Closing Market Recap: U.S. Dollar and Equities Continue Rally

Market Updates | Written by CEP News | Aug 06 08 20:42 GMT |
(CEP News) - A pair of soft earnings reports from the U.S. financial sector threatened equity markets early in the session, but a slip in oil prices helped stocks continue their two-day rally. In Canada, the TSX rebounded strongly from Tuesday's sell-off but the Canadian dollar continued its prolonged downturn.

Equity markets started out in the negative after government-sponsored entity Freddie Mac and mortgage insurer Ambac Financial revealed weaker-than-expected earnings. Freddie Mac announced an $821 million loss, more than three times the consensus forecast. Ambac had a loss of $1.53 per share, compared with a median estimate of 61 cents.

S&P 500 futures fell as low as 1275, but gradually pared their losses. The final boost came after the U.S. Energy Information Administration revealed greater-than-expected supply figures and crude prices briefly declined to the lowest level since May 5.

"The recent drop in the price of black gold reflect[s] the weakness in global demand for oil as a growing number of major countries are feeling the impact of the economic slowdown," wrote economists at Desjardins Securities in a research report.

The Dow Jones industrial average closed up 40 points to 11656, the S&P 500 closed up 4 points to 1289 and the Nasdaq closed up 29 points to 2378.

In Canada, the loonie fell to its lowest level since Sept. 11, 2007 on declining commodity prices and concern a slowing economy will force the Bank of Canada to cut rates. Still, Toronto's S&P/TSX composite index paired most of Tuesday's losses and closed up 211 points to 13454.

Volumes were once again strong at the Montreal Exchange, where more than 38k BAX contracts traded hands. The front month contract was down fractionally but continues to price in a 52% chance of a rate cut at the Sept. 3 Bank of Canada meeting. The Dec 08 contract is fully priced in for a rate cut and pricing in a 60% chance of a second cut by year end.

Yields on two-year Canadian government bonds are down 3.7 bps to 2.86%, with five-year yields down 1.0 bps to 3.21%, 10-year yields flat at 3.70% and 30-year yields up 1.1 bps to 4.11%. The December 08 BAX contract is up 2.0 ticks to 97.10. The Canadian 10-year note is yielding 34.32 bps less than the U.S. 10-year note.

The Canadian dollar was caught in a wave of positive U.S. dollar sentiment as the Dollar Index closed at its highest level since Feb. 28. Strategists at RBS Greenwich Capital suggested the rally in the U.S. dollar and stocks may have been due to an effort from international investors to avoid overseas central bank decisions tomorrow.

"With the pending ECB and BOE decisions overnight, we are cautious it's more a flight to stability -- loosely defined and clearly relative," they wrote in a note to clients.

The U.S. dollar is up 1.45 to 109.79 against the yen and the Dollar Index is up 0.393 to 74.274.

The euro is down 0.0042 to 1.5412 against the U.S. dollar, up 0.0033 to 1.6161 against the Canadian dollar, up 0.0007 to 0.7913 against the pound sterling and is higher by 1.79 to 169.22 against the yen.

The pound sterling is down 0.0070 to 1.9478 against the U.S. dollar and up 0.0025 to 2.0426 against the Canadian dollar.

In Germany, returns on two-year German bonds are down 0.6 bps to 4.24%, with five-year yields up 1.9 bps to 4.26%, 10-year yields up 3.0 bps to 4.34% and 30-year yields up 3.5 bps to 4.67%.

Yields on UK two-year bonds are down 4.0 bps to 4.71%, with five-year yields down 4.0 bps to 4.68%, 10-year yields down 1.8 bps to 4.75% and 30-year yields down 3.9 bps to 4.49%.

European stock markets closed in positive territory with the Eurostoxx up 19 points to 2918, the UK FTSE 100 up 32 points to 5486 and the German DAX up 43 points to 6561.

All data taken at 4:38 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 Sarah Sussman, ssussman@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it

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