Stocks Flat Despite Chrysler Bankruptcy and Swine Flu

Early stock market gains were wiped out by Chrysler's bankruptcy filing, but the S&P 500 still posted its best month in 17 years.

The S&P 500 closed down 0.8 points to 872.81. The Dow Jones industrial average closed down 18 points to 8168. The Nasdaq gained 5 points to 1717. In Canada, the S&P/TSX composite index fell by 91 points, or 1%, to 9324.

The S&P 500 climbed by as much as 1.7% at its highs, but uncertainty about the result of a Chrysler bankruptcy, swine flu concerns and month-end flows weighed on share prices.

On the month, the Dow gained 7.4%, the S&P 500 was up 9.4% and the Nasdaq up 12.4%. In Canada, the S&P/TSX gained 6.9%. It was the largest one-month gain on the S&P 500 since December 1991.

Global equities could be returning to a bull market, according to David Jones at IG index. "The strength this week has caught a few of us on the hop and today saw a solid performance across all sectors, but financials still remain flavour of the month," he said. "The economic backdrop still looks grey but there is a feeling that the news coming out over the past week or so does demonstrate that the rate of decline has been slowing - at least based on the most recent data," he said.

European stock markets closed in positive territory with the Stoxx 50 up 29 points to 2027, the UK FTSE 100 up 54 points to 4244 and the German DAX up 65 points to 4769.

Canadian Dollar Benefits from Positive Market Sentiment

The Canadian dollar was the top performing currency on Thursday, as positive sentiment continues to sweep through financial markets.

Despite grim news on the U.S. auto industry and more concerns over swine flu, global equities continue to push higher, which is benefiting the Canadian dollar.

"USD/CAD has been virtually a one-way bet since the Bank of Canada took a close look at quantitative easing and found it wanting," said David Watt, senior currency strategist at RBC Capital Markets.

According to currency strategists, relatively positive comments from the Fed following the FOMC monetary policy meeting Wednesday also helped boost risk appetite.

The loonie was the top performer among G10 currencies and broke through key support levels of 1.20 in overnight trading. USD/CAD is off its lows but remains under pressure, trading in the mid-1.19 CAD area. Most recently, USD/CAD was down 0.0092 to 1.1934.

In-line monthly GDP data for Canada and higher inflation numbers also helped to support the loonie. StatsCan reported that economic growth for February fell by 0.1%, in line with the consensus.

Also, the Industrial Product Price Index advanced 0.3% in March, while the Raw Materials Price Index jumped 12.1% from its February figure. On an annual basis, industrial prices were down 0.1% from 12 months ago.

USD/CAD dropped to session lows following the reports.

Currency markets digested negative news on Thursday as well. Chrysler filed for Chapter 11 bankruptcy protection and the World Health Organization raised the alert for the swine flu to five, which is just one notch from a pandemic.

Matt Perrier, currency analyst at BMO Capital Markets, said he is expecting the Canadian dollar to continue to make gains as USD/CAD remains firmly in a downtrend. He said he is looking to buy Canadian dollars on dips.

"While we should see a continued test of the downside, the objective is close to being met and I would look for near term base to try and form at the 1.1775/1.1835 [CAD] area," he said.

Elsewhere in foreign exchange, the U.S. dollar was up 0.95 to 98.60 against the yen and the Dollar Index was up 0.140 to 84.614.

The euro was down 0.0045 to 1.3227 against the U.S. dollar, down 0.0180 to 1.5778 against the Canadian dollar, down 0.0036 to 0.8947 against the pound sterling and was higher by 0.85 to 130.42 against the yen.

The pound sterling was up 0.0011 to 1.4783 against the U.S. dollar and down 0.0133 to 1.7632 against the Canadian dollar.

WTI crude oil was up $0.03 to $51.00. The front month gold contract at the Chicago Board of Trade was down $11.10 to $889.40 per ounce.

Treasury Yields Mixed

The front end of the Treasury curve rallied while longer-dated maturities sold off on Thursday.

"The market was a mixed bag with 2s-7s better and 10s on out weaker for a nicely steeper yield curve. This action accurately reflects our generally better buying flows and the willingness of the dealers to use the curve as one way of setting up for next week's auctions," wrote David Ader, U.S. government bond strategist at RBS Greenwich Capital in a client note.

The U.S. Treasury Department will auction a total of $64 billion in 3, 10 and 30-year securities next week.

U.S. two-year yields were down 5.5 bps to 0.90%, with five-year yields down 2.6 bps to 2.00%, 10-year yields up 0.8 bps to 3.11% and 30-year yields flat at 4.03%. The Eurodollar September 09 contract was up 2.0 ticks to 99.01. The yield curve was steeper, with the 10/2-year spread up 6.4 bps to 225.75 bps.

Elsewhere in fixed income, yields on two-year Canadian government notes were flat at 0.99%, with five-year yields flat at 2.01%, 10-year yields up 1.3 bps to 3.10% and 30-year yields up 1.9 bps to 3.84%. The September 09 BAX contract was flat at 99.59.

In Germany, returns on two-year German notes were up 2.0 bps to 1.34%, with five-year yields up 3.0 bps to 2.35%, 10-year yields up 4.7 bps to 3.18% and 30-year yields up 2.6 bps to 3.90%.

Yields on UK two-year notes were down 1.7 bps to 1.05%, with five-year yields up 1.9 bps to 2.37%, 10-year yields up 4.6 bps to 3.50% and 30-year yields up 4.2 bps to 4.35%.

All data taken at 4:18 p.m. EDT.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Ernest Hoffman, This email address is being protected from spam bots, you need Javascript enabled to view it

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