Monday April 21, 2008 - 13:35:31 GMT
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CEP News - www.economicnews.ca
Morning Market Update: Bank of America Earnings Miss Target and Oil Hits New High
08:34 04/21 (CEP News) ‚Äď There is plenty for markets to digest this
morning, with the Bank of America reporting disappointing first quarter
earnings, crude oil reaching a new high, a European Central Bank
official warning of increasing wages and the Bank of England announcing
a plan to swap asset-backed securities for government bonds.
American fixed income markets are declining and equities are mixed with
yields on U.S. 10-year Treasury notes up 2.5 bps to 3.73% and Canadian
10-year CGBs up 0.9 bps to 3.70%. Futures on the Dow Jones Industrial
Average are trading down 16 points to 12794. The Canadian dollar is up
0.20 cents to 0.9977 USD and the euro up 0.80 cents to 1.59013 USD.
Analysts surveyed by Bloomberg expected Bank of America first quarter
profits of 41 cents per share but the banking giant earned only 25
cents. The company announced writedowns of $6.01 billion and CEO
Kenneth Lewis said second-quarter U.S. GDP growth will be "minimal at
Following the earnings report, U.S. equity futures and overseas bourses
fell to session lows, the U.S. dollar neared an all-time low against
the euro and Treasuries briefly rallied.
Overseas fixed income has been outperforming the U.S.
Yields on UK two-year bonds were down 7.4 bps to 4.29%, five-year
yields down 7.9 bps to 4.33%, 10-year yields down 8.1 bps to 4.65% and
30-year yields down 5.6 bps to 4.54%.
The UK rally followed a Bank of England plan to allow UK banks to swap
mortgage-backed assets for government bonds, which is in the pipeline.
The central bank said the preliminary size of the plan is likely to be
around ¬£50 billion, with an asset swap permitted for a period of one
year, which may be renewed for a total of three years.
UK government debt was also aided by a Rightmove report on UK housing
that showed year-over-year house prices increased by only 1.3% in April
following a 5.0% gain in March. The property website noted that the
drop indicated sellers were recognizing that a decade of rising UK
house prices had come to an end.
In Germany, returns on two-year German Bunds were down 4.5 bps to
3.79%, five-year yields down 5.2 bps to 3.87%, 10-year yields down 3.0
bps to 4.10% and 30-year yields down 3.0 bps to 4.64%.
European Central Bank council member Klaus Liebscher said record oil
prices are beginning to push up wages and noted that ‚Äúsecond-round
effects are appearing in some countries in the euro area.‚ÄĚ Liebscher
said that even though risks to the eurozone economy were on the
‚Äúdownside‚ÄĚ, there is no room to cut rates.
Shortly following Liebscher's comments, crude rose to a record high of
$117.40 a barrel at Nymex. Futures on WTI crude oil are up $0.14 to
$116.83 while gold futures at the Chicago Board of Trade are up $7.20
U.S. equity market futures are mixed. Contracts on the Dow Jones
Industrial Average are down 16 points to 12794, the S&P 500 down 2
points to 1386 and the NASDAQ up 6 points to 1901.
European stock markets are declining, with the Eurostoxx down 33.75
points to 3164.68, the UK FTSE 100 down 20.20 points to 6036.30 and the
German DAX down 63.71 points to 6779.37.
Asian markets followed Friday‚Äôs North American rally with the Japanese
Nikkei closing up 220.10 points (0.42%) to 13696.55 and the Hang Seng
Index up 523.89 points to 24721.67.
Despite the Bank of America miss, North American sovereign debt
continues to sell off. Yields on two-year Canadian government bonds
were flat at 2.87%, five-year yields flat at 3.19%, 10-year yields up
0.9 bps to 3.70% and 30-year yields flat at 4.14%.
U.S. two-year yields were up 1.7 bps to 2.15%, five-year yields up 2.8
bps to 2.93%, 10-year yields up 2.5 bps to 3.73% and 30-year yields up
2.0 bps to 4.52%.
Strategists noted a stabilization in U.S. dollar libor. One-month libor
increased to 2.90% from 2.87% while three-month rates increased to
2.92% from 2.91%.
‚ÄúThe modest rise in libor overnight suggests the drama there is
reaching its end. Second, with Fed Funds futures and our own call
consistent that it's a 25 bps ease next week, we think the
disappointment trade has largely been seen,‚ÄĚ wrote David Ader, U.S.
government bond strategist at RBS Greenwich, in a note to clients.
The Canadian dollar was up 0.20 cents to 0.9977 against the USD
(1.00237 USD/CAD) and down 0.20 cents to 1.5939 (0.6274 CAD/EUR)
against the euro.
The U.S. dollar was down 0.25 to 103.42 against the yen and the euro up
0.80 cents, to 1.59013 against the U.S. dollar. The pound sterling was
down 1.20 cents to 1.9858 USD and the Australian dollar was higher by
0.80 cents to 0.9423 USD. The U.S. Dollar Index was down 0.241 points
All data taken at 8:09 a.m. EDT.
By Adam Button, [email protected], edited by Stephen Huebl, [email protected]
(END) ¬©CEP Newswires - ¬©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca
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