Closing Market Recap: Equities Surge After Oil Slips and Confidence Rebounds

Market Updates | Written by CEP News | Jul 29 08 21:11 GMT |

(CEP News) - A decline in crude prices and rebound in consumer confidence helped U.S. equities reverse all of Monday's selloff. The U.S. and Canadian dollars made broad gains while Treasury yields climbed. Nymex crude oil fell to an 11-week intraday low of $121.51 per barrel and closed down $3.02 to $121.79. Toronto's S&P/TSX composite index closed up 39 points to 13,343, the Dow Jones industrial average up 266 points to 11,398, the S&P 500 up 29 points to 1,263 and the Nasdaq up 55 points to 2,320. Analysts have been closely watching to see if crude would fall below the June 5 low of $121.61. Crude nearly broke that support level during the two prior trading sessions but finally pierced it on Tuesday. "The market has broken technically. It's already through the important area," said Steve Bellino senior vice-president of energy risk management at MF Global. Stephen Schork, president of The Schork Report, said demand destruction will drive prices lower still. "It's clear that Americans simply aren't driving. The situation is the same in Canada and Europe," Schork said. "We will see oil below $100 before we see it above $150." Also helping U.S. sentiment was a better-than-expected report on U.S. consumer confidence. The Conference Board said its measure of sentiment rebounded from 51.0 to 51.9 in July. It was the first improvement in confidence in 2008 and was better than the 50.1 consensus estimate of economists. "It was the surprise increase in US consumer confidence that got USD bulls all excited," said Matthew Strauss, senior currency strategist at RBC Capital Markets. "Even though it was a small rebound, it is seen as a potential bottom." The U.S. dollar hit one month highs against the euro, yen and Canadian dollar. It was up 0.64 to 108.09 against the yen and the Dollar Index is up 0.615 to 73.264. The euro was already down against the U.S. dollar prior to the release but fell another three-quarters-of-a-cent afterwards. On the session, the euro fell 0.0157 to 1.5585 against the U.S. dollar, lost 0.0142 to 1.5956 against the Canadian dollar, fell 0.0019 to 0.7875 against the pound sterling and was lower by 0.72 to 168.45 against the yen. "It can't be ignored that US data are increasingly surprising to the upside while downside surprises in European data are becoming a regular phenomena, a situation that favours further USD strength," Strauss wrote in a note to clients. On Tuesday, the Canadian dollar was down 0.0012 to 0.9767 against the U.S. dollar (1.0239 USD/CAD) and up 0.49 to 105.56 against the yen. Despite declines in six consecutive sessions against the U.S. dollar, the Canadian dollar has remained relatively unchanged against other currencies. The fixed income market was less exuberant about improvements in the financial sector. "Treasuries steadily cheapened throughout the day before bouncing back late in the session to take back most of their losses," wrote UBS fixed income strategist Benjamin Cheng in a note to clients. Tempering optimism was news that Merrill will raise $8.5 billion in a common equity offering after writing off $5.7 billion due to a sale of asset-backed securities. The Case-Shiller Home Price index also showed a 15.8% year-over-year decline, slightly better than the -16% consensus but still showing a downward trend in home prices. U.S. two-year yields are up 4.8 bps to 2.62%, with five-year yields up 6.2 bps to 3.38%, 10-year yields up 4.1 bps to 4.04% and 30-year yields up 2.3 bps to 4.62%. The Eurodollar March 09 contract is down 4.5 ticks to 96.83. The yield curve is flatter, with the 10/2-year spread down 0.8 bps to 141.79 bps. Yields on two-year Canadian government bonds are down 1.2 bps to 3.06%, with five-year yields up 0.6 bps to 3.35%, 10-year yields up 1.0 bps to 3.79% and 30-year yields up 1.4 bps to 4.14%. The December 08 BAX contract is flat at 96.87. The Canadian 10-year note is yielding 25.49 bps less than the U.S. 10-year note. In Germany, returns on two-year German bonds are down 1.3 bps to 4.34%, with five-year yields down 4.2 bps to 4.40%, 10-year yields down 4.9 bps to 4.48% and 30-year yields down 3.9 bps to 4.77%. Yields on UK two-year bonds are down 4.8 bps to 4.88%, with five-year yields down 4.7 bps to 4.85%, 10-year yields down 5.3 bps to 4.90% and 30-year yields down 3.2 bps to 4.56%. The day ahead features the ADP private payrolls report for July and weekly oil inventory data. "We have detailed the hit or miss nature of the ADP report to predict non farm payrolls many times in the past, but the reality is that the market continues to watch it," wrote TD economist Charmaine Buskas in a note to clients. U.S. Treasury August refunding needs will also be announced with strategists expecting $16-17 billion in 10-year notes, with some pointing to the possibility of a 7-year issuance. All data taken at 4:43 p.m. EDT. By Adam Button, abutton@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 CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News. 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