Published: Tue, 31 Mar 2009 18:41:39 +0200

Midday Market Recap: Equities Take Back Losses Depite Negative Sentiment

(CEP News) - U.S. equity markets have retraced almost half of Monday's losses and are trading near strong resistance levels despite apprehension over the U.S. auto industry.

Markets continue to digest Monday's grim news regarding the auto industry, however the negative sentiment isn't having much impact on equities as they are showing a 1% gain on the day.

The Dow Jones industrial average up 82 points to 7604, the S&P 500 is up 9 points to 796 and the Nasdaq is up 23 points to 1525. Canadian stocks are also higher with Toronto's S&P/TSX composite index up 119 points to 8715.

"I don't think this move higher makes a lot of sense," said Jimmy Tintle, futures broker at Transworld Futures.com. "There isn't a lot of positive news supporting this rally."

Tintle pointed out that month-end and quarter-end flows could be the major driver in equity markets. He added he doesn't expect this rally to last as the economy continues to remain week.

Fausto Pugliese, President of CyberTrading University.com, said he thinks today' move could just be some short covering after Monday's 3% selloff.

Major gains were seen in European markets as most of the indexes erased Monday's loses. European stock markets closed with the Eurostoxx up 65 points to 1816, the UK FTSE 100 up 163 points to 3926 and the German DAX up 96 points to 4085.

David Jones, chief market strategist from IG Index in London, said while UK stocks could have enough momentum to move higher in the short term, it is difficult to determine longer term trends.

"There could still be enough strength left in the FTSE for a test of the 4,000 mark, but it remains difficult to see at the moment what is going to provide a catalyst for any significant and prolonged moves in either direction, Jones said. "However, traders may be playing a waiting game ahead of the release of the latest set of US unemployment numbers this Friday - unwilling to commit either way until then."

Mixed North American data has not provided any direction for markets on Tuesday.

The U.S. Conference Board's consumer confidence index rose less than expected to 26 from February's upwardly revised 25.3 reading, which was the all-time low for the index. Economists had expected the survey to rise to 28.0.

The S&P Case-Shiller U.S. home price index fell more than expected in January, with prices down nearly 20% from a year ago. The Chicago PMI highlighted more weakness in the manufacturing sector falling to 31.4, against expectations of a 34.3 reading.

Canadian January GDP, which came in line with economist expectations, has also not provided much direction for markets.

The positive market sentiment caused a sharp selloff in the U.S. dollar. However, currencies have come off their highs as the greenback makes modest gains. The euro has fallen almost a cent after hitting session highs at the start of the North American session

Tyson Wright, senior currency trader at Custom House, said the dislocation between the U.S. dollar and equity markets could point to some further equity weakness. Moving forward, he said it might be harder for currencies to reach recent highs against the USD.

"I think the market is looking for some medium term weakness in equities," he said. "I think we have seen a pretty substantial selloff in the U.S. dollar and it is hitting some support and it will be difficult to drag it lower in the short term."

The Canadian dollar is up 0.0039 to 0.7945 against the U.S. dollar (1.2585 USD/CAD) and up 1.72 to 78.78 against the yen.

The euro is up 0.0038 to 1.3238 against the U.S. dollar, up 0.0002 to 1.6663 against the Canadian dollar. The pound sterling is up 0.0041 to 1.4307 against the U.S. dollar and up 0.0014 to 1.8023 against the Canadian dollar.

The stronger equity markets are also not having much impact on U.S. Treasury markets. U.S. bonds are showing modest gains across the board.

Commodity markets are trading relatively sideways. Oil prices are showing modest losses, while gold is showing modest gains. WTI crude oil is down $0.31 to $48.10. The front month gold contract at the Chicago Board of Trade is up $2.00 to $919.90 per ounce.

All data take at 12:32 p.m. EDT.

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