Published: Thu, 19 Feb 2009 18:59:44 +0100

Midday Market Recap: Low Trading Volume Leads to Doubt in Markets

(CEP News) - Volume for the DJIA is well below the five-day average as investors wait for a clear sign on where the U.S. and global economy is heading.

The Dow Jones industrial average is down 42 points to 7514, the S&P 500 is down 3 points to 786 and the Nasdaq is down 10 points to 1458.

Canadian stocks are showing modest gains, with Toronto's S&P/TSX composite index up 52 points to 8228.

European stock markets closed with the Euro Stoxx down 4 points to 1886, the UK FTSE 100 up 12 points to 4018 and the German DAX up 10 points to 4215.

Colin Cieszynski, market analyst at CMC markets, said sellers appear to be taking a break and that the market is able to hold the 7500 level in the Dow. He pointed out that, so far, the Dow is the only index in North America that is close to testing the November lows.

"There are still a lot of questions out there about whether the stimulus plans will work," he said.

A rise in positive sentiment was seen in European markets early in the morning. However, stocks were dragged lower by the close.

Thursday's data has not provided much direction for equity markets. Markets shrugged off a much weaker-than-expected Philly Fed survey. The Philadelphia Federal Reserve Bank's manufacturing survey fell to -41.3, to its lowest reading since October 1990. Forecasts had been for a -25.0 reading following January's -24.3 reading.

Significantly, the employment index hit an all-time low of -45.8 from -39.0 as the U.S. economy lost more than 200,000 manufacturing jobs in January.

In other data, initial jobless claims were unchanged at 627k in the week, from an upward revision to the previous week's claims to 627k, according to the U.S. Department of Labor. Claims were forecast to come in at 620k.

However, continuing claims rose to a new record high level of 4.987 million in the week ending Feb. 7, above the consensus forecast for a rise to 4.830 million.

Markets also received the January U.S. PPI report, which showed an unexpected rise.

U.S. producer prices climbed above expectations in January, with gasoline prices pushing up headline PPI. Headline PPI grew 0.8% month-over-month, against expectations for a 0.3% jump and following the 1.9% fall in December.

It was a relatively quiet morning for currency markets as they continued to track stocks. Adam Cole, global head of FX strategy at RBC Capital markets, pointed out that the moves on Thursday are all related to a weaker U.S. dollar.

The Canadian dollar is up 0.0052 to 0.7963 against the U.S. dollar (1.2558 USD/CAD) and up 0.64 to 75.02 against the yen.

The U.S. dollar is up 0.45 to 94.24 against the yen and the Dollar Index is down 0.632 to 87.375.

The euro is up 0.0153 to 1.2683 against the U.S. dollar, up 0.0129 to 1.5930 against the Canadian dollar, up 0.0046 to 0.8863 against the pound sterling and is higher by 2.01 to 119.53 against the yen.

The pound sterling is up 0.0100 to 1.4312 against the U.S. dollar and up 0.0055 to 1.7976 against the Canadian dollar.

U.S. fixed income markets are showing a modest rally following the Treasury refunding announcement. Next week, the Treasury will sell $40 billion in 5-year notes, $32 billion in 2-year notes and $22 billion in 7-year notes.

"The announcement was a little less than expected so we are seeing some buyers coming in," said Guy LeBas, fixed income strategist at Janney Montgomery Scott. "I think the market was expecting something around $100 million dollars in supply."

U.S. two-year yields are flat at 0.95%, with five-year yields up 2.0 bps to 1.82%, 10-year yields up 3.6 bps to 2.79% and 30-year yields up 5.3 bps to 3.60%. The Eurodollar September 09 contract is up 4.0 ticks to 98.67. The yield curve is steeper, with the 10/2-year spread up 3.7 bps to 184.20 bps.

The Canadian 10-year note is yielding 6.15 bps more than the U.S. 10-year note.

Yields on two-year Canadian government bonds are flat at 1.25%, with five-year yields down 0.9 bps to 2.07%, 10-year yields flat at 2.85% and 30-year yields flat at 3.58%. The September 09 BAX contract is down 1.0 tick to 99.23.

In Germany, returns on two-year German bonds are up 12.0 bps to 1.37%, with five-year yields up 12.6 bps to 2.25%, 10-year yields up 8.2 bps to 3.08% and 30-year yields up 8.6 bps to 3.76%.

Yields on UK two-year bonds are up 1.8 bps to 1.50%, with five-year yields up 9.1 bps to 2.66%, 10-year yields up 12.6 bps to 3.51% and 30-year yields up 10.2 bps to 4.15%.

Commodity markets are also mixed this morning following news from the Energy Information Administration (EIA). Crude oil prices rose sharply following a surprise withdrawal in weekly crude oil inventories. At the same time, natural gas prices are under pressure following a smaller-than-expected withdrawal in weekly natural gas storage.

WTI crude oil is up $2.60 to $37.22. The front month gold contract at the Chicago Board of Trade is down $6.90 to $979.00 per ounce. Natural gas prices are down 0.146 to $4.070.

All data taken at 12:55 p.m. EST.

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