(CEP News) U.S. financial markets appear to be taking a little break on Wednesday following Tuesday’s massive selloff. U.S. equity markets are showing modest gains but still remain well below key support levels.

Toronto’s S&P/TSX composite index is down 151 points to 8228, the Dow Jones industrial average up 53 points to 7606, the S&P 500 up 5 points to 794 and the Nasdaq up 12 points to 1482.

European stock markets closed with the Eurostoxx down 3 points to 1890, the UK FTSE 100 down 27 points to 4007 and the German DAX down 12 points to 4205.

According to some traders, investors have some doubts regarding the U.S. stimulus bill, which President Barrack Obama signed on Tuesday.

Jimmy Tintle, futures broker at Transworld Futures.com said the U.S. government is not able to restore confidence and they shouldn’t have tried to push through the plan. He is expecting equities to continue to trend lower and test the November lows.

“People are questioning just who exactly are getting bailout,” he said. “Where exactly is the money going?”

Earlier in the morning, U.S. stocks received a modest boost following media reports regarding the U.S. government’s housing plan, which President Barack Obama is presenting live shortly after noon.

The Obama administration said the mortgage plan will boost confidence by creating lower mortgage rates and will allow refinancing for four to five million homeowners and assist another three to four million “hard pressed” homeowners.

As part of the plan, the U.S. Treasury will increase its purchases of Fannie and Freddie stock by up to $400 billion, or $200 billion each - double the original level. The Treasury will also boost its purchase of Fannie and Freddie’s mortgage portfolios by $50 million each to $900 billion.

However, U.S. and Canadian data have not provided much direction for markets this morning. Markets ignored Canadian wholesale sales, which fell 3.4% in December. The decrease was the largest month-over-month drop since August 2003 and was substantially larger than the 2.0% drop expected by analysts.

Markets also shrugged off more dire data in the U.S. housing market. U.S. housing starts fell to an annualized pace of 466k, representing a month-over-month decrease of 16.8%, according to the U.S. Department of Commerce. The consensus was looking for January to show a decline to 529k. The previous month’s reading was revised up to 560k from a previously reported 550k.

The Fear sentiment can be seen in Currency markets as the U.S. dollar continues to hold on to Tuesday’s gains. The Canadian dollar is one of the better performing currencies this morning.

The Canadian dollar is up 0.0084 to 0.7955 against the U.S. dollar (1.2570 USD/CAD) and up 1.64 to 74.67 against the yen.

The U.S. dollar is up 1.48 to 93.89 against the yen and the Dollar Index is up 0.370 to 87.951.

The euro is down 0.0021 to 1.2563 against the U.S. dollar, down 0.0129 to 1.5792 against the Canadian dollar, down 0.0015 to 0.8822 against the pound sterling and is higher by 1.67 to 117.93 against the yen.

The pound sterling is up 0.0002 to 1.4240 against the U.S. dollar and down 0.0118 to 1.7900 against the Canadian dollar.

Jacqui Douglas, currency strategist from TD Securities said some potential merger news could be helping to boost the loonie. She added she is expecting the Canadian dollar to remain contained, bouncing between 1.2550 CAD and 1.2650 CAD.

The big moves today have been seen in fixed income markets, which are selling off as equities continue to rally.

U.S. Treasuries could find some support later this afternoon when the minutes of the January FOMC interest rate meeting are released.

David Ader, head of U.S. government bond trading at RBS Greenwich, said Treasury markets are hoping to get some direction as the Fed continues to talk about purchasing longer-term bonds.

“We like the market, even from these levels and as momentum continues to suggest additional near-term strength, we’re challenged to find any meaningful reason to want to sell the market,” he said.

U.S. two-year yields are up 12.2 bps to 0.98%, with five-year yields up 16.9 bps to 1.83%, 10-year yields up 10.0 bps to 2.75% and 30-year yields up 2.2 bps to 3.50%. The Eurodollar September 09 contract is down 4.5 ticks to 98.62. The yield curve is flatter, with the 10/2-year spread down 2.1 bps to 176.63 bps.

The Canadian 10-year note is yielding 13.48 bps more than the U.S. ten year note.

Yields on two-year Canadian government bonds are up 8.9 bps to 1.27%, with five-year yields up 9.1 bps to 2.10%, 10-year yields up 6.9 bps to 2.88% and 30-year yields up 3.3 bps to 3.59%. The September 09 BAX contract is down 7.0 ticks to 99.23.

In Germany, returns on two-year German bonds are up 8.6 bps to 1.25%, with five-year yields up 6.6 bps to 2.13%, 10-year yields up 2.2 bps to 3.00% and 30-year yields up 6.2 bps to 3.67%.

Yields on UK two-year bonds are up 12.4 bps to 1.48%, with five-year yields up 4.6 bps to 2.55%, 10-year yields down 2.6 bps to 3.39% and 30-year yields up 4.3 bps to 4.09%.

It has been a quiet day in commodity markets as gold and oil prices remain relatively flat on the day. WTI crude oil is down $0.10 to $34.83. The front month gold contract at the Chicago Board of Trade is up $3.40 to $974.20 per ounce.

All data taken at 12:24 p.m. EST

Neils Christensen, neilsc@economicnews.ca

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