Published: Fri, 27 Mar 2009 18:14:08 +0100

Midday Market Recap: Equities Fall as Traders Take Profits

(CEP News) - U.S. equity markets continue to be under pressure as traders take some profits off the table on Friday.

Toronto's S&P/TSX composite index is down 127 points to 8869, the Dow Jones industrial average is down 145 points to 7779, the S&P 500 is down 15 points to 818 and the Nasdaq is down 37 points to 1550.

European stock markets closed with the Euro Stoxx down 21 points to 1823, the UK FTSE 100 down 26 points to 3899 and the German DAX down 56 points to 4204.

Some traders are not surprised that equities are ending the week on a soft note.

Jimmy Tintle, futures broker at Transworld Futures.com, said equities have had a massive rally in the last three weeks, and that the sell-off is a strong reminder that the economic outlook remains gloomy.

"Investors pushed prices way down and I think that we are seeing some short- term gains," he said. "I think we are going to continue to trade in this sideways pattern."

U.S. data have not provided any momentum for markets despite another rise in U.S. consumer sentiment. The final consumer sentiment survey from Reuters and the University of Michigan for March was revised up from preliminary estimates, bringing the headline index higher to 57.3 compared to the preliminary 56.6 level. Economists were expecting an upward revision to 56.8.

Personal income fell slightly more than expected in February and personal spending moved higher, according to a report released by the U.S. Department of Commerce. Annual core PCE climbed to 1.8%, two-tenths below the Fed's unofficial target level of 2.0%.

Although the S&P 500 has made massive gains in the last three weeks, Tintle said investors need to be reminded that stocks are still firmly in a bear market. He said he is hopeful that markets end the day in positive territory.

"I wouldn't start to look for a bull market until the S&P is at 1,000," he said.

The euro is down 0.0239 to 1.3288 against the U.S. dollar and down 0.0161 to 1.6487 against the Canadian dollar.

The U.S. dollar is down 0.61 to 98.11 against the yen and the Dollar Index is up 1.087 to 85.252.

The Canadian dollar is down 0.0100 to 0.8059 against the U.S. dollar (1.2406 USD/CAD) and down 1.16 to 79.07 against the yen.

The U.S. dollar has broken through a six-day range against the euro, sterling and Canadian dollar. According to currency strategists, the sell-off was initiated when investors moved out of the euro and into U.S. dollars.

Brian Dolan, chief currency strategist at Gain Capital, said fears over U.S. dollar devaluation are dissipating, helping to support the recent gains.

"The short dollar position has grown stale and we are seeing a shift in momentum," he said.

The rally in the U.S. dollar is having an impact on commodity markets, as both oil and gold prices trade lower on the day.

WTI crude oil is down $2.45 to $51.89. The front month gold contract at the Chicago Board of Trade is down $16.70 to $923.50 per ounce.

It has been a relatively quiet day for U.S. Treasury markets. The slide in equities has not had a major impact on bond markets. The Federal Reserve has completed the purchase of $7.541 billion in Treasuries as part its $300 billion program.

Despite the repurchasing announcement, longer-term bonds are only showing modest gains.

U.S. two-year yields are up 0.8 bps to 0.91%, with five-year yields flat at 1.79%, 10-year yields flat at 2.74% and 30-year yields down 2.3 bps to 3.63%. The Eurodollar September 09 contract is up 4.0 ticks to 98.85. The yield curve is flatter, with the 10/2-year spread down 0.9 bps to 186.49 bps.

The Canadian 10-year note is yielding 17.11 bps more than the U.S. 10-year note.

Yields on two-year Canadian government bonds are down 1.7 bps to 1.16%, with five-year yields down 1.8 bps to 1.88%, 10-year yields up 1.6 bps to 2.91% and 30-year yields down 1.6 bps to 3.63%. The September 09 BAX contract is up 2.0 ticks to 99.49.

By Neils Christensen, neilsc@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca