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Broadgate: Market News 9/1

9 January 2013

Stocks fell on Tuesday, retreating from last week’s rally on the “fiscal cliff” deal in Washington, as companies started to report results for the fourth quarter.

After a 4.3 percent jump in the two sessions around the close of the fiscal cliff negotiations, the S&P has declined a bit, with investors finding few catalysts to extend the rally that took the benchmark to five-year highs.

“We had a brief respite, courtesy of what happened on the fiscal cliff deal and the flip of the calendar with new money coming into the market,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

Shares of AT&T Inc dropped 1.7 percent to $34.35, making it one of the biggest drags on the S&P 500, after the company said it sold more than 10 million smartphones in the quarter.

This figure beat the same quarter in 2011, but also means increased costs for the wireless service provider. Providers like AT&T pay hefty subsidies to handset makers so that they can offer discounts to customers who commit to two-year contracts.

Fourth-quarter profits are expected to beat the previous quarter’s lackluster results, but analyst estimates are down sharply from October. Quarterly earnings are expected to grow by 2.7 percent, according to Thomson Reuters data. Dow component Alcoa, the largest U.S. aluminum producer, reported results after the closing bell.

The Dow Jones industrial average dropped 55.44 points, or 0.41 percent, to 13,328.85. The Standard & Poor’s 500 Index fell 4.74 points, or 0.32 percent, to 1,457.15. The Nasdaq Composite Index lost 7.01 points, or 0.23 percent, to 3,091.81.

“The stark reality of uncertainty with regard to earnings, plus the negotiations on the debt ceiling, are there and that doesn’t give investors a lot of reason to take bets on the long side,” Hellwig said.

With AT&T’s fall, the S&P telecom services index was the worst performer of the 10 major S&P sectors, down 2.7 percent.

Sears Holdings shares dropped 6.4 percent to $40.16 a day after the company said Chairman Edward Lampert would take over as CEO from Louis D’Ambrosio, who is stepping down due to a family member’s health issue. The U.S. retailer also reported a 1.8 percent decline in quarter-to-date sales at stores open at least a year.

Markets went lower as some of the first reported earnings were weak.

“It doesn’t seem to be bouncing back, it might stay here or sell off a little further,” said Stephen Carl, head of U.S. equity trading at The Williams Capital Group in New York.

Shares of restaurant-chain operator Yum Brands Inc fell 4.2 percent to $65.04 a day after the KFC parent warned sales in China, its largest market, shrank more than expected in the fourth quarter.

GameStop was one of the worst performers on the S&P 500 as shares slumped 6.3 percent to $23.19 after the video game retailer reported low customer traffic for the holiday season and cut its guidance.

Shares of Monsanto Co gained 2.5 percent to $98.42 after reaching a more than four-year high at $99.99. The world’s largest seed company raised its earnings outlook for fiscal year 2013 and posted strong first-quarter results.

Volume was below the 2012 average of 6.42 billion shares traded per day, as 6.19 billion were traded on the New York Stock Exchange, NYSE MKT and Nasdaq.

Declining stocks outnumbered advancing ones on the NYSE by 1,495 to 1,458, while on the Nasdaq decliners beat advancers 1,305 to 1,158.

Currencies

The dollar edged higher against the yen on Wednesday after its retreat this week from a 2-1/2 year high lured buyers who had been waiting for a chance to buy on dips, with the outlook for more Japanese monetary easing expected to weigh further on the yen.

The dollar was up 0.3 percent at 87.38 yen after having slipped to an intraday low near 86.83 yen, its lowest in nearly a week and a loss of about 1.9 percent from last Friday’s peak of 88.48 yen, which was its highest since July 2010.

“In terms of the drop that we saw in dollar/yen, there were a lot of dollar buyers coming in,” said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

“So there do seem to be some dollar buyers out there who were looking for the dip in dollar/yen to pick it up,” he said.

Traders also cited demand for dollars at the 0100 GMT Tokyo fixing, which is often a sign of dollar buying by Japanese importers.

Still, the risk of a further near-term pullback in the dollar cannot be ruled out, Credit Agricole’s Kotecha said. Possible support for the dollar lies at 86.54 yen, its intraday low on January 2, and a breach of that level could open the way for a drop to around 85.90 yen, he added.

The euro rose about 0.3 percent to 114.19 yen, but was still some distance away from an 18-month high of 115.995 yen set on trading platform EBS on January 2.

The dollar and the euro had come under pressure against the yen earlier in the week as investors locked in profits in the wake of their steep gains versus the Japanese currency over the past couple of months.

At its peak against the yen on Friday, the dollar had gained nearly 12 percent from its trough in early November, and traders said the rally had been ready to pause for breath.

“Late last year, the yen sharply weakened in thin conditions. If you had to take a market position, could you see any reason to buy yen? No. So the yen was sold,” said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.

“But markets can’t keep moving for weeks on the same factors, even when the overall trend remains the same, so in the short term, the yen started moving up again.”

Japan’s new government led by Prime Minister Shinzo Abe is rushing this month to complete a new policy accord with the Bank of Japan and an economic stimulus package that will be the first test of whether he can deliver on his ambitious economic agenda aimed at pulling the country out of deflation.

Sources familiar with the BOJ’s thinking said the central bank will likely adopt a 2 percent inflation target at its January 21-22 rate review, double its current goal, and issue a statement with the government pledging to pursue bold monetary easing steps.

The BOJ will also consider easing monetary policy again this month, with any easing likely to take the form of another increase in its 101 trillion yen ($1.2 trillion) asset buying and lending programme, the sources said.

The euro was nearly flat against the dollar from late U.S. levels, changing hands at $1.3075, with support at $1.30 holding after the European unit fell to a three-week low of $1.2998 on EBS on Friday.

The euro is likely to be supported this week by expectations the European Central Bank will hold off on cutting interest rates at its regular policy meeting on Thursday, though some investors and economists believe cuts will come later this year.

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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