Monday April 21, 2008 - 16:44:43 GMT
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CEP News - www.economicnews.ca
Midday Market Update: Soft Bank of America Earnings Spark Risk Aversion
12:24 04/21 (CEP News) â€“ The Bank of America reported a
disappointing set of figures leading to a decline in stocks and U.S.
dollar weakness. Oil surged to a new high of $117.60 a barrel after
exports from Nigeria were halted.
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 before continuing last weekâ€™s
U.S. two-year yields were up 5.0 bps to 2.18%, five-year yields up 4.9
bps to 2.95%, 10-year yields up 2.9 bps to 3.74% and 30-year yields up
1.8 bps to 4.51%. The Dow Jones Industrial Average is down 57.16 points
to 12792.20, the S&P 500 down 6.57 points to 1383.76 and the NASDAQ
down 1.95 points to 2401.02.
Toronto's S&P TSX composite index was up 29.45 points to 14266.51.
The Canadian dollar was down 0.30 cents to 0.9933 against the USD
(1.00674 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 bps 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
halts 169k barrels a day of crude exports.
Futures on WTI crude oil are down $0.73 to $115.96 while gold futures at the Chicago Board of Trade are up $2.30 to $917.50.
Overseas fixed income is outperforming North America.
Yields on UK two-year bonds are down 2.4 bps to 4.34%, five-year yields
down 4.0 bps to 4.37%, 10-year yields down 5.1 bps to 4.68% and 30-year
yields down 3.0 bps to 4.57%.
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 4.5 bps to
3.79%, five-year yields down 5.6 bps to 3.86%, 10-year yields down 2.4
bps to 4.11% and 30-year yields down 1.6 bps to 4.65%.
European Central Bank Governing Council member Klaus Liebscher said
record-high 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€śdownside,â€ť there is no room to cut rates.
European stock markets closed with the Eurostoxx down 32.63 points to
3165.80, the UK FTSE 100 down 3.50 points to 6053.00 and the German DAX
down 56.53 points to 6786.55.
In foreign exchange, the euro strengthened following Liebscherâ€™s
comments and continued to gain following the Bank of America earnings
â€śThere is a risk we see nothing at all from the European central bank
through the next few months,â€ť said Shaun Osborne, chief currency
strategist at TD Securities. â€śThey are worried that workers are
demanding higher wages on the basis of some living costs that have
The euro is up 0.70 cents to 1.5885 against the U.S. dollar. The all-time high of 1.5983 was reached on April 17.
â€śI donâ€™t think thereâ€™s very much downside potential in the euro and if
anything thereâ€™s still more upside from my point of view,â€ť Osborne said.
The U.S. dollar was down 0.39 to 103.28 against the yen. The pound
sterling was down 1.70 cents to 1.9812 USD and the Australian dollar
was higher by 0.70 cents to 0.9413 USD. The U.S. Dollar Index was down
0.184 points to 71.74.
All data taken at 12:12 p.m. EDT.
By Adam Button, [email protected], edited by Cristina Markham, [email protected]
(END) Â©CEP Newswires - Â©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca
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