Published: Thu, 26 Mar 2009 15:12:28 +0100

Morning Market Recap: Markets Find Little Direction as Sentiment Improves

(CEP News) - Risk appetite is on the rise Thursday morning as North American equities show another day of gains and remain near their February highs.

The Dow Jones industrial average is up 64 points to 7814, the S&P 500 is up 8 points to 822 and the Nasdaq is up 28 points to 1557.

Canadian stocks are also higher, with Toronto's S&P/TSX composite index up 131 points to 8928.

European stock markets are mixed, with the Eurostoxx down 9 points to 1829, the UK FTSE 100 down 5 points to 3895 and the German DAX up 13 points to 4236.

Asian markets were higher, with the Japanese Nikkei closing up 156 points to 8636 and the Hang Seng Index up 487 points to 14109.

U.S. data, which came in relatively in line with expectations, has not had much impact on financial markets this morning.

Final revisions to fourth-quarter U.S. gross domestic product were revised down from the preliminary estimate, the U.S. Bureau of Economic Analysis reported. Real GDP contracted by 6.3% in the quarter, following an initial 6.2% decline and against expectations for a -6.6% read.

U.S. initial jobless claims rose to 652k in the week ending March 21, following a downward revision to the previous week's claims to 644k from 646k. Initial claims were forecast to come in at 650k.

Currency markets are remaining range bound following Wednesday's volatile moves. The euro, sterling and Canadian dollar have all bounced within a one-cent range against the U.S. dollar. Currency strategists said they will continue to monitor equity markets to determine the direction of the greenback.

Currency strategists from Brown Brothers Harriman said they are not expecting currencies to break out of their recent range following the quantitative easing measures announced by the Fed last week.

The Canadian dollar is up 0.0027 to 0.8137 against the U.S. dollar (1.2291 USD/CAD) and up 1.08 to 80.24 against the yen.

The U.S. dollar is up 1.08 to 98.61 against the yen and the Dollar Index is up 0.075 to 83.883.

The euro is down 0.0028 to 1.3555 against the U.S. dollar, down 0.0071 to 1.6660 against the Canadian dollar, down 0.0009 to 0.9325 against the pound sterling and is higher by 1.16 to 133.65 against the yen.

The pound sterling is down 0.0015 to 1.4537 against the U.S. dollar and down 0.0062 to 1.7867 against the Canadian dollar.

"Markets will be looking for fresh incentives on which to trade," they said.

Commodity markets are also benefiting from rising positive sentiment. Oil prices continue to move higher despite Thursday's bearish Department of Energy report, which showed another build in crude oil inventories.

WTI crude oil is up $1.16 to $53.93. The front month gold contract at the Chicago Board of Trade is up $5.40 to $940.90 per ounce.

U.S. Treasuries are mixed this morning as the short end of the curve outperforms the long end. Market participants will be paying attention to today's 7-year note auction. The U.S. Treasury will sell $24 billion in 7-year bonds.

Wednesday's five-year auction was slightly disappointing and according to some strategists it shows there are some risks to Thursday's sale.

"Supply considerations are the dominant driver of directionality on a short-term basis while the market effectively is really moving sideways in a pretty confined range," said David Ader, head of government bond trading at RBS Greenwich.

U.S. two-year yields are down 2.4 bps to 0.93%, with five-year yields up 3.0 bps to 1.84%, 10-year yields up 1.6 bps to 2.80% and 30-year yields flat at 3.75%. The Eurodollar September 09 contract is up 1.5 ticks to 98.76. The yield curve is steeper, with the 10/2-year spread up 4.0 bps to 191.03 bps. The Canadian 10-year note is yielding 15.62 bps more than the U.S. 10-year note.

Yields on two-year Canadian government bonds are flat at 1.21%, with five-year yields down 0.9 bps to 1.94%, 10-year yields flat at 2.96% and 30-year yields down 1.4 bps to 3.72%. The September 09 BAX contract is up 1.0 tick to 99.44.

In Germany, returns on two-year German bonds are up 1.8 bps to 1.42%, with five-year yields flat at 2.37%, 10-year yields down 1.2 bps to 3.13% and 30-year yields down 5.8 bps to 4.00%.

Yields on UK two-year bonds are up 1.7 bps to 1.27%, with five-year yields up 4.0 bps to 2.47%, 10-year yields up 1.2 bps to 3.29% and 30-year yields up 1.0 bps to 4.25%.

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