Published: Thu, 19 Feb 2009 22:55:51 +0100

Closing Market Recap: Dow Closes at Seven-Year Low

(CEP News) - The Dow Jones Industrial Average closed at its lowest level since October 2002, but continues to hold the November 2008 support levels. Despite the decline, investors stayed away from the markets on Thursday as volume remained lower than the five-day average.

The Dow Jones industrial average closed down 90 points to 7466, the S&P 500 closed down 9 points to 779 and the Nasdaq closed down 25 points to 1443. Canadian stocks showed modest gains, with Toronto's S&P/TSX composite index closing up 9 points to 8185.

European stock markets closed in mixed territory, 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.

"The low volume today is a good sign because it appears that selling pressures are easing," said Collin Cieszynski, market analyst at CMC Markets Canada. "I think if we had high volume we would be much lower today."

Mike Leavitt, futures broker at MF Global, said he is not expecting to see any significant gains in equity markets as sentiment remains negative. He added that it is only a matter of time before equity markets break through the November lows.

Markets started trading lower in the afternoon, ignoring more disappointing data. 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.

Although U.S. stocks ended the day lower, the drop is not having much impact on the U.S. dollar and the Japanese yen. Strategists pointed out that there could be some more positive sentiment in currency markets.

Nick Bennenbroek, head of currency strategy at Wells Fargo, said financial markets are trying to latch on to any positive data, such as the stimulus plans and news that stronger European nations will support their weaker neighbours.

The U.S. dollar is up 0.45 to 94.24 against the yen and the Dollar Index is down 0.568 to 87.439.

The euro is up 0.0138 to 1.2669 against the U.S. dollar, up 0.0142 to 1.5943 against the Canadian dollar, up 0.0050 to 0.8866 against the pound sterling and is higher by 1.86 to 119.38 against the yen.

The pound sterling is up 0.0075 to 1.4287 against the U.S. dollar and up 0.0060 to 1.7981 against the Canadian dollar.

It has been a choppy day for fixed income markets. Earlier in the morning, 10-year notes rallied following the Treasury refunding announcement. Next week, the Treasury will sell $40 billion in five-year notes, $32 billion in two-year notes and $22 billion in seven-year notes.

Later in the afternoon, Treasuries gave back most of their gains and yields returned to session highs.

U.S. two-year yields are up 3.3 bps to 0.98%, with five-year yields up 7.7 bps to 1.88%, 10-year yields up 10.0 bps to 2.85% and 30-year yields up 12.2 bps to 3.67%. The Eurodollar September 09 contract is up 2.5 ticks to 98.66. The yield curve is steeper, with the 10/2-year spread up 6.8 bps to 187.29 bps.

The Canadian 10-year note is yielding 4.91 bps more than the U.S. 10-year note.

Yields on two-year Canadian government bonds are flat at 1.26%, with five-year yields up 1.8 bps to 2.10%, 10-year yields up 4.7 bps to 2.90% and 30-year yields up 4.9 bps to 3.63%. The September 09 BAX contract is down 2.0 ticks to 99.22.

In Germany, returns on two-year German bonds are up 12.4 bps to 1.37%, with five-year yields up 12.4 bps to 2.24%, 10-year yields up 8.6 bps to 3.08% and 30-year yields up 8.9 bps to 3.77%.

Yields on UK two-year bonds are up 0.5 bps to 1.49%, with five-year yields up 8.4 bps to 2.65%, 10-year yields up 12.1 bps to 3.51% and 30-year yields up 9.7 bps to 4.14%.

It was also an interesting day in commodity markets as WTI crude rallied to just below $40 a barrel. Crude oil prices rose sharply following a surprise withdrawal in weekly crude oil inventories.

WTI crude oil is up $4.86 to $39.48.

The jump in oil prices did not have much impact on the Canadian dollar, which managed to eke out modest gains.

The Canadian dollar is up 0.0027 to 0.7946 against the U.S. dollar (1.2583 USD/CAD) and up 0.51 to 74.89 against the yen.

Gold prices also moved lower as traders took profit after Wednesday's massive rally.

The front month gold contract at the Chicago Board of Trade is down $9.90 to $976.00 per ounce.

All data taken at 4:45 p.m. EST.

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