Closing Market Recap: TSX Posts Largest Gain Since March 11

Market Updates | Written by CEP News | Jul 30 08 22:16 GMT |

(CEP News) - A rebound in crude oil prices and takeover speculation led the Toronto Stock Exchange to its best session in more than four months. Elsewhere, markets were volatile as an unexpectedly strong report on U.S. employment and new U.S. liquidity provisions competed with rising fuel costs. The U.S. dollar and Treasury yields leaped higher early in the session but the moves were later dampened by a $5 rally in oil. Stocks in the U.S. initially sold off as crude rallied but later regained their footing and rallied into the close. Toronto's S&P/TSX composite index closed up 341 points to 13,683. Besides the rebound in energy prices, takeover speculation ramped up following Teck Cominco's purchase of Fording Canadian Coal Trust on Tuesday. The Dow Jones industrial average closed up 186 points to 11,584, the S&P 500 up 21 points to 1,284 and the Nasdaq up 10 points to 2,330. U.S. two-year yields were up 0.8 bps to 2.63%, with five-year yields flat at 3.36%, 10-year yields up 0.6 bps to 4.04% and 30-year yields up 2.1 bps to 4.64%. The Eurodollar March 09 contract was up 3.0 ticks to 96.86. The yield curve was flatter, with the 10/2-year spread down 0.2 bps to 141.39 bps. Yields on two-year Canadian government bonds were up 0.9 bps to 3.07%, with five-year yields up 1.8 bps to 3.38%, 10-year yields up 2.8 bps to 3.82% and 30-year yields up 2.8 bps to 4.17%. The December 08 BAX contract was up 2.0 ticks to 96.90. The Canadian 10-year note is yielding 22.59 bps less than the U.S. 10-year note. "Yields spiked early in the US session on the strong ADP employment report, but then completely reversed in sympathy with the spike in oil. Late in the session, yields rebounded modestly as equities surged into the close," wrote T.J. Marta, fixed income strategist at RBC Capital Markets, in a research note. Private payroll company ADP said the U.S. added 9k jobs in July, against a consensus estimate for job losses of 60k. Further fuelling optimism, the Federal Reserve announced it will extend its emergency lending to investment banks through January and said it will introduce a $25 billion, 84-day Term Auction Facility. The Fed said it is hoping to address the ongoing "fragility" of the financial system. "The feeling is that [the new lending facility] reduces the risk of flight-to-quality but we think that's a mistake. To us, it points out that the problems are going to persist and we take that as a positive for bonds," a Treasury trader in New York said. As has been the case recently, oil has been a key driver in other markets. Crude opened to the downside but got a lift when the U.S. Energy Information Administration released weekly inventory data. The figures showed an unexpected decline in gasoline supplies. Scotia McLeod commodities futures specialist Mathieu Tessier said a recent round of profit taking has run its course, while concerns about Nigerian and Middle Eastern supply will continue to add upward pressure. Israeli Prime Minister Ehud Olmert's announced he will resign in September and there is speculation his successor will be more likely to launch an attack on Iran. WTI crude oil was up $4.58 to $126.77. Tessier said the next resistance level is at $127.50 and he now sees $120 as support. "I don't know if this rally will last but I would be reluctant to short sell," he said. In foreign exchange, prices were volatile but markets closed relatively unchanged. The Canadian dollar was down 0.0005 to 0.9768 against the U.S. dollar (1.0237 USD/CAD) and down 0.11 to 105.59 against the yen. The U.S. dollar was down 0.04 to 108.10 against the yen and the Dollar Index was down 0.001 to 73.308. The euro was up 0.0001 to 1.5577 against the U.S. dollar, up 0.0011 to 1.5946 against the Canadian dollar, up 0.0002 to 0.7861 against the pound sterling and was lower by 0.05 to 168.36 against the yen. The pound sterling was down 0.0002 to 1.9816 against the U.S. dollar and up 0.0006 to 2.0281 against the Canadian dollar. The front month gold contract at the Chicago Board of Trade was down $13.90 to $902.80 per ounce. The day ahead will be very busy with U.S. second quarter GDP, weekly jobless claims and the Chicago PMI. In Canada, May GDP figures will be released. All data taken at 5:11 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. A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.