(CEP News) • S&P 500 Jumps 6.4% • Late-Day Gains in U.S. Dollar Cast Doubt on Equity Rally • Gold Falls to One-Month Low • Oil Turns Lower After Early Rally • Treasury Yields Higher by 8-12 Basis PointsStocks Jump Most in 2009 as Financials Rebound
The U.S. financial sector led a mammoth stock market rally on Tuesday in the biggest one-day gain since November 2008.
The Dow Jones industrial average closed up 379 points, or 5.8% to 6926, the S&P 500 closed up 43 points, or 6.4%, to 720 and the Nasdaq closed up 90 points, or 7.1%, to 1358. The gain in the S&P 500 was the largest since Nov. 24.
The positive sentiment was ignited by a leaked memo from Citigroup CEO Vikram Pandit, in which he says the bank became profitable in the first two months of 2009 after five consecutive quarterly declines. He said the firm earned more than $19 billion.
The combination of improving sentiment on the financial sector and a round of short covering sparked huge gains in banking shares.
Citigroup was up 38% on the day, closing at $1.45 per share. Shares of Bank of America were up 28% to $4.79 per share, those of JPMorgan were up 22.6% to $19.50 per share, those of Wells Fargo were up 18.5% to $11.81 per share and those of Morgan Stanley were up 26.5% to $20.84 per share.
Equity sentiment was also boosted by comments from Fed Chairman Ben Bernanke. He said the U.S. government remains committed to ensuring major banks have the capital necessary to weather the recession and meet their obligations.
"Government assistance to avoid the failures of major financial institutions has been necessary to avoid a further serious destabilization of the financial system, and our commitment to avoiding such a failure remains firm," he said.
Stocks also benefited from speculation the uptick rule will be reinstated. The rule prevents initiating a short position when the most recent trade is to the downside. Some market watchers believe it has made it easier to 'raid' stocks.
House Financial Services Committee Chairman Barney Frank called for the reinstatement of the rule, which was abolished in 2007. He said he's hopeful it can be restored "within a month."
There are concerns that the equity rally could fade just as quickly as it began. According to some strategists, both the S&P 500 and DJIA are below key resistance levels.
Fausto Pugliese, president of Cyber Trading University, said that although there are signs that the banking sector is improving, there are concerns looming in the background.
"The banks still have a lot of bad debt that they have to unload," he said. "But right now there are a lot of cheap prices and if you're looking long-term, now might be a time to buy."
"Short-term traders need to be careful. In a bear market what goes up fast comes back down twice as fast," he added.
Colin Cieszynski, market analyst at CMC Markets Canada, said he is also questioning whether Tuesday's rally will last or quickly give up its gains. Concerns over the financial sector have been dragging markets lower and investors are looking for reasons to buy.
"The rally is encouraging but I don't know if it can be sustained," he said. "There are still a lot of concerns that there could be more writedowns. I don't think we are out of the woods yet."
Cieszynski said he would need to see the S&P 500 close above 725 to break the current downtrend.
Canadian banking stocks also received a boost from the positive sentiment. The S&P/TSX composite index closed up 312 points, or 4.1%, to 7879.
In Europe, the Stoxx 50 closed up 88 points to 1703, the UK FTSE 100 closed up 173 points to 3715 and the German DAX closed up 195 points to 3887.
Strategists Say Late-Day U.S. Dollar Rally a Troublesome Sign
Market watchers say a late-day rally in the U.S. dollar against the Canadian dollar and other currencies is a sign of skepticism in Tuesday's massive equity rally.
Risk appetite rose in markets following positive news on the U.S. banking sector. Early in the session, the sentiment spilled over to foreign exchange and dragged USD/CAD as low as 1.2726. But the U.S. dollar rebounded late in the North American session to 1.2822.
A similar pattern played out in most U.S. dollar currency crosses as the greenback made gains against the euro, sterling and Japanese yen.
"I just don't think currency markets are convinced that this rally will last," said George Androulidakis, director of FX trading at the National Bank of Canada. "It just takes one piece of bad news tomorrow for equities to give up all these gains."
Although USD/CAD remains well below yesterday's four-and-a-half-year high at 1.3066 CAD, Androulidakis said there is still a lot of room for the cross to move higher.
Looking at the short term, he said he would look for a close above 1.3017 CAD, which could signal a move to 1.3250.
"I don't want to look further beyond that because I think the volatility will provide enough opportunities for more short and long positions," he said.
George Davis, senior technical strategist at RBC Capital Markets, said he is also skeptical that the gains made on Tuesday can be sustained.
"If you look at previous rallies, they haven't lasted more than one to three days," he said. "I think that skepticism is reflected in currency markets."
Davis said he is expecting USD/CAD to trade in a range, with support near 1.27 CAD and resistance at 1.31 CAD. Looking at the short term, he said there is an opportunity for the cross to remain near the bottom of the range. However, in the mid-term, he is expecting a break through the recent highs of 1.3066.
"I think in the longer term any pullback in USD/CAD is an opportunity to establish a long position," he said.
The U.S. dollar was down 0.19 to 98.66 against the yen and the Dollar Index was down 0.082 to 88.927.
The euro was up 0.0070 to 1.2681 against the U.S. dollar, down 0.0134 to 1.6278 against the Canadian dollar, up 0.0064 to 0.9217 against the pound sterling and was higher by 0.46 to 125.10 against the yen.
The pound sterling was down 0.0019 to 1.3758 against the U.S. dollar and down 0.0261 to 1.7658 against the Canadian dollar.
Gold Prices Tumble as Risk Appetite Grows
A rise in risk appetite sent gold prices to a one-month low as investors jumped back into equity markets on Tuesday.
The front month gold contract at the Chicago Board of Trade was most recently down $25.30 to $898.00 per ounce. It's the first dip below $900 since Feb. 10.
Upbeat news from Citigroup helped boost positive sentiment and hurt safe haven investments, such as gold.
Mike Glaser, futures broker at LaSalle Futures, said although the strong rally in equity markets is a good sign that confidence is reemerging in markets, the rally is unsustainable. He pointed out that there are still a lot of concerns regarding the U.S. and global economy that will continue to support the precious metal.
With gold breaking through $900, Glaser expects $880 to hold as a major support level. A break through $880 could lead to a sharp fall, with prices finding support at the 100-day moving average of $840.
Commodity strategists from Barclays Capital are looking for more weakness in gold. Lower interest in gold as an investment tool and weaker demand in jewelry markets are bearish signs for the precious metal, they said.
Lower Forecast from EIA Hurts Oil Prices
Oil prices are under pressure after the Energy Information Administration (EIA) lowered its forecast for crude prices for 2009 and 2010.
Crude oil prices will average about $42 a barrel in 2009 and $53 a barrel in 2010, according to the report released on Tuesday. The revised forecast is down from last month's expectation that prices will average $43 in 2009 and $55 dollar the following year.
The agency also released more grim news about the U.S. economy and global demand.They expect U.S. economic growth to decline by 2.9% in 2009 and forecasts a modest recovery in 2010, with GDP anticipated to rise 1.9%.
"EIA's projection for 2009 global oil consumption is now 3 million barrels per day lower than it was in the September 2008 Outlook. World oil consumption is expected to rebound in 2010, growing by 900,000 barrels per day, in response to an economic recovery which is projected to begin at the end of 2009," the report said.
Near the start of the North American trading session, WTI crude hit session highs at $48.30, but soon started trending lower. The sell-off picked up speed after the lower forecast from the energy agency. Late in the session, prices fell into negative territory and most recently WTI crude was down $1.29 to $45.78 per barrel.
Despite today's declines, strategists see some room for oil to move higher ahead of the March 17 OPEC meeting. Expectations for another production cut range from 500,000 to 1,000,000 barrels per day.
Andrew Lebow, senior vice-president at MF Global Energy, said he thinks oil prices will move higher and reach $50 a barrel. However, he pointed out that the higher oil prices move, the less chance there is that OPEC will cut production.
He said prices would have to fall to about $43.50 in order to call an end to the recent rally.
"Oil prices have been on a month-long rally and I don't think we have seen the end of it yet," he said.
Lebow added markets will be sensitive to Wednesday's weekly inventory report from the Department of Energy. He noted that another build in crude inventories could put pressure on prices.
Markets are expecting the inventory report to show a withdrawal of 500,000 in crude oil, a 1,000 000 barrel withdrawal in gasoline inventories and a 200,000 barrel build in distillates.
Record $34 Billion U.S. Three-Year Note Auction Draws Yield of 1.489%
Demand in a record-sized $34 billion, U.S. three-year auction was slightly higher than market participants were anticipating, and the notes sold with a yield of 1.489%.
The yield was slightly lower than the 1.492% 'when issued' bid, which represents the expected yield.
The 1.489% yield was tendered to 10.54% of bidders and the bid-to-cover ratio was 2.26. At the previous three-year auction on Jan. 10, the yield was 2.419% and the bid-to-cover was 2.67. The average bid-to-cover ratio in the past four auctions was 2.52.
The median discount rate was 1.419% and the low yield was 1.33%. Non-competitives took $99,457,500. Primary dealers took $19,636,050,000, with direct bidders receiving $617,000,000 of competitives and indirect bidders taking $13,647,521,000.
The indirect allotment of 40.3% was slightly higher than the 36.1% average in recent auctions.
On the spot market, benchmark U.S. three-year yields showed little reaction to the auction. On the session, they were higher by 7 basis points to 1.44%.
On Wednesday, the Treasury will auction $18 billion in 10-year notes, and it will sell $11 billion in 30-year notes on Thursday.
Most recently, U.S. two-year yields were up 6.4 bps to 1.02%, with five-year yields up 11.9 bps to 1.99%, 10-year yields up 13.2 bps to 2.99% and 30-year yields up 15.1 bps to 3.72%. The Eurodollar September 09 contract was up 2.0 ticks to 98.46. The yield curve was steeper, with the 10/2-year spread up 6.9 bps to 197.06 bps.
Yields on two-year Canadian government bonds were up 3.3 bps to 0.99%, with five-year yields up 5.6 bps to 1.93%, 10-year yields up 5.3 bps to 2.99% and 30-year yields up 6.2 bps to 3.70%. The September 09 BAX contract was down 2.0 ticks to 99.50.
In Germany, returns on two-year German bonds were up 4.6 bps to 1.31%, with five-year yields up 8.9 bps to 2.21%, 10-year yields up 6.4 bps to 3.00% and 30-year yields up 5.3 bps to 3.73%.
Yields on UK two-year bonds were down 1.8 bps to 1.33%, with five-year yields down 2.3 bps to 2.17%, 10-year yields down 1.4 bps to 3.11% and 30-year yields up 4.4 bps to 4.08%.
All data taken at 4:10 p.m. EST
By Adam Button, abutton@economicnews
The U.S. financial sector led a mammoth stock market rally on Tuesday in the biggest one-day gain since November 2008.
The Dow Jones industrial average closed up 379 points, or 5.8% to 6926, the S&P 500 closed up 43 points, or 6.4%, to 720 and the Nasdaq closed up 90 points, or 7.1%, to 1358. The gain in the S&P 500 was the largest since Nov. 24.
The positive sentiment was ignited by a leaked memo from Citigroup CEO Vikram Pandit, in which he says the bank became profitable in the first two months of 2009 after five consecutive quarterly declines. He said the firm earned more than $19 billion.
The combination of improving sentiment on the financial sector and a round of short covering sparked huge gains in banking shares.
Citigroup was up 38% on the day, closing at $1.45 per share. Shares of Bank of America were up 28% to $4.79 per share, those of JPMorgan were up 22.6% to $19.50 per share, those of Wells Fargo were up 18.5% to $11.81 per share and those of Morgan Stanley were up 26.5% to $20.84 per share.
Equity sentiment was also boosted by comments from Fed Chairman Ben Bernanke. He said the U.S. government remains committed to ensuring major banks have the capital necessary to weather the recession and meet their obligations.
"Government assistance to avoid the failures of major financial institutions has been necessary to avoid a further serious destabilization of the financial system, and our commitment to avoiding such a failure remains firm," he said.
Stocks also benefited from speculation the uptick rule will be reinstated. The rule prevents initiating a short position when the most recent trade is to the downside. Some market watchers believe it has made it easier to 'raid' stocks.
House Financial Services Committee Chairman Barney Frank called for the reinstatement of the rule, which was abolished in 2007. He said he's hopeful it can be restored "within a month."
There are concerns that the equity rally could fade just as quickly as it began. According to some strategists, both the S&P 500 and DJIA are below key resistance levels.
Fausto Pugliese, president of Cyber Trading University, said that although there are signs that the banking sector is improving, there are concerns looming in the background.
"The banks still have a lot of bad debt that they have to unload," he said. "But right now there are a lot of cheap prices and if you're looking long-term, now might be a time to buy."
"Short-term traders need to be careful. In a bear market what goes up fast comes back down twice as fast," he added.
Colin Cieszynski, market analyst at CMC Markets Canada, said he is also questioning whether Tuesday's rally will last or quickly give up its gains. Concerns over the financial sector have been dragging markets lower and investors are looking for reasons to buy.
"The rally is encouraging but I don't know if it can be sustained," he said. "There are still a lot of concerns that there could be more writedowns. I don't think we are out of the woods yet."
Cieszynski said he would need to see the S&P 500 close above 725 to break the current downtrend.
Canadian banking stocks also received a boost from the positive sentiment. The S&P/TSX composite index closed up 312 points, or 4.1%, to 7879.
In Europe, the Stoxx 50 closed up 88 points to 1703, the UK FTSE 100 closed up 173 points to 3715 and the German DAX closed up 195 points to 3887.
Strategists Say Late-Day U.S. Dollar Rally a Troublesome Sign
Market watchers say a late-day rally in the U.S. dollar against the Canadian dollar and other currencies is a sign of skepticism in Tuesday's massive equity rally.
Risk appetite rose in markets following positive news on the U.S. banking sector. Early in the session, the sentiment spilled over to foreign exchange and dragged USD/CAD as low as 1.2726. But the U.S. dollar rebounded late in the North American session to 1.2822.
A similar pattern played out in most U.S. dollar currency crosses as the greenback made gains against the euro, sterling and Japanese yen.
"I just don't think currency markets are convinced that this rally will last," said George Androulidakis, director of FX trading at the National Bank of Canada. "It just takes one piece of bad news tomorrow for equities to give up all these gains."
Although USD/CAD remains well below yesterday's four-and-a-half-year high at 1.3066 CAD, Androulidakis said there is still a lot of room for the cross to move higher.
Looking at the short term, he said he would look for a close above 1.3017 CAD, which could signal a move to 1.3250.
"I don't want to look further beyond that because I think the volatility will provide enough opportunities for more short and long positions," he said.
George Davis, senior technical strategist at RBC Capital Markets, said he is also skeptical that the gains made on Tuesday can be sustained.
"If you look at previous rallies, they haven't lasted more than one to three days," he said. "I think that skepticism is reflected in currency markets."
Davis said he is expecting USD/CAD to trade in a range, with support near 1.27 CAD and resistance at 1.31 CAD. Looking at the short term, he said there is an opportunity for the cross to remain near the bottom of the range. However, in the mid-term, he is expecting a break through the recent highs of 1.3066.
"I think in the longer term any pullback in USD/CAD is an opportunity to establish a long position," he said.
The U.S. dollar was down 0.19 to 98.66 against the yen and the Dollar Index was down 0.082 to 88.927.
The euro was up 0.0070 to 1.2681 against the U.S. dollar, down 0.0134 to 1.6278 against the Canadian dollar, up 0.0064 to 0.9217 against the pound sterling and was higher by 0.46 to 125.10 against the yen.
The pound sterling was down 0.0019 to 1.3758 against the U.S. dollar and down 0.0261 to 1.7658 against the Canadian dollar.
Gold Prices Tumble as Risk Appetite Grows
A rise in risk appetite sent gold prices to a one-month low as investors jumped back into equity markets on Tuesday.
The front month gold contract at the Chicago Board of Trade was most recently down $25.30 to $898.00 per ounce. It's the first dip below $900 since Feb. 10.
Upbeat news from Citigroup helped boost positive sentiment and hurt safe haven investments, such as gold.
Mike Glaser, futures broker at LaSalle Futures, said although the strong rally in equity markets is a good sign that confidence is reemerging in markets, the rally is unsustainable. He pointed out that there are still a lot of concerns regarding the U.S. and global economy that will continue to support the precious metal.
With gold breaking through $900, Glaser expects $880 to hold as a major support level. A break through $880 could lead to a sharp fall, with prices finding support at the 100-day moving average of $840.
Commodity strategists from Barclays Capital are looking for more weakness in gold. Lower interest in gold as an investment tool and weaker demand in jewelry markets are bearish signs for the precious metal, they said.
Lower Forecast from EIA Hurts Oil Prices
Oil prices are under pressure after the Energy Information Administration (EIA) lowered its forecast for crude prices for 2009 and 2010.
Crude oil prices will average about $42 a barrel in 2009 and $53 a barrel in 2010, according to the report released on Tuesday. The revised forecast is down from last month's expectation that prices will average $43 in 2009 and $55 dollar the following year.
The agency also released more grim news about the U.S. economy and global demand.They expect U.S. economic growth to decline by 2.9% in 2009 and forecasts a modest recovery in 2010, with GDP anticipated to rise 1.9%.
"EIA's projection for 2009 global oil consumption is now 3 million barrels per day lower than it was in the September 2008 Outlook. World oil consumption is expected to rebound in 2010, growing by 900,000 barrels per day, in response to an economic recovery which is projected to begin at the end of 2009," the report said.
Near the start of the North American trading session, WTI crude hit session highs at $48.30, but soon started trending lower. The sell-off picked up speed after the lower forecast from the energy agency. Late in the session, prices fell into negative territory and most recently WTI crude was down $1.29 to $45.78 per barrel.
Despite today's declines, strategists see some room for oil to move higher ahead of the March 17 OPEC meeting. Expectations for another production cut range from 500,000 to 1,000,000 barrels per day.
Andrew Lebow, senior vice-president at MF Global Energy, said he thinks oil prices will move higher and reach $50 a barrel. However, he pointed out that the higher oil prices move, the less chance there is that OPEC will cut production.
He said prices would have to fall to about $43.50 in order to call an end to the recent rally.
"Oil prices have been on a month-long rally and I don't think we have seen the end of it yet," he said.
Lebow added markets will be sensitive to Wednesday's weekly inventory report from the Department of Energy. He noted that another build in crude inventories could put pressure on prices.
Markets are expecting the inventory report to show a withdrawal of 500,000 in crude oil, a 1,000 000 barrel withdrawal in gasoline inventories and a 200,000 barrel build in distillates.
Record $34 Billion U.S. Three-Year Note Auction Draws Yield of 1.489%
Demand in a record-sized $34 billion, U.S. three-year auction was slightly higher than market participants were anticipating, and the notes sold with a yield of 1.489%.
The yield was slightly lower than the 1.492% 'when issued' bid, which represents the expected yield.
The 1.489% yield was tendered to 10.54% of bidders and the bid-to-cover ratio was 2.26. At the previous three-year auction on Jan. 10, the yield was 2.419% and the bid-to-cover was 2.67. The average bid-to-cover ratio in the past four auctions was 2.52.
The median discount rate was 1.419% and the low yield was 1.33%. Non-competitives took $99,457,500. Primary dealers took $19,636,050,000, with direct bidders receiving $617,000,000 of competitives and indirect bidders taking $13,647,521,000.
The indirect allotment of 40.3% was slightly higher than the 36.1% average in recent auctions.
On the spot market, benchmark U.S. three-year yields showed little reaction to the auction. On the session, they were higher by 7 basis points to 1.44%.
On Wednesday, the Treasury will auction $18 billion in 10-year notes, and it will sell $11 billion in 30-year notes on Thursday.
Most recently, U.S. two-year yields were up 6.4 bps to 1.02%, with five-year yields up 11.9 bps to 1.99%, 10-year yields up 13.2 bps to 2.99% and 30-year yields up 15.1 bps to 3.72%. The Eurodollar September 09 contract was up 2.0 ticks to 98.46. The yield curve was steeper, with the 10/2-year spread up 6.9 bps to 197.06 bps.
Yields on two-year Canadian government bonds were up 3.3 bps to 0.99%, with five-year yields up 5.6 bps to 1.93%, 10-year yields up 5.3 bps to 2.99% and 30-year yields up 6.2 bps to 3.70%. The September 09 BAX contract was down 2.0 ticks to 99.50.
In Germany, returns on two-year German bonds were up 4.6 bps to 1.31%, with five-year yields up 8.9 bps to 2.21%, 10-year yields up 6.4 bps to 3.00% and 30-year yields up 5.3 bps to 3.73%.
Yields on UK two-year bonds were down 1.8 bps to 1.33%, with five-year yields down 2.3 bps to 2.17%, 10-year yields down 1.4 bps to 3.11% and 30-year yields up 4.4 bps to 4.08%.
All data taken at 4:10 p.m. EST
By Adam Button, abutton@economicnews
No comments:
Post a Comment