Stocks Rebound After Economic Data

Fears over financials and the swine flu initially took a bite out of stocks but surprisingly strong readings on housing and consumer confidence led to a rebound into modestly positive territory.

The initial declines came after the Wall Street Journal reported that Bank of America and Citigroup have failed the government stress test and may need to raise more capital. The newspaper said the Bank of America capital shortfall amounts to billions of dollars.

The Fed initially planned to release the results of the stress tests on May 4, but now says they will be released sometime that week.

Market participants also continue to grapple with swine flu. After Monday's close, the World Health Organization raised its pandemic risk level from three to four and said the swine flu virus cannot be contained.

Dr. Keiji Fukuda, the World Health Organization's temporary assistant director-general for Health Security, advised nations to strengthen preparations because the virus is too widespread to make containment feasible.

Stock futures had been down by more than 2% as bearish sentiment mounted but the worries were wiped away by U.S. economic data.

The Conference Board's consumer confidence index surprised to the upside in April, marking its largest jump since November 2005. The index rose to a reading of 39.2 from March's upwardly revised 26.9 level.

"Confidence is presumably being supported by the recent 20% rise in the stock market and signs that conditions have stabilized from the chaos of the end of last year," Capital Economics economist Paul Dales said.

The S&P Case-Shiller Home Price Index fell to 143.17 in February against expectations for a reading of 142.80. The 20-city composite index posted a year-over-year decline of 18.63%, slightly less than the 18.70% decline expected.

Stocks rallied after the data and the Dow Jones industrial average is now up 29 points to 8054, the S&P 500 is up 3 points to 860 and the Nasdaq is up 9 points to 1689. In Canada, the S&P/TSX composite index is down 49 points to 9346.

European stock markets closed with the Stoxx 50 down 27 points to 1967, the UK FTSE 100 down 71 points to 4096 and the German DAX down 87 points to 4607.

Oil Markets Ignore Positive U.S. Economic Data

Better-than-expected U.S. data were unable to provide momentum for oil markets as investors focus on banking and flu concerns Tuesday.

Oil dropped sharply in overnight trading, hitting a session low of $48.57 per barrel. Later, a stronger-than-expected U.S. consumer sentiment report and Richmond Fed manufacturing survey helped prices recover, reaching a high of $49.95.

However, oil was unable to hold its gains, and is trading around $49.00, in the middle of today's range. Most recently, WTI crude was most recently down 63 cents to $46.45.

The main focus today has been on the U.S. banking sector and concerns that the swine flu epidemic could turn into a pandemic.

Overnight, media outlets reported that the U.S. government is pressuring Citigroup and Bank of America to raise more capital due to the results of the stress tests.

Although the government has released the criteria set out in the stress test, investors will have to wait until May 4 to get the official results. According to media reports, the two banks are expected to dispute the government's report of their strength.

Adding to the negative sentiment was news that the World Health Organization has raised its pandemic threat level from three to four. Although the WHO is concerned about the swine flu virus, its has not yet said that the outbreak is a pandemic. Mexican officials have attributed 150 deaths to swine flu.

Aaron Fennell, futures commodity strategist from MF Global Canada, said oil prices could move lower by the end of the week.

"I think we will get more news over the virus by the end of the week. I think if it is serious we will see traders jump back into gold and I think energy markets and agricultural markets will be the hardest hit," he said.

Fennell said if fears of a pandemic prove true, it will cause a major decline in demand. He pointed out that U.S. citizens have already been warned not to travel unless they have to.

"Right now supplies are at record levels and I think it is going to get worse," he said. "I just don't see a lot of people travelling this summer."

Canadian Dollar Continues to Slump on Swine Flu and U.S. Banking Concerns

The Canadian dollar is in modestly negative territory as investors move into safe haven currencies such as the U.S. dollar and the Japanese yen. Concerns over the U.S. banking sector and the swine flu epidemic are generating some negative sentiment.

During the last five sessions, the Canadian dollar was one of the top performing currencies against the U.S. dollar, but circumstances changed Monday afternoon after investors reacted to concerns of a flu epidemic.

USD/CAD has retraced most of its losses from the selloff that started on April 24 after the Bank of Canada released its Monetary Policy Report. The cross is trading just above 1.22 CAD as the U.S. dollar continues to benefit from growing risk aversion sentiment. Most recently, USD/CAD was up 0.0009 to 1.2216 after trading as high as 1.2266.

The pair has found some short-term resistance at 1.2267 CAD, which represents the 61.8% retracement level.

On Tuesday, investors continue to focus on concerns over the U.S. financial system. Also attracting headlines this morning is fear over a swine flu epidemic.

As risk aversion continues to grip markets, George Davis, chief technical analyst at RBC Capital markets, said he is expecting the Canadian dollar to lose more ground in the short term.

On a technical basis, he said 1.2117 CAD could attract USD/CAD buyers and could lead to a test of the 1.23 level. He said the recent downtrend will remain in place unless the cross can hold above 1.2413 CAD.

"USD/CAD has been unable to pierce downtrend resistance at 1.2413 despite repeated attempts, thereby sustaining our bearish medium-term technical stance," he said.

Elsewhere, the U.S. dollar is down 0.24 to 96.53 against the yen and the Dollar Index is down 0.210 to 85.546.

The euro is up 0.0056 to 1.3092 against the U.S. dollar, up 0.0095 to 1.6005 against the Canadian dollar, up 0.0064 to 0.8963 against the pound sterling and is higher by 0.25 to 126.35 against the yen.

The pound sterling is down 0.0037 to 1.4608 against the U.S. dollar and down 0.0030 to 1.7850 against the Canadian dollar.

All data taken at 12:48 p.m. EDT.

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

CEP Newswires - CEP News © 2009. 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.