(CEP News)
• Stocks Flat
• USD/CAD up 0.0073
• Treasuries Down

Stocks Searching for Direction

Stocks are relatively flat despite better-than-expected earnings from Citigroup and General Electric. The U.S. dollar and yen are broadly stronger and Treasuries are under pressure.

The Dow Jones industrial average was most recently up 10 points to 8135, the S&P 500 up 2 points to 867 and the Nasdaq down 9 points to 1662. In Canada, the S&P/TSX composite index was up 64 points to 9408.

The S&P 500 is up 1% on the week. Barring an afternoon sell off, the S&P 500 will close higher for the sixth consecutive week.

Earnings estimates and economic data were better than expected. U.S. consumer sentiment moved beyond expectations in April, according to a preliminary report from Reuters and the University of Michigan. The headline consumer sentiment index grew to 61.9 from a final reading of 57.3 in March, despite expectations by a survey of economists for an increase to 58.5.

General Electric earned 26 cents per share, beating expectations for 21 cents. Still, GE shares are down nearly 1%. Similarly, Citigroup shares are down 10.5%. However, the company announced a loss per share of only $0.18 in the first quarter of 2009, versus an expected loss of $0.34 per share.

Stocks came under pressure after General Motors CEO Fritz Henderson accused Chrysler of slowing down talks with the UAW by failing to reach an agreement with the union. He said his current restructuring plan is contingent on the bond holders accepting equity for debt, and a deal with the auto union.

European stock markets closed in positive territory with the Stoxx 50 up 24 points to 1996, the UK FTSE 100 up 40 points to 4093 and the German DAX up 67 points to 4677.

Higher Canadian Inflation Does Not Provide Much Support for Canadian Dollar

Rising Canadian inflation is not providing much support for the Canadian dollar on Friday as it remains under modest pressure against the greenback.

Although the U.S. dollar is up on the day against the loonie, the cross has struggled to make gains through most of the session. USD/CAD has been unable to hold gains past 1.2150 CAD. Through most of the session the cross has bounced between support at 1.2065 CAD and resistance at 1.2158 CAD.

Most recently, USD/CAD was up 0.0072 to 1.2145.

Currency markets ignored stronger than-expected core Canadian inflation. The Bank of Canada’s core Consumer Price Index (CPI) rose 0.3% in March, more than the 0.2% rise expected by economists and following the 0.5% gain in February, Statistics Canada reported. The annualized rate also moved higher, rising 2.0% in March, higher than the 1.9% consensus forecast.

Although core inflation is stronger than expected, according to economic strategists, the Bank of Canada will still have room to act aggressively to support the faltering economy.

On April 21, the Bank of Canada will hold its monetary policy meeting. Dawn Desjardins, assistant chief economist from RBC Capital Markets, said she is expecting the central bank to release some information on a program that would help them inject liquidity in the financial system.

“Though the platforms will be announced, the Bank may well refrain from implementing their plan immediately as they assess whether the recent “green shoots” of stability in markets and some parts of the economy will grow as a healthy dose of fiscal stimulus is applied,” she said.

Although the Canadian dollar is losing ground, the loonie remains at the top of its recent channel. USD/CAD has been on a strong downward trend since April 13. The sell-off came to a halt after the loonie hit a three-month high Thursday morning.

Tyson Wright, senior currency trader at Custom House, said he is expecting to see some consolation in USD/CAD after the recent sharp sell-off. He added he will be watching for a break above 1.22 CAD to confirm that the recent sell-off is finished.

“I think the Canadian dollar has gone as far as it can go for now. I think we will see some profit taking ahead of the Bank of Canada rate decision. At this time I would prefer to buy U.S. dollars on any dips,” he said. “I don’t think the 1.2050 (CAD) level offers strong resistance but we could see some consolidation there before we move higher.”

Matt Perrier, currency analyst from BMO Capital Markets said some of the technical charts show USD/CAD is oversold and there may be further gains in the short term. He added he is expecting 1.2190 and 1.2218 to offer near-term resistance.

“Only a break and close below yesterday 1.1982 lows would negate corrective bounce scenario and suggest we [could] see a move towards 1.1750,” he said.

Elsewhere in foreign exchange, the U.S. dollar is down 0.06 to 99.23 against the yen and the Dollar Index is up 0.729 to 85.956.

The euro is down 0.0156 to 1.3030 against the U.S. dollar, down 0.0093 to 1.5826 against the Canadian dollar, down 0.0016 to 0.8818 against the pound sterling and is lower by 1.62 to 129.29 against the yen.

The pound sterling is down 0.0150 to 1.4777 against the U.S. dollar and down 0.0070 to 1.7947 against the Canadian dollar.

WTI crude oil is up $0.45 to $50.43. The front month gold contract at the Chicago Board of Trade is down $11.60 to $868.40 per ounce.

Treasury Yields Rise

U.S. two-year yields are up 5.7 bps to 0.96%, with five-year yields up 10.0 bps to 1.87%, 10-year yields up 7.8 bps to 2.91% and 30-year yields up 5.4 bps to 3.77%. The Eurodollar September 09 contract is down 6.5 ticks to 98.86. The yield curve is steeper, with the 10/2-year spread up 2.2 bps to 195.05 bps.

Yields on two-year Canadian government notes are up 1.6 bps to 1.14%, with five-year yields up 3.0 bps to 1.93%, 10-year yields up 1.7 bps to 2.97% and 30-year yields up 2.0 bps to 3.72%. The September 09 BAX contract is up 1.0 tick to 99.47.

In Germany, returns on two-year German notes are up 9.8 bps to 1.47%, with five-year yields up 11.8 bps to 2.46%, 10-year yields up 9.4 bps to 3.27% and 30-year yields up 4.4 bps to 4.07%.

Yields on UK two-year notes are up 9.7 bps to 1.42%, with five-year yields up 10.9 bps to 2.53%, 10-year yields up 11.7 bps to 3.36% and 30-year yields up 12.0 bps to 4.50%.

All data taken at 12:01 p.m. EDT.

By Adam Button, abutton@economicnews.ca, edited by Ernest Hoffman, ehoffman@economicnews.ca

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

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