Closing Market Recap: Equities Close Higher, Crude Oil Drops Significantly

Market Updates | Written by CEP News | Jul 17 08 20:31 GMT |
(CEP News) - Equities rebounded from early-morning losses and the Canadian dollar began sinking against the U.S. dollar as crude oil futures plunged to below $130.00 per barrel on a busy day for markets.

The Dow Jones industrial average is up 207 points to 11,447, after initially declining to start the session. The Dow Jones had been at 11,209.56 at 11:10 a.m. EDT before starting to rise due to strong Coca Cola and JPMorgan earnings. The S&P 500 is up 15 points to 1260 and the Nasdaq is up 27 points to 2,312.

Analysts from Citigroup were less than impressed by the performance of equity markets, saying they were still overwhelmingly in selloff mode, a sentiment they expressed in a research note to clients.

"The equity markets remain at the centre of attention in this environment," they wrote. "Our overall bearish outlook has not changed and we find few, if any, bright spots in the market place that indicate that the financial and economic strains may be behind us. Instead our concerns have become elevated as we foresee an ongoing bear market in stocks which are probably far from basing."

European stock markets closed in positive territory with the Eurostoxx up 72 points to 2,787, the UK FTSE 100 up 136 points to 5,286 and the German DAX up 116 points to 6,271.

Toronto's S&P/TSX composite index, meanwhile, closed down 43 points to 13,461, as oil took a nose dive from session highs of $136.76 per barrel at 10 a.m. to fall below $130 for the first time since June 6. WTI crude oil is down $4.74 to $129.86. The front month gold contract at the Chicago Board of Trade is down $6.00 to $956.50 per ounce.

"As with the downturns of 1980-1982, 1991 and 2001 this period has been marked by a strong move higher in crude oil and while recent days have seen yet another pullback the reality is that this week last year crude closed just over $75. This present pullback hardly provides much solace. Even as recently as March we were at $99 and are now almost 40% higher at the same time as yields have risen and equities are at the low of the trend," wrote the Citigroup analysts.

The Canadian dollar is up 1.0300 to 105.9800 against the yen but down 0.0048 to 0.9932 against the U.S. dollar (1.0067 USD/CAD), after being as high as 1.0020 during the session at 10: a.m. The CAD/USD collapse coincided with the drop in oil prices.

Also on Thursday, the Bank of Canada released its Monetary Policy Report, saying the Canadian economy should recover fairly quickly from the pain brought on by the U.S. slowdown and turmoil in global financial markets. Real GDP in Canada, which slipped into negative territory in the first three months of this year, is projected to pick up in the second half. Meanwhile, inflation is expected to spike to more than 4% by the beginning of next year, pushed up by high prices for natural gas and gasoline, he said. The sharp increase is expected to be temporary, Governor Mark Carney said, and headline and core inflation should converge at 2% by the end of 2009.

The U.S. dollar is up 1.5550 to 106.6950 against the yen and the Dollar Index is up 0.151 to 72.215. The pound sterling is down 0.0004 to 1.9987 against the U.S. dollar and up 0.0093 to 2.0121 against the Canadian dollar.

The euro is up 0.0008 to 1.5835 against the U.S. dollar, up 0.0085 to 1.5942 against the Canadian dollar, up 0.0006 to 0.7922 against the pound sterling and is higher by 2.53 to 168.93 against the yen.

TD Securities chief currency strategist Shaun Osborne noted the recent strength of the euro, suggesting it could be long-lasting.

"While the EUR's rise is a growing concern for European policy makers, we see numerous obstacles to a concerted support operation for the USD right now [and little risk of lone activity by the European Central Bank]," he wrote. "A renewed surge in market volatility or signs of a confidence-sapping burst of disorderly market movement could always force the authorities to step into the markets but we have not reached this point yet."

"Concern for the EUR in the euro zone is only matched by the preference for the market-led solution in Washington. Even Fed Chairman Bernanke's apparent concern about the USD weakness early in June appears to have been downgraded in his congressional comments this week [there are, perhaps, more pressing issues on his agenda]. The probability of intervention might have increased in recent weeks but it remains a relatively low risk prospect at present in our opinion."

Yields on two-year Canadian government bonds are up 6.7 bps to 3.14%, with five-year yields up 6.1 bps to 3.38%, 10-year yields up 5.2 bps to 3.79% and 30-year yields up 2.5 bps to 4.15%.

Yields on U.S. fixed income futures were up after initially rising on better than-expected releases in the morning. Two-year yields are up 13.1 bps to 2.55%, with five-year yields up 13.7 bps to 3.33%, 10-year yields up 9.5 bps to 4.03% and 30-year yields up 4.1 bps to 4.63%.

Initial claims for unemployment benefits in the United States rose to 366K in the week ending July 12, following a slightly revised 348k in the previous week. The consensus forecast was for initial claims to come in at 380K. U.S. housing starts, meanwhile, came in above expectations at 1066K in June, a month-over-month rise of 9.1%. The consensus was looking for a decline to a level of 960K. The surprising increase was attributed, however, to a change in the housing code of New York City.

Also of note, markets received the July Philadelphia Fed manufacturing survey, which came in at -16.3 in July to mark the eighth consecutive monthly decline. The general activity index came in at -16.3 from June's -17.1, led by negative figures in new orders, employment and shipments, none of which showed significant movement from the previous month. Economists had expected a reading of -15.0.

"Although the Philadelphia area is not heavily concentrated in manufacturing, the early timing of this survey often gives a sense of where conditions in the manufacturing sector of the nation may be heading. The essence of that message is that they remain weak," wrote economists from Goldman Sachs.

The Eurodollar September 08 contract is subsequently down 3.0 ticks to 97.12.

The yield curve is flatter, with the 10/2-year spread down 3.8 bps to 147.36 bps.

The Canadian 10-year note is yielding 24.08 bps less than the U.S. 10-year note.

In Germany, returns on two-year German bonds are up 4.8 bps to 4.38%, with five-year yields up 5.6 bps to 4.44%, 10-year yields up 5.1 bps to 4.44% and 30-year yields up 2.5 bps to 4.76%.

Yields on UK two-year bonds are up 4.5 bps to 4.97%, with five-year yields up 5.8 bps to 4.91%, 10-year yields up 2.8 bps to 4.90% and 30-year yields down 1.2 bps to 4.58%.

All data taken at 4:07 p.m. EDT.

By Ryan Szporer, rszporer@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it and Geoff Matthews@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it

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