Closing Market Recap: Stocks Resilient After Plunge at Open
Market Updates | Written by CEP News | Jan 23 09 21:40 GMT |
(CEP News) • Stocks Rebound From Early Losses • Canadian Dollar Surges, Sterling Plummets • Worst Week For 30-Year Bonds in Decades
Stock markets plunge to critical levels, but bargain hunters step in
Share prices plunged at the open, sending U.S. stock markets to levels matching their weekly lows. The previous lows held, however, and stocks began to recover. The S&P 500 index closed up 4.5 points, or 0.5%, to 832.
The Dow Jones industrial average closed down 45 points, or 0.6%, to 8077. The Nasdaq was higher by 21 points, or 0.8%, to 1477 and the TSX was up 141 points, or 1.6%, to 8627.
On the week, the Dow fell 2.5%, the S&P 500 declined 2.2% and the Nasdaq was down 3.4%. The TSX was down 3.5%.
The early declines came following earnings from General Electric which met analyst expectations, but were at the bottom end of the company’s guidance. There’s speculation the company may lose its triple-A rating. Earnings from Xerox, AMD and Harley Davidson also disappointed market watchers.
Andrew Pyle, investment advisor at Scotia McLeod, said much of the bad news is already reflected in the stock market.
"How many more shoes are there to drop?" he said. "For the people who are looking ahead it looks like there will be an improvement … The conviction by the bears is starting to wane."
A similar story occurred in the foreign exchange market. Risk aversion led to broad rallies in the U.S. dollar and yen early in the session, but the moves later reversed.
The worst performing currency was the pound sterling. It fell to the lowest level since 1985 after fourth-quarter GDP figures came in worse than expected. The economy contracted at an annualized rate of 1.5% versus the expected 1.2% fall and previous 0.6% decline. It was the worst quarter in the UK economy since 1980.
The pound sterling was down 0.0062 to 1.3815 against the U.S. dollar and down 0.0374 to 1.7031 against the Canadian dollar.
Canadian Dollar Was Top-Performing Currency on Friday
The Canadian dollar was the top-performing currency on Friday as it made gains against all of the 16 most-traded currencies.
Traders said the combination of rebounds in oil and stock markets, along with a round of short-covering, led to the rise.
The Canadian dollar was up 0.0135 to 0.8106 USD after falling as low as 0.7907 overnight (1.2649 USD/CAD).
Currency traders said there were considerable speculative bets against the Canadian dollar on expectations it would fall back to its October lows.
"Most of it is from the unwinding of U.S. dollar positions. A lot of people were targeting 1.30 and expecting it to come rather quickly but every move higher looked more and more tired," one trader in Toronto said.
On the week, the Canadian dollar lost ground only against the Japanese yen.
Elsewhere in foreign exchange on Friday, The U.S. dollar was down 0.09 to 88.82 against the yen and the Dollar Index was up 0.088 to 85.608.
The euro was down 0.0012 to 1.2990 against the U.S. dollar, down 0.0281 to 1.6021 against the Canadian dollar, up 0.0035 to 0.9404 against the pound sterling and was lower by 0.20 to 115.39 against the yen.
U.S. 30-Year Bonds Fall Most in 26-Years With Focus on Supply
The expectation the U.S. will need to borrow record amounts of money to finance deficits in the coming years led to the biggest one-week decline in the value of U.S. bonds since 1982.
During the week, U.S. 30-year yields climbed 44 basis points to 3.31%, reflecting higher borrowing rates for the world’s biggest economy.
President Barack Obama took office during the week after having warned Americans that they will potentially have "trillion-dollar deficits for years to come, even with the economic recovery that we are working on."
Worries of higher borrowing were confirmed mid-week when the Treasury Department announced it will hold auctions for record amounts of two-year and five-year notes next week.
"This is not new information; however the tyranny of the calendar does bring it to people’s minds," said David Ader, U.S. government bond strategist at RBS Greenwich Capital.
Further worrying Treasury investors was a potential dispute between China and the United States. The new U.S. administration may have angered China, the largest holder of U.S. Treasuries, after suggesting they are manipulating their currency in order to give their manufacturers an advantage.
"President Obama - backed by the conclusions of a broad range of economists - believes that China is manipulating its currency," wrote Treasury Secretary-designate Timothy Geithner in a written response to questions from U.S. lawmakers.
Strategists say any decline in Chinese appetite for U.S. debt would drive up U.S. yields.
Although the weekly declines were most concentrated in longer-dated issues, Treasuries of all maturities sold off. Ten-year yields increased 27 bps to a one-month closing high of 2.60%. Five-year yields were up 15 bps to 1.62% and two-year yields up 8 bps to 0.80%.
All data taken at 4:37 p.m. EST
By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Ernest Hoffman, ehoffman@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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