Market Updates | Written by CEP News | Jul 01 08 20:53 GMT | (CEP News) - The third quarter was off to a tumultuous start as U.S. equities bounced around before closing slightly to the upside. Fixed income was chasing stocks and oil rallied to just shy of a record high before pulling back. Canadian markets were closed for Canada Day.
U.S. stocks opened lower then got a brief bounce after a key index of U.S. manufacturing improved. But the moves were short-lived because a closer look at the data showed signs of a slowing economy.
June's ISM manufacturing index rebounded to 50.2 from 49.6. The improvement in the index initially boosted stocks, bond yields and the U.S. dollar but a second look showed the employment index falling to its lowest level in five years and prices paid to its highest level since 1979.
"The ISM looked very strong but the details were pretty stagflationary," said Carl Lantz, interest rate strategist at Credit Suisse First Boston.
Stocks got a second lift after major automakers released year-over-year sales figures for June. General Motors said its U.S. sales sank 18.5%, Ford lost 28% and Chrysler plunged 36%. Honda and Volkswagen each gained about 1%.
The General Motors sales were expected to be worse and shares of the company were up more than 3%. The improvement was cited as the reason for a broader market turnaround.
"Who knew that less-crappy GM sales be the catalyst to lift some of the gloom hanging over the US financial markets?" wrote Jamie Coleman, analyst at Thomson FX Hub.
At its lows, the Dow Jones Industrial Average was down 161 points but closed up 32 points to 11,382. The S&P 500 closed up 5 points to 1,285 and the Nasdaq up 12 points to 2,305.
European stock markets closed in negative territory with the Eurostoxx down 56 points to 2,850, the UK FTSE 100 down 146 points to 5,480 and the German DAX down 102 points to 6,316.
Fixed income moved in tandem with stocks. Yields on the U.S. 2-year note traded in a wide range from 2.52%-2.66%.
"The market did little more than trade off of movements in domestic equities," wrote Ian Lyngen, fixed income strategist at RBS Greenwich Capital in a note to clients.
U.S. two-year yields are up 3.2 bps to 2.65%, with five-year yields up 2.7 bps to 3.35%, 10-year yields up 3.3 bps to 4.00% and 30-year yields up 2.5 bps to 4.55%. The Eurodollar September 08 contract is down 2.0 ticks to 97.05. The yield curve is flatter, with the 10/2-year spread down 0.2 bps to 135.01 bps.
In Germany, returns on two-year German bonds are down 2.3 bps to 4.57%, with five-year yields down 1.4 bps to 4.62%, 10-year yields down 1.3 bps to 4.61% and 30-year yields down 2.6 bps to 4.83%.
Yields on UK two-year bonds are down 2.3 bps to 5.20%, with five-year yields down 1.8 bps to 5.16%, 10-year yields up 1.8 bps to 5.15% and 30-year yields up 4.7 bps to 4.73%.
Crude oil rallied more than $3 after the International Energy Agency said supply will rise less than expected by 2013. But traders later took profits when crude failed to hit a new intraday record high.
WTI crude oil was up $0.97 to$ 140.97.
In foreign exchange, the Canadian dollar was down 0.0006 to 0.9782 against the U.S. dollar (1.0222 USD/CAD) and down 0.20 to 103.79 against the yen.
The U.S. dollar was down 0.12 to 106.09 against the yen and the Dollar Index was down 0.083 to 72.380.
The euro was up 0.0044 to 1.5799 against the U.S. dollar, up 0.0058 to 1.6150 against the Canadian dollar, up 0.0010 to 0.7917 against the pound sterling and was higher by 0.28 to 167.61 against the yen.
The pound sterling was up 0.0029 to 1.9952 against the U.S. dollar and up 0.0044 to 2.0395 against the Canadian dollar.
All data taken at 4:42 p.m. EDT.
By Adam Button, abutton@economicnews.ca, edited by Cristina Markham, cmarkham@economicnews.ca
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