(CEP News)
• S&P 500 up 1.5% Despite Plunge in Consumer Confidence
• Yen Continues Slump as Safe-Haven Status Questioned
• Gold Falls More Than $25

Stocks Rise for First Time in Seven Sessions

Stock markets are higher for the first time in seven sessions on Tuesday as the market shrugs off a drop in consumer confidence and a worrisome speech from Federal Reserve Chairman Ben Bernanke.

The Dow Jones industrial average was most recently up 94 points to 7208, the S&P 500 up 12 points to 755 and the Nasdaq up 19 points to 1407. In Canada, the S&P/TSX composite index is down 11 points to 7636 as gold companies lag.

The Conference Board’s measure of consumer confidence dropped more than 10 points to a new record low in February. Economists were expecting the survey to come in at 35.0, but it fell to 25.0 from the previous record low of 37.4.

“The consumer confidence report is shockingly weak,” wrote economists at RDQ Economics. “It is looking to us like there is no let up in the pace of decline in economic activity at this point.”

Equity markets briefly fell flat following the report, but later rebounded as a separate report showed an unexpected rise in home prices. The U.S. Federal Housing Finance Agency said home prices rose 0.1% in December; much better than the 1.7% contraction economists were expecting.

The rise in stocks comes following a 7-day, 11% decline that pushed the major U.S. indexes to their lowest levels in nearly 12 years.

Market watchers are focused on Fed Chairman Ben Bernanke’s testimony. In his semi-annual testimony before the U.S. Senate Banking Committee, he said the start of an economic recovery could begin in 2010 if the financial sector stabilizes, but that a full recovery is at least another two to three years away.

European stock markets closed in negative territory after Vodafone cut 5% of its workforce. The Stoxx 50 closed down 25 points to 1776, the UK FTSE 100 closed down 34 points to 3816 and the German DAX closed down 41 points to 3896.

David Jones, chief market strategist at IG Index, said the focus is on how long the recession will last and how bad it may get.

“At the moment, many are taking the view why buy today when a little bit of patience could mean further share price bargains in the not too distant future,” Jones said.

Yen is Worst Performing Major Currency

Political and economic instability in Japan are weighing on the yen as market watchers question its status as a safe-haven currency.

The yen is the worst performing G10 currency on Tuesday and has declined in five of the past six sessions. The decline came even as equity indexes in the U.S. fell to 11-year lows and the Nikkei neared a 26-year low.

Most recently, USD/JPY was up 2.04 to 96.65 - the highest since Nov. 25, 2008.

There has been a slow decoupling of safe-haven flows into the yen as Japanese economic concerns mount, according to Shaun Osborne, senior currency strategist at TD Securities.

On Wednesday, trade figures from Japan are expected to show the largest deficit in at least 22 years.

“The yen has been looking overvalued for a while now based on the outlook for weaker global trade,” Osborne said.

As exporters suffer and the yen falls, he said firms are likely to unwind hedges - a factor that could further weigh on the currency. He targets 102 in USD/JPY in the coming few weeks and said an overshoot is possible.

Political instability is another factor hurting the yen. Japanese Prime Minister Taro Aso saw his approval rating drop to 11.4% last month, according to the Sankei survey. Last week, finance minister Shoichi Nakagawa said he will resign after appearing disoriented at the G7 meetings in Rome.

Elsewhere in foreign exchange, the Canadian dollar is up 0.0044 to 0.8024 against the U.S. dollar (1.2459 USD/CAD) and up 1.90 to 77.57 against the yen.

The euro is up 0.0100 to 1.2794 against the U.S. dollar, up 0.0071 to 1.5941 against the Canadian dollar, up 0.0112 to 0.8873 against the pound sterling and is higher by 3.56 to 123.64 against the yen.

The pound sterling is down 0.0070 to 1.4417 against the U.S. dollar and down 0.0152 to 1.7961 against the Canadian dollar.

Gold Falls More Than $25

Gold fell to a one-week low on Tuesday as a rebound in stock markets led to a round of profit-taking.

Most recently, spot gold was down $26.70 to $968.10 after falling as low as $960.

On Friday, gold hit an 11-month high of $1,006, but prices weren’t able to gain any traction on Monday despite a fall in equity markets.

Analysts at Barclays Capital said that the $1,000 resistance level is proving to be stronger than initially anticipated. “Prices have not been able to draw support from the same safe haven buying seen in recent weeks,” they wrote in a client note.

They also note that the public’s enthusiasm for gold may be waning. The holdings in the largest physically-backed ETF were unchanged for the second consecutive day on Monday.

All data taken at 12:51 p.m. EST.

By Adam Button, abutton@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca

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Posted in Categories: Australia, Canada, Commodities, Economy, Eurozone, Forex, Japan, Releases, Stocks, UK, USA.

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