Monday April 21, 2008 - 15:54:54 GMT
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CEP News - www.economicnews.ca
Mid-Morning Market Update: Treasuries Continue Sell-Off Despite Equity Slide
10:55 04/21 (CEP News) â€“ The Bank of America reported a
disappointing set of figures but Treasuries continue to sell off even
as stocks slip. The Canadian dollar and TSX are up after oil surged to
a new high of $117.60 a barrel.
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 best."
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. After months of rallying,
Treasuries sold off sharply last week and that trend continued on
Strategists noted a stabilization in U.S. dollar LIBOR. One-month LIBOR
rates increased to 2.90% from 2.87% while three-month rates increased
to 2.92% from 2.91%.
â€śThe 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,â€ť wrote David Ader, U.S.
government bond strategist at RBS Greenwich, in a note to clients.
U.S. two-year yields were up 0.9 bps to 2.14%, five-year yields flat at
2.90%, 10-year yields up 0.8 bps to 3.71% and 30-year yields up 0.9 bps
to 4.50%. The Dow Jones Industrial Average is down 88.83 points to
12760.53, the S&P 500 down 9.88 points to 1380.45 and the NASDAQ
down 9.64 points to 2393.33.
Canadian markets have been buoyed by high oil prices. Toronto's S&P
TSX composite index was up 31.48 points to 14268.54 while the Canadian
dollar was up 0.10 cents to 0.9971 against the USD (1.00265 USD/CAD).
Yields on two-year Canadian government bonds were down 1.7 bps to
2.85%, five-year yields down 1.8 bps to 3.17%, 10-year yields down 1.8
bps to 3.67% and 30-year yields down 1.0 bp to 4.13%.
Oil hit an all-time high after Royal Dutch Shell said it will
temporarily stop exports from a port in Nigeria following a pipeline
attack last week. The UK-based company announced it will interrupt
exports beginning April 22 after announcing force majeure. The move
stops 169k barrels a day of crude exports.
Futures on WTI crude oil are down $0.33 to $116.36 while gold futures at the Chicago Board of Trade are up $5.90 to $921.10.
Overseas, fixed income has been outperforming the U.S.
Yields on UK two-year bonds were down 4.9 bps to 4.32%, five-year
yields were down 6.2 bps to 4.35%, 10-year yields were down 7.3 bps to
4.66% and 30-year yields were down 5.2 bps to 4.55%.
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 ÂŁ50 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 5.6 bps to
3.78%, five-year yields were down 5.6 bps to 3.86%, 10-year yields were
down 2.0 bps to 4.11% and 30-year yields were down 1.4 bps to 4.65%.
European Central Bank Governing Council member Klaus Liebscher said
record oil prices are beginning to push up wages and noted that
â€śsecond-round effects are appearing in some countries in the euro
area.â€ť Liebscher said that even though risks to the euro zone economy
were on the â€śdownsideâ€ť, there is no room to cut rates.
European stock markets are declining, with the Eurostoxx down 45.07
points to 3153.36, the UK FTSE 100 down 28.40 points to 6028.10 and the
German DAX down 84.75 points to 6758.33.
In foreign exchange, the euro strengthened following Liebscherâ€™s
comments and continued to gain following the Bank of America earnings
report. It is up 1.03 cents to 1.5920 against the U.S. dollar. The
all-time high of 1.5983 was reached on April 17.
The U.S. dollar is down 0.25 to 103.42 against the yen. The pound
sterling was down 1.20 cents to 1.9858 USD while the Australian dollar
hit a one-month high and is up by 0.80 cents to 0.9423 USD. The U.S.
Dollar Index is down 0.241 points to 71.683.
All data taken at 10:36 a.m. EDT.
By Adam Button, [email protected], edited by Nancy Girgis, [email protected]
(END) Â©CEP Newswires - Â©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca
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