Broadgate: Market News 8/2
8 February 2013
Stocks declined on Thursday, taking a step back from their recent advance, prompted by comments by the ECB president on the euro and Europe’s outlook.
The euro currency dropped against the safe-haven dollar and yen, spurring a retreat from risky assets such as stocks, after European Central Bank President Mario Draghi said the exchange rate was important to growth and price stability. Investors took that as a sign the bank is concerned about the euro’s advance and its effect on the region’s economy.
Growth sectors were among the weakest performers on the S&P 500: the S&P 500 materials index was down 0.6 percent while the S&P energy index was down 0.5 percent. Housing stocks also declined, with a housing sector index off 1.4 percent.
Despite the day’s decline and weakness earlier this week, the stock market has been in an almost uninterrupted up trend for most of the year, with the S&P 500 up 5.8 percent so far for 2013.
Many analysts say some weakness at this point is no surprise.
“Given the amount the market moved in January, having a little bit of a pullback and some consolidation where the market goes sideways for a little while, we think would be a healthy sign,” said Eric Marshall, director of research at Hodges Capital Management in Dallas.
Top U.S. retailers reported strong January sales after offering compelling merchandise that drew in shoppers facing a hit to their take-home pay from higher payroll taxes.
The Dow Jones industrial average was down 42.47 points, or 0.30 percent, at 13,944.05. The Standard & Poor’s 500 Index was down 2.73 points, or 0.18 percent, at 1,509.39. The Nasdaq Composite Index was down 3.34 points, or 0.11 percent, at 3,165.13.
Shares of Apple helped to limit losses on the Nasdaq, the stock ending up 3 percent at $468.22. Fund manager David Einhorn’s Greenlight Capital said it has sued Apple Inc and said the company needs to do more to unlock value for shareholders.
Though the earnings season is winding down, results continue to boost growth estimates for the fourth quarter. According to Thomson Reuters data through Thursday morning, of 317 companies in the S&P 500 that have reported earnings, 69 percent have exceeded analysts’ expectations, above a 62 percent average since 1994 and 65 percent over the past four quarters.
Fourth-quarter earnings for S&P 500 companies rose 5 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.
Akamai Technologies Inc lost 15.2 percent to $35.26 as the worst percentage performer on the S&P 500 after the Internet content delivery company forecast current-quarter revenue below analysts’ expectations.
Among retailers, Macy’s Inc rose 2 percent to $40.27 after reporting January same store sales rose 11.7 percent.
But Ann Inc dropped 8 percent to $30.20 after forecasting fourth-quarter sales below analysts’ expectations.
Economic data was mixed. Initial jobless claims dipped last week, with the four-week moving average falling to its lowest level since March 2008, signaling the economy continues to recover slowly.
A separate report said fourth-quarter productivity registered its biggest drop in nearly two years, while unit labor costs jumped 4.5 percent, more than economists expected.
Roughly 6.6 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.
Decliners outpaced advancers on the NYSE by nearly 4 to 3 and on the Nasdaq by about 5 to 3.
The euro hovered near a two-week low on Friday after the European Central Bank chief voiced concern about the impact of the currency’s recent strength on the economy in remarks that analysts said went further than they had expected.
Mario Draghi said on Thursday that the exchange rate is important for growth and price stability and that he wants to see “whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned.
The euro traded at $1.3405, close to its late U.S. levels after having fallen 0.9 percent on Thursday. At one point it fell as low as $1.33705, the lowest since January 25.
Draghi said economic activity in the euro area should recover gradually in 2013 but added there are more negative risks than positive.
“I got the impression that he went into greater depth than expected…given that last month he just read out a G20 statement, when he was talking about currencies,” said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The euro also slipped to a two-week low against the British pound, which broadly strengthened after incoming Bank of England governor Mark Carney gave no hints that he favoured immediate easing monetary policy.
The pound also rose against the dollar to $1.5718, off a six-month low of $1.5630 hit earlier in the week.
The single currency also slipped against the yen from a 33-month high of 127.71 yen set on Wednesday to trade at 125.40 yen.
Still, despite the latest setback, the euro could be supported by the perception that the ECB’s policy easing bias is much weaker than that at the U.S. Federal Reserve and the Bank of Japan, said Makoto Noji, senior strategist at SMBC Nikko Securities.
“When U.S. and Japanese central banks are expanding their balance sheet, the ECB is shrinking its balance sheet. The euro is likely to be firm unless we have a major surprise in Italian election,” he said.
Polls have showed Italy’s center-left bloc is in the lead to win the February 24-25 election.
But its narrowing lead over the center-right led by former prime minister Silvio Berlusconi has unnerved investors on concerns that his policies, such as tax-cut proposals, could undo the country’s efforts to win back investor confidence.
The yen edged up slightly from late U.S. levels on profit-taking but is still on course to log seven straight weeks of losses against the dollar, which would be the longest spell since 1989.
The dollar dipped 0.2 percent to 93.48 yen, as traders took profits after its failure to convincingly break above a major resistance at 93.96, a 38.2 percent retracement of its 2007-2011 decline. But it’s still up 0.8 percent on the week.
The dollar hit a 33-month high of 94.075 earlier in the week as investors sold the yen on expectations that Japan will pursue aggressive monetary easing to shore up the economy.
The country’s deteriorating balance of payment also weighed on the yen. Data showed Japan posted a current account deficit for two months in a row in December, the first time the balance turned red for two straight months in data dating back to 1985.
The Australian dollar dropped to 3-month low of $1.0256 after the Reserve Bank of Australia trimmed its growth and inflation forecasts, but the currency bounced back after strong Chinese exports data.
It last stood at $1.0295, up 0.15 percent from late U.S. levels as data showed China’s exports grew 25 percent in January from a year earlier, above expectations of 17 percent growth, adding to evidence of an economic rebound.
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