.2 percent at $1.3080, rebounding from a three-week low of $1.2997, according to Reuters data.
Against the yen, the euro rallied 1.3 percent to 115.15 .
The Fed said in December it would keep interest rates near zero until the unemployment rate falls to 6.5 percent for as long as estimates of medium-run inflation do not exceed 2.5 percent.
“The most important point is that the latest unemployment rate data has been broadly steady for four months now, so even with decent employment growth no downward progress has been made on the unemployment rate,” said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.
The data “will if anything push out the date for an end to QE, represents solidly risk-positive numbers and will lead to some minor squeeze on recent U.S. dollar longs.”
The dollar typically weakens when investors increase risk exposure by buying higher-yielding and growth-linked currencies such as the euro and Australian dollar, and gains when investors are risk-averse and seeking safe havens.
Some analysts expect the safe-haven dollar will strengthen in the coming weeks as investors increasingly focus on more political wrangling in Washington on budget issues, including further spending cuts and the federal debt ceiling.
But analysts cautioned that the uncertainty on the U.S. fiscal front will hurt business investment and economic growth. That means the Fed will have to keep its monetary stimulus for longer, which will hurt the dollar.
Separate data showed the vast U.S. services sector in December grew at its fastest clip in 10 months.
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