Published: Thu, 19 Mar 2009 15:06:38 +0100

Morning Market Recap: U.S. Dollar Continues Slide, Commodities Rally

(CEP News) - The reverberations from the Federal Reserve's plan to increase its balance sheet and undertake quantitative easing continues to drive commodities and stocks higher, with the U.S. dollar slumping.

"One way to keep an equity market rally alive is to throw money at it and yesterday's announced $1.15 trillion in additional debt security purchases by the Fed was more than what either bond or equity markets thought the Fed would do," said Andrew Pyle, investment adviser at Scotia Capital.

Most recently, the Dow Jones industrial average was up 16 points to 7502, the S&P 500 was up 3 points to 798 and the Nasdaq was up 8 points to 1499. In Canada, the S&P/TSX composite index is up 186 points to 8815.

The Fed's spending is expected to generate inflation, and markets have shunned the U.S. dollar and commodities.

The euro is up 0.0173 to 1.3647 against the U.S. dollar after gaining nearly five cents on Wednesday. WTI crude oil is up $2.74 to $50.88 per barrel and the front month gold contract at the Chicago Board of Trade is up $63.50 to $953.40 per ounce.

Markets are also responding to economic data. U.S. initial jobless claims fell to 646k in the week ending March 14, following an upward revision to the previous week's claims to 658k. Initial claims were forecast at 655k.

In Canada, the Bank of Canada's core Consumer Price Index (CPI) rose 0.5% in February, more than the 0.1% rise expected by economists and following the 0.4% decline in January.

The Canadian dollar initially shrugged off the data, but later rallied alongside gold and oil. Most recently, the loonie was up 0.0124 to 0.8153 against the U.S. dollar (1.2268 USD/CAD) and up 0.09 to 77.25 against the yen.

Elsewhere in foreign exchange, the pound sterling is up 0.0241 to 1.4512 against the U.S. dollar and down 0.0002 to 1.7796 against the Canadian dollar.

The U.S. dollar is down 1.49 to 94.74 against the yen and the Dollar Index is down 1.574 to 83.021.

In fixed income, U.S. two-year yields are up 0.8 bps to 0.82%, with five-year yields down 3.6 bps to 1.53%, 10-year yields down 2.5 bps to 2.51% and 30-year yields up 2.7 bps to 3.56%. The Eurodollar September 09 contract is up 1.5 ticks to 98.85. The yield curve is flatter, with the 10/2-year spread down 3.0 bps to 169.03 bps.

Yields on two-year Canadian government bonds are up 1.7 bps to 0.98%, with five-year yields down 2.1 bps to 1.69%, 10-year yields down 1.5 bps to 2.69% and 30-year yields up 0.7 bps to 3.55%. The September 09 BAX contract is up 1.0 tick to 99.51.

In Germany, returns on two-year German bonds are down 4.5 bps to 1.36%, with five-year yields down 13.3 bps to 2.25%, 10-year yields down 19.5 bps to 3.03% and 30-year yields down 13.3 bps to 3.91%.

Yields on UK two-year bonds are down 4.9 bps to 1.41%, with five-year yields down 4.9 bps to 2.25%, 10-year yields down 8.7 bps to 3.03% and 30-year yields down 2.7 bps to 4.08%.

All data taken at 10:05 a.m. EDT.

By Adam Button, abutton@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca