Forex Brokers Closing Market Recap: Oil Down, U.S. Equities and Dollar Higher

Market Updates | Written by CEP News | Jul 23 08 20:28 GMT |
(CEP News) - Crude oil was selling off and equity markets in the U.S. subsequently closed on a high note on Wednesday.

WTI crude oil is down $4.18 to $124.24, under $125.00 for the first time since early June. Crude's low during the session was $124.13, reached on a sharp decrease from its high of $128.72 at 12:30 p.m. EDT.

Crude oil inventories declined further than expected in the week ending July 18, falling by 1.558 million barrels compared to the previous week's surprise 2.952 million barrel gain. Economists had been expecting a draw of 675k barrels. Despite the decrease in inventories, crude dropped in price to $125.30 right at 10:35 a.m. EDT when the data was released.

The front month gold contract at the Chicago Board of Trade is also down $30.00 to $918.60 per ounce.

With the decreasing commodity prices, Toronto's S&P/TSX composite index closed down 119 points to 13,524, the Dow Jones industrial average up 30 points to 11,632, the S&P 500 up 5 points to 1,282 and the Nasdaq up 22 points to 2,326.

European stock markets closed in positive territory with the Eurostoxx up 59 points to 2,891, the UK FTSE 100 up 86 points to 5,450 and the German DAX up 93 points to 6,536.

Results of a $31 billion, two-year note auction by the U.S. Treasury were released at 1 p.m. EDT. RBS Greenwich Capital's Ian Lyngen said markets were little worse for wear as a result, however.

"Flows have been normal overall today -- with cash trading at 105% of the 10-day moving-average. Ahead of the auction, we had real money interest in the 2-year sector, banks selling 2s, and two-way real money interest in the 5-year sector," he wrote to clients. "Also saw hedge funds active in the 2-year roll -- two-way. In the wake of the auction, we have seen modest spec interest in 2s and little else."

U.S. two-year yields are up 2.5 bps to 2.74%, with five-year yields up 2.8 bps to 3.50%, 10-year yields up 1.8 bps to 4.12% and 30-year yields up 2.1 bps to 4.68%. The yield curve is flatter, with the 10/2-year spread down 0.7 bps to 137.40 bps.

In Germany, returns on two-year German bonds are down 1.1 bps to 4.58%, with five-year yields up 1.0 bps to 4.66%, 10-year yields up 2.1 bps to 4.66% and 30-year yields up 0.9 bps to 4.88%.

Yields on UK two-year bonds are up 6.1 bps to 5.10%, with five-year yields up 5.6 bps to 5.06%, 10-year yields up 4.9 bps to 5.05% and 30-year yields up 1.5 bps to 4.65%.

The Canadian 10-year note is yielding 25.25 bps less than the U.S. 10-year note.

Yields on two-year Canadian government bonds are up 1.9 bps to 3.23%, with five-year yields up 2.4 bps to 3.47%, 10-year yields up 1.6 bps to 3.86% and 30-year yields up 1.0 bps to 4.18%.

Canada's headline inflation rate surged 3.1% in June, its highest level in almost three years, Statistics Canada reported Wednesday. The core CPI rose 1.5% in June. The consensus estimate of analysts was for a 2.9% increase in the overall rate and a rise of 1.6% in core. Headline inflation was up 0.7% from the previous month in June and the core rate increased 0.1% month-over-month on a seasonally adjusted basis.

The Canadian dollar is up 0.35 to 106.82 against the yen and down 0.0015 to 0.9903 against the U.S. dollar (1.0098 USD/CAD). TD Securities chief currency strategist Shaun Osborne opted to remain neutral in his short-term projection of the latter currency cross.

"We failed to close back through the 55 & 100 day MAs [1.0091] yesterday and the market is again struggling to hold gains towards 1.01 today. We will need to see the market push through this resistance zone on a closing basis to remove short-term downside risks and open up the topside a little more," he wrote in a research note. "We'll stay neutral here for now as there appears to be little real conviction in the markets currently and the USD remains well entrenched in a wide range overall."

The U.S. dollar made modest 0.11 gains against the loonie on the release of the Federal Reserve's Beige Book at 2 p.m. EDT, despite economic conditions across the U.S. being reported to have "slowed somewhat". Five of the 12 districts were said to have weakened since the last report six weeks ago, while Chicago's economy was "sluggish" and growth in Kansas City had moderated. The remaining three districts saw slight increases in activity.

"The report reinforces recent commentary by Fed officials that has resurrected concerns about the near-term growth outlook and has placed it alongside the ongoing risks about inflation pressures building in the system," wrote RBC Capital Markets assistant chief economist Paul Ferley.

"This characterization of the economy will reinforce expectations that interest rates are likely to be held unchanged near term with the Fed continuing to monitor the data. Any move on interest rates will await one or the other risk dominating. Our expectation is that Fed funds will be held unchanged until the middle of next year before starting to rise."

The Eurodollar September 08 contract is currently flat at 97.05.

The U.S. dollar is up 0.54 to 107.86 against the yen and the Dollar Index is up 0.352 to 72.798.

The euro is down 0.0096 to 1.5691 against the U.S. dollar, down 0.0071 to 1.5844 against the Canadian dollar, down 0.0072 to 0.7854 against the pound sterling and is lower by 0.20 to 169.24 against the yen. The pound sterling is up 0.0062 to 1.9979 against the U.S. dollar and up 0.0096 to 2.0174 against the Canadian dollar.

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 , Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it and Geoff Matthews, gmatthews@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.