Closing Market Recap: Equity Markets Close in Dangerously Negative Territory

Market Updates | Written by CEP News | Jul 24 08 20:31 GMT |
(CEP News) - Equities in the U.S. were down at the close due to weak data reports earlier in the day, and Toronto's S&P TSX composite index was selling off by huge amounts in its own right, despite crude oil being up during the session.

Initial claims for unemployment benefits in the United States rose more than expected to 406k in the week ending July 19, surpassing expectations for a climb to 380k. The Dow Jones industrial average was subsequently down 283.10 points to 11,349.28, the S&P 500 down 29.64 points to 1,252.55 and the Nasdaq down 45.77 points to 2,280.11.

Negative equity market sentiment easily caught on overseas as European stock markets closed in negative territory with the Eurostoxx down 30.80 points to 2,859.88, the UK FTSE 100 down 87.60 points to 5,362.30 and the German DAX down 95.39 points to 6,440.70.

Canada's commodity-heavy TSX closed down 299.48 points to 13,213.18, even though futures on WTI crude oil were up $0.90 to $125.34 while gold futures at the Chicago Board of Trade were up $4.20 to $927.40.

"Although Canadian markets have been able to shrug off the US market malaise with commodity prices stabilizing, the two largest moves today have been related to takeover announcements. Despite significant rallies, both Aurelian and Synenco have been trading below the implied bid prices," wrote CMC Markets analyst Colin Cieszynski.

"Note that Kinross (K), as is normal for purchasers, has declined 5.8% suggesting that investors appear to be concerned that this deal may adversely affect its integration, development and political risk profiles. Agnico-Eagle (AEM) has fallen 7.9% after reporting EPS of $0.06 for last quarter, well below the $0.17 markets had been expecting."

Also on Thursday, underground natural gas storage in the United States increased 84 billion cubic feet in the week ending July 18, according to the Energy Information Administration. The weekly increase was above the +80 Bcf Bloomberg estimate. Natural gas was nonetheless down during the session, its session low of $8.8883 mmbtu marking the future's lowest price since April. Most recently it was down $0.487 to $9.301.

Cieszynski noted the decrease in natural gas later on in his e-mail to clients.

"Generally speaking, commodities appear to be stabilizing, which suggests that some of the recent selling pressure may be easing a bit. The one notable exception, however, has been natural gas which has dropped another 2.2% and appears to be trending toward a retest of possible support levels near $9.50/mcf or $9.00/mcf," he said.

At 10 a.m. EDT, U.S. existing home sales were reported to have fallen 2.6% to 4.86 million units in June following May's unrevised sales figure of 4.99 million. Economists were expecting the June data to fall to 4.94 million.

"Fundamentals in the housing market remain weak as oversupply, falling prices, and tighter lending standards continue to weigh on home sales," wrote Calyon's Sireen Hajj in reaction to the data. "We do not expect to see stabilization in housing until 2009. The decline in existing home sales was larger than consensus expectations -which centered on a 1.0% decrease- and bonds traded higher on the release."

The U.S. Treasury also sold $21 billion in five-year notes, with the auction's results being released at 1 p.m. EDT. A high yield of 3.44% was drawn. RBS Greenwich Capital U.S. government bond strategist David Ader noted the market activity before and after the results hit.

"The market was trading higher ahead of the auction building in no meaningful consession, and has since made some marginal improvement," he wrote.

"Overall volumes on the day have been near norms, with cash trading at 108% of the 10-day moving-average. Prices are edging higher on the back of stocks and some auction relief -- note the decent indirect bidding in both 2s and 5s. We take the auctions, now hurdles out of the way for this sector, as positive and have felt that supply has been the main thrust to the price action leaving the market in a decent position for a move back into the range. The closes will be constructive."

U.S. two-year yields were down 12.8 bps to 2.60%, five-year yields down 15.6 bps to 3.34%, 10-year yields down 10.6 bps to 4.01% and 30-year yields down 5.7 bps to 4.62%.

The Eurodollar September 08 contract was up 7.5 ticks to 97.11. The 10/2 year spread widened 7.24 bps to 145.21.

The yield curve was steeper with the difference in yield between the U.S. two-year and 10-year notes up 7.2 bps to 145.21 bps.

Yields on two-year Canadian government bonds were down 9.7 bps to 3.14%, five-year yields down 9.1 bps to 3.38%, 10-year yields down 7.3 bps to 3.79% and 30-year yields down 3.4 bps to 4.13%.

The Canadian 10-year note is yielding 22.04 bps less than the U.S. 10-year note.

In Germany, returns on two-year German bonds were down 15.3 bps to 4.43%, five-year yields down 14.8 bps to 4.51%, 10-year yields down 9.6 bps to 4.57% and 30-year yields down 5.5 bps to 4.83%.

Yields on UK two-year bonds were down 13.5 bps to 4.96%, five-year yields down 11.9 bps to 4.94%, 10-year yields down 7.0 bps to 4.98% and 30-year yields down 4.2 bps to 4.61%.

The Canadian dollar was down 0.0036 to 0.9861 against the USD (1.014 USD/CAD) and down 0.0020 cents to 1.5906 (0.6288 CAD/EUR) against the euro.

The U.S. dollar was down 0.67 to 107.23 against the yen and the euro down 0.0010 to 1.5684 against the U.S. dollar.

The pound sterling was down 1.40 cents to 1.9862 USD and the Australian dollar was lower by 0.30 cents to 0.9591 USD.

The U.S. Dollar Index was up 0.057 points to 72.868.

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 Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it and Patrick McGee, pmcgee@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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