Exclusive iOption Market Analysis
February 23, 2012
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Today’s Reports and Announcements of Significance to the Markets
| | EUR | | German Ifo Business Climate | 108.7 | 108.3 | ||
| 9:30am | GBP | | BBA Mortgage Approvals | 37.3K | 36.2K | ||
| 11:00am | GBP | | CBI Industrial Order Expectations | -14 | -16 | ||
| 1:30pm | USD | | Unemployment Claims | 352K | 348K | ||
| 4:00pm | USD | | Crude Oil Inventories | 0.9M | -0.2M | ||
| 10:30pm | AUD | | RBA Gov Stevens Speaks |
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US MARKETS
U.S. stocks on Wednesday retreated after a three-session winning run, with equities taking a break from an advance that sent the S&P 500 Index up 8% this year.
“We think stocks are positioned for a bit of a pause here; it’s really nothing fundamental,” said Jim Russell, chief equity strategist at U.S. Bank Wealth Management in Cincinnati. The Dow Jones Industrial Average fell 27.02 points, or 0.2%, to 12,938.67, its first down day in four. It’s still up nearly 6% for the year.
Out of 30 Dow components, 20 closed lower. Decliners were led by Wal-Mart Stores Inc. which fell 2.4%, as investors hammered shares of the discount retailer for a second day after it delivered quarterly profit and sales that came in short of expectations.
U.S. stocks ended broadly flat on Wednesday, bringing a three-session run of gains to an end, as investors reacted to weak results from a survey of euro-zone business activity. The S&P 500 Index fell 4.55 points, or 0.3%, to 1,357.66, with financials falling hardest and energy rising the most among its 10 major sectors.
The Nasdaq Composite Index declined 15.40 points, or 0.5%, to 2,933.17, extending losses to a third day. It’s up nearly 13% this year, gains that have brought it to late 2000 levels.
EUROPEAN MARKETS
European stock markets dropped on Wednesday, as a gauge of business activity in the euro zone unexpectedly signalled contraction in February and Fitch downgraded Greece’s credit rating.
The Stoxx Europe 600 index closed 0.8% lower at 264.59, adding to Tuesday’s losses.
The French CAC 40 index fell 0.5% to 3,447.37, with banks such as Credit Agricole SA down 3.8% and Societe Generale SA off 4.4%.
Earlier Wednesday, data showed a surprise fall in private-sector activity in the euro zone.
The preliminary Markit purchasing-managers index fell to 49.7 in February from 50.4 in January. A reading below 50 signals contraction. Economists surveyed by Dow Jones Newswires had forecast a rise to 50.8. A flash estimate for the Germany composite output index signaled expansion, although at a slower pace than the seven-month high reached in January. The German DAX 30 index fell 0.9% to 6,843.87, pulled lower by banks.
ASIAN MARKETS
Asian stocks markets traded lower Thursday, with many of the region’s banks under pressure, though Japan’s main indexes swung to gains as exporters strengthened.
The South Korean Kospi Index lost 1.2%, Australia’s S&P/ASX 200 index slipped 0.4%, Hong Kong’s Hang Seng Index dropped 0.8%, and the Shanghai Composite index traded flat.
However, Japan’s Nikkei Stock Average ended the morning 0.2% higher, erasing early-session losses as exporters benefitted from a weak yen.
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US DOLLAR
The dollar gained Wednesday, most notably against the yen and the British pound, leaving analysts pointing to a confluence of factors weighing on Japan’s currency, though sterling’s losses may be limited.
The euro slipped against the dollar after data showed weaker-than-expected activity in the euro zone and in China.
The ICE dollar index which measures the greenback’s performance against a basket of six currencies, rose to 79.207 from 79.023 late Tuesday.
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EURO-STERLING
The euro pared losses to trade at $1.3246 compared with $1.3251.
Reviving concerns about the impact of austerity measures on the region’s economy, a report out Wednesday showed business activity across the euro zone contracted unexpectedly in February
The British pound tumbled to $1.5673 from $1.5791 late Tuesday after minutes of the Bank of England’s Monetary Policy Committee meeting earlier this month unexpectedly showed that members Adam Posen and David Miles pushed for a 75 billion pound increase in the central bank’s quantitative-easing program.
Sterling also fell against the euro pushing the shared currency to its highest level in more than two months.
But analysts say quantitative-easing prospects will soon take a back seat to global risk appetite, so continued losses in sterling could be limited
ASIAN CURRENCIES
Against the Japanese yen, the U.S. dollar rose to ¥80.24 from ¥79.73 in North American trading Tuesday. The pair hasn’t closed above the 80-level since mid-July.
The yen has been on a downward slope recently against the greenback, which has risen 5.1% just in February so far, according to FactSet Research data.
The dollar’s been benefiting against the yen as U.S. yields rise, which analysts say has been a bigger factor than actual intervention by Japanese authorities or comments about the currency’s strength.
The yen is closely correlated with 2-year U.S. Treasury yields which at 0.30%, are near their highest since October.
“We may have the first signs of an emerging period of yen weakness followed by rising Treasury yields,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities.
Additionally, Japan’s recent switch to a trade deficit — its first in about three decades — could remove a major source of accumulated savings in Japan, funds that Japanese investors tend to funnel into the country’s government bonds. That’s kept JGB yields even lower than U.S. yields despite having one of the largest debt burdens in the world compared to its economy.
But some analysts were skeptical the pace of the yen’s fall could be sustained.
The Australian dollar was lower at noon as equity markets softened and uncertainty surrounded the leadership of the Australian Labor Party.
At 1200 AEDT on Thursday, the Australian dollar was trading at 106.06 US cents, down from 106.71 cents on Wednesday.
Nomura head of foreign exchange Kurt Magnus said the Australian dollar was moving on these two trends, but would not stay down for long.
The New Zealand dollar fell as investors digest the details of a second bail-out package for Greece and uncertainty about Europe's future dims investor appetite for higher yields.
The New Zealand dollar fell as low as 82.62 US cents from 83.25 cents on Wednesday at 5pm. It traded at 82.97 cents at 8am. The kiwi slipped to 62.62 euro cents from 62.94 cents.
Commodities
Metals & Energy
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Crude oil gained 3 cents to settle at $106.28 a barrel on the New York Mercantile Exchange. The close extended oil’s gains for a fifth session and marked the highest settlement since May 4.
The April crude contract settled Tuesday at $106.25 a barrel. The March contract, which expired on Tuesday, settled at $105.84 a barrel, rising 2.5% in the session on the fears of more supply disruptions from Iran and as traders’ cheered Greece’s second bailout.
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