Published: Tue, 10 Mar 2009 15:12:25 +0100

Morning Market Recap: Stocks Move Higher after Citigroup Earnings Leaked

(CEP News) - Positive sentiment over the U.S. banking sector is helping stocks move higher following a strong open to the North American trading session.

U.S. equity market futures are higher with contracts on the Dow Jones Industrial Average up 217 points to 6745, the S&P 500 up 24 points to 700 and the Nasdaq up 33 points to 1080.

European stock markets are also higher, with the Eurostoxx up 43 points to 1658, the UK FTSE 100 up 86 points to 3629 and the German DAX up 108 points to 3800.

Asian markets were mixed, with the Japanese Nikkei closing down 31 points to 7055 and the Hang Seng Index up 349 points to 11694.

No major data will be released in the U.S. or Canada, however markets are reacting to news that fears over the U.S. banking sector could be overblown. A lot of concerns over Citigroup vanished overnight and there are growing expectations the bank could show stronger-than-expected earnings.

According to an article in the New York Times, an internal memo from the bank said the firm earned more than $19 billion in the first two months of 2009.

Comments from Fed Chairman Ben Bernanke, who spoke before the Council of Foreign Relations in Washington, helped to boost markets on Tuesday morning. Bernanke said the U.S. government currently remains committed to ensuring major banks have the capital necessary to weather the recession and to meet their obligations.

Although equities are up sharply this morning, there is some apprehension to call a shift in sentiment. Colin Cieszynski, market analyst from CMC Markets, said today's moves appear to be more a bear market rally as both the DIJA and S&P 500 remain below key resistance levels.

The rise in risk appetite is causing a broad selloff in the U.S. dollar. The U.S. dollar is down 0.44 to 98.41 against the yen and the Dollar Index is down 1.017 to 87.992.

The positive news on the financial industry has helped the euro retrace some of its losses. EUR/USD has moved steadily higher since the Asian session, and is currently trading near recent highs at 1.28 USD. Against other currencies, the euro is mixed.

The euro is up 0.0178 to 1.2790 against the U.S. dollar, down 0.0050 to 1.6361 against the Canadian dollar, up 0.0079 to 0.9232 against the pound sterling and is higher by 1.21 to 125.86 against the yen.

Although the euro is showing some signs of recovery against the greenback, Boris Schlossberg, director of currency research at GFT, said it could only be a matter of time before the euro is back near recent lows.

"While the euro may rebound on short covering dynamics in the near term, the long term economic outlook remains grim and the unit is likely to retest the 1.2500 [USD] level as more economic data hits the screen in upcoming days," he said.

Commodity currencies are the top performers against the U.S. dollar this morning. The Norwegian krone, Australian dollar, New Zealand dollar and Canadian dollar are all well off Monday's lows.

Monday was a big day for USD/CAD as it broke through the key resistance level of 1.30 CAD, and hit a high of 1.3064. However, the pair was unable to hold the gains, and now momentum is waning. Risk appetite is dragging USD/CAD lower to just below 1.28 CAD.

The Canadian dollar is up 0.0220 to 0.7817 against the U.S. dollar (1.2793 USD/CAD) and up 0.95 to 76.92 against the yen.

The pound sterling is up 0.0078 to 1.3855 against the U.S. dollar and down 0.0194 to 1.7725 against the Canadian dollar.

George Davis, chief FX technical analyst at RBC Capital Markets, said yesterday's failure to close above 1.3017 points to a corrective move lower. However, he is still bullish on the cross. "USD/CAD will have to close below 1.2485 in order to neutralize our bullish view," he said.

The positive sentiment is also helping energy markets with WTI crude oil up $0.66 to $47.73. As the same time, "safe haven" investments like gold are down. The front month gold contract at the Chicago Board of Trade is down $14.00 to $909.30 per ounce.

The rally in equity markets is hurting fixed income markets as North American bond yields continue to rise.

U.S. two-year yields are up 5.6 bps to 1.01%, with five-year yields up 8.0 bps to 1.95%, 10-year yields up 8.8 bps to 2.95% and 30-year yields up 9.9 bps to 3.67%. The Eurodollar September 09 contract is up 0.5 ticks to 98.45. The yield curve is steeper, with the 10/2-year spread up 3.3 bps to 193.43 bps.

The Canadian 10-year note is yielding 1.39 bps more than the U.S. 10-year note.

Yields on two-year Canadian government bonds are up 1.4 bps to 0.97%, with five-year yields up 2.4 bps to 1.89%, 10-year yields up 2.2 bps to 2.96% and 30-year yields up 2.8 bps to 3.67%. The September 09 BAX contract is down 4.0 ticks to 99.48.

All data taken at 10 a.m. EDT

By Neils Christensen, neilsc@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca