(CEP News)
• Stocks Slide After Report of Wall Street and Treasury Rift
• Long-dated Treasuries Sell off After Weak Bond Auction
• Gold Continues to Rise
• Canadian Dollar Under Pressure as Equities Remain Weak

Stocks Down But Above Session Lows

U.S. stock markets resumed their fall after a report suggesting the U.S. Treasury and top Wall Street executives are no longer working together on a ‘bad bank’ plan.

CNBC’s Charlie Gasparino said that about 20 Wall Street firms rushed to an emergency roundtable meeting at Goldman Sachs in New York on Tuesday after the Geithner ‘bad bank’ plan flopped.

He’s reported that the CEOs of the top financial institutions “freaked out” when the plan lacked details and stock markets tanked. Along the same lines, he reported that the Treasury is no longer working with Wall Street to find a ‘bad bank’ solution and said the U.S. government and Wall Street are losing faith in one another.

Equity markets turned lower after the report but remain above session lows. The Dow Jones industrial average is down 140 points to 7799, the S&P 500 is down 14 points to 819 and the Nasdaq is down 14 points to 1517.

Thursday’s decline comes despite a report that showed an unexpected jump in U.S. retail sales.

Sales increased 1.0%, marking the first rise in seven months. Economists were expecting a 0.8% contraction. Retail sales excluding autos grew 0.9% in the month against expectations for a 0.4% decline, according to advance estimates released from the Department of Commerce.

“The consumer is still backed into a corner and the January numbers do not materially change this. Looking ahead, consumer spending will continue to be a drag on growth for the next few quarters,” said Charmaine Buskas, economist at TD Securities.

The fall in the Dow brings it to the lowest level since the capitulation to 7449 on Nov. 22, 2008. Market watchers are keeping a close eye on U.S. lawmakers who are attempting to pass a $789.5 billion stimulus package before the weekend.

“There’s an emerging perception that equity markets’ attempts to retest the November lows could only be delayed (not avoided) by a successful passing of the stimulus package by the House of Reps by [Friday],” wrote Ashraf Laidi, chief market strategist at CMC Markets.

Many were hoping the stimulus package would gain broad support from U.S. politicians, but increasing debates along party lines suggest tension and gridlock in the months ahead.

Weak Bond Auction and Suggestions Fed May Not Buy Treasuries Hit Long End

Long-dated Treasuries are selling off on Thursday, pushing yields higher after a soft 30-year auction and suggestions that the Fed may not want to buy government debt. Meanwhile, yields at the front end of the curve are down alongside stocks.

U.S. two-year yields are down 2.4 bps to 0.89%, with five-year yields flat at 1.75%, 10-year yields up 3.2 bps to 2.79% and 30-year yields up 6.9 bps to 3.51%.

The latest selloff comes after the auction of $14 billion in 30-year Treasury notes drew a yield of 3.540%, much softer than the ‘when issued’ yield of 3.508%.

The buying pressure earlier came from a report in the Wall Street Journal saying that “the Fed has tiptoed away from a proposal to buy long-term government bonds.” The report also says that the idea “is still on the table” but there are worries it would swell the balance sheet to unmanageable levels.

David Ader, U.S. government bond strategist at RBS Greenwich Capital, said he is giving little credibility to the Journal report because it was buried deep in a story on the fourth page.

“If this was a leak of value it would not be on A4,” he said.

Supporting the Treasury markets are comments from the China Banking Regulatory Commission, which said U.S. Treasuries are the “only option” for the country to buy. There had been speculation that China might temper its buying of U.S. debt because of the Obama administration’s suggestions that China was manipulating its currency.

Elsewhere, sovereign fixed income is rallying. Yields on two-year Canadian government bonds are down 2.4 bps to 1.15%, with five-year yields down 5.2 bps to 2.07%, 10-year yields down 5.2 bps to 2.89% and 30-year yields down 4.0 bps to 3.65%. The September 09 BAX contract is up 1.0 tick to 99.32.

Returns on two-year German notes are down 5.6 bps to 1.30%, with five-year yields down 9.7 bps to 2.19%, 10-year yields down 11.4 bps to 3.08% and 30-year yields down 8.4 bps to 3.71%.

Yields on UK two-year bonds are down 13.1 bps to 1.20%, with five-year yields down 14.8 bps to 2.43%, 10-year yields down 13.3 bps to 3.48% and 30-year yields down 8.6 bps to 4.08%.

Gold Breaks Key Resistance Level as Investors Look for Safe Havens

Gold is the hot commodity of the day as prices break through a key resistance level. Fear is helping to boost the precious metal as other commodities remain under pressure.

On Thursday morning, Comex gold prices hit a session high of $952 an ounce. Strategists have been waiting for prices to break through as they continue to target the $1,000 level. CBOT spot prices were most recently up $4.90 to $949.00 per ounce.

Mike Glaser, futures broker at LaSalle Futures, said that with gold breaking through $950, the next resistance level could be $990. He added that the outlook looks very bullish and said the fact that banks are buying large amounts of gold could help the longer term trend.

The Comex delivery report for February shows that JPMorgan and Goldman Sachs took 68% of the gold delivery for that month, Glaser noted. This is compared to 7.5% the two banks took in December 2008.

Analysts from Barclays Capital are also bullish on gold as it continues to move higher. They added the “safe-haven” buying as global economic growth continues to falter.

WTI crude oil is down $1.14 to $34.80.

Canadian Dollar Under Pressure as Equities Remain Weak

Rising negative sentiment, which is pushing down equity markets, is helping to support the U.S. dollar and hurting the loonie.

USD/CAD was able to break through what has been a strong psychological barrier. The cross has tested that level three times since Feb. 3. The pair was most recently trading at 1.2540, up 0.0153 on the session.

According to some strategists, markets are weaker as there is still some uncertainty about whether the fiscal stimulus package will help support economic growth. U.S. data is not helping to boost positive sentiment either, as markets have ignored a stronger-than-expected January retail sales report.

Elsewhere in foreign exchange, risk aversion remains the overriding theme. The U.S. dollar is up 0.14 to 90.56 against the yen and the Dollar Index is up 0.564 to 86.340.

The euro is down 0.0082 to 1.2824 against the U.S. dollar, up 0.0052 to 1.6033 against the Canadian dollar, up 0.0054 to 0.9018 against the pound sterling and is lower by 0.53 to 116.14 against the yen.

The pound sterling is down 0.0176 to 1.4220 against the U.S. dollar and down 0.0054 to 1.7777 against the Canadian dollar.

All data taken at 1:27 p.m. EST.

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

CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca

The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.

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

Subscribe by RSS Subscribe by Email  Email This Post To A Friend