Closing Market Recap: Investors on the Fence as Fear Remains in Equities

(CEP News) - Investors stood on the sidelines on Wednesday as markets closed relatively flat on the day.

The Dow Jones industrial average closed up 3 points to 7556, the S&P 500 closed down 1 point to 788 and the Nasdaq closed down 3 points to 1468. Canadian equities suffered today as Toronto's S&P/TSX composite index closed down 203 points to 8176.

The negative sentiment that battered financial markets on Tuesday could still be felt in markets on Wednesday, as investors hesitated to jump back into equities. Market players continued to move to safe haven investments, supporting the U.S. dollar and driving gold prices closer to the $1,000 mark.

Mike Glaser, futures broker at LaSalle Futures, said prices found support at $970 an ounce, which helped gold hit session and yearly highs at $984.60. He added there is a risk that prices could move lower as investors take profits at this level.

"We need to find some support at $980 and I think we could see that overnight. Gold has been very strong in the European market," he said.

A new plan from President Barrack Obama was unable to boost confidence as investors remain doubtful that any stimulus will help jump start the economy.

President Obama unveiled a $275 billion housing plan on Wednesday, which it says will help seven to nine million American families avoid foreclosure. The Obama administration said the plan will 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 announced it will increase its stock purchases of Government Sponsored Enterprises Fannie and Freddie by up to $400 billion, or $200 billion each - double the original level.

As well 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 on 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 minutes of the January FOMC meeting created some momentum for Treasury markets. U.S. Treasuries rallied after learning that the Fed discussed purchasing a "substantial quantity of longer-term Treasury securities." The rally could not be sustained, however, as Thursday's supply concerns have been weighing down the market.

U.S. two-year yields are up 10.5 bps to 0.96%, with five-year yields up 15.5 bps to 1.81%, 10-year yields up 11.1 bps to 2.76% and 30-year yields up 7.9 bps to 3.56%. The Eurodollar September 09 contract is down 1.5 ticks to 98.65. The yield curve is steeper, with the 10/2-year spread up 1.0 bps to 179.65 bps.

The Canadian 10-year note is yielding 10.3 bps more than the U.S. 10-year note.

Yields on two-year Canadian government bonds are up 8.7 bps to 1.27%, with five-year yields up 7.3 bps to 2.09%, 10-year yields up 4.8 bps to 2.86% and 30-year yields up 1.8 bps to 3.58%. The September 09 BAX contract is down 5.0 ticks to 99.25.

It was a quiet day in currency markets, with the Canadian dollar managing to hold some modest gains against the U.S. dollar.

Tyson Wright, senior trader at Custom House, said he is expecting any weakness in the USD/CAD to be met with strong support.

"I think there is more upside potential to test 1.2750 CAD," he said.

The Canadian dollar is up 0.0053 to 0.7935 against the U.S. dollar (1.2601 USD/CAD) and up 1.43 to 74.47 against the yen.

The U.S. dollar is up 1.44 to 93.84 against the yen and the Dollar Index is up 0.426 to 88.007.

The euro is down 0.0042 to 1.2541 against the U.S. dollar, down 0.0119 to 1.5803 against the Canadian dollar, down 0.0018 to 0.8819 against the pound sterling and is higher by 1.42 to 117.68 against the yen.

The pound sterling is down 0.0019 to 1.4220 against the U.S. dollar and down 0.0099 to 1.7919 against the Canadian dollar.

Looking at energy markets, WTI crude oil is down $0.48 to $34.45.

All data taken at 4:20 p.m. EST

By Neils Christensen, neilsc@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca