Published: Thu, 26 Mar 2009 18:00:44 +0100

Midday Market Recap: North American Equities Searching for Direction

(CEP News) - With the major North American data out of the way, U.S. equity markets remain range bound.

"I think markets are consolidating at these levels and waiting for more news to find some direction," said Colin Cieszynski, market analyst from CMC Markets Canada.

The Dow Jones industrial average is up 71 points to 7821, the S&P 500 is up 8 points to 822 and the Nasdaq is up 33 points to 1562.

Canadian stocks are also higher with, Toronto's S&P/TSX composite index up 138 points to 8936.

European stock markets closed with the Eurostoxx up 6 points to 1844, the UK FTSE 100 up 25 points to 3925 and the German DAX up 36 points to 4259.

North American equities remain near the top of today's range and, according to some strategists, stocks are reacting to some better-than-expected earnings reports.

The report from Best Buy boosted hopes that consumer spending could show more resilience than some analysts had expected. The retail company reported that its fiscal fourth-quarter earnings fell 23%. However, stripping out the one-time costs, the results beat analyst expectations. Best Buy (BBY) is up 13.6% on the day trading at $38.00 a share.

Earnings at Dr. Pepper Snapple Group Inc. (DPS) also came in above what analysts had expected and its stock is up 11% to $17.23 a share.

Although some of the earnings news was better-than-expected, Fausto Pugliese from Cyber Training University.com said it isn't enough to drive the markets through resistance levels.

"I'm just not ready to jump on the band wagon yet," he said. "I want to wait for more consistent good news."

U.S. data has had little impact on markets as U.S. weekly jobless claims remain at extremely elevated levels and Q4 GDP remains weak.

Currency markets are relatively range abound with the euro, sterling and Canadian dollar all trading in a one cent range against the U.S. dollar. Commodity currencies are the best performers against the greenback, which Scotia Capital currency strategist Sacha Tihanyi said shows the strong risk appetite in markets today.

The Canadian dollar is up 0.0008 to 0.8124 against the U.S. dollar (1.2310 USD/CAD) and up 0.81 to 79.98 against the yen.

The U.S. dollar is up 0.91 to 98.45 against the yen and the Dollar Index is up 0.186 to 83.994.

The euro is down 0.0051 to 1.3531 against the U.S. dollar, down 0.0073 to 1.6658 against the Canadian dollar, up 0.0010 to 0.9344 against the pound sterling and is higher by 0.73 to 133.22 against the yen.

The pound sterling is down 0.0070 to 1.4482 against the U.S. dollar and down 0.0102 to 1.7827 against the Canadian dollar.

"I don't think the major currencies like sterling and the euro have enough momentum today to break out of their ranges," he said. The biggest move has been in natural gas prices, which dropped sharply after a very bearish report from the Energy Information Administration (EIA).

WTI crude oil is up $0.59 to $53.36. The front month gold contract at the Chicago Board of Trade is up $5.20 to $940.70 per ounce.

Nat gas fell more than 7% on the day after the EIA report that storage increased by 3 billion cubic feet (bcf) in the week ending March 20. Prices remain near the session low of $3.948 mmbtu.

Investors were interested in purchasing U.S. Treasuries on Thursday afternoon despite stronger equity markets. The U.S. Treasury sold $24 billion in 7-year notes, but demand for bonds was fairly strong as the high yield of 2.384% came in below the WI yield of 2.391%

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 4.7 bps to 0.91%, with five-year yields up 1.1 bps to 1.82%, 10-year yields down 1.8 bps to 2.77% and 30-year yields down 4.8 bps to 3.69%. The Eurodollar September 09 contract is up 4.0 ticks to 98.79. The yield curve is steeper, with the 10/2-year spread up 2.4 bps to 189.40 bps.

The Canadian 10-year note is yielding 14.88 bps more than the U.S. 10-year note.

Yields on two-year Canadian government bonds are down 2.6 bps to 1.19%, with five-year yields down 2.9 bps to 1.92%, 10-year yields down 4.6 bps to 2.92% and 30-year yields down 5.1 bps to 3.69%. The September 09 BAX contract is up 3.0 ticks to 99.46.

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