Morning Market Recap: Stocks Fall on Profit Worries

(CEP News) - Investors are selling stocks in anticipation of slowing corporate earnings on Tuesday, sending U.S. stocks down nearly 2%.

"What started off as mild dose of the nerves yesterday has today turned into more of a hurried step towards the exits in stocks," said Andrew Pyle, investment adviser at Scotia Capital.

The focus on earnings comes as the first quarter earnings season ramps up with Alcoa reporting after the close. The aluminum giant is expected to announce a loss of 60 cents per share.

North American economic data is extremely light. The only notable release was the IBD/TIPP index of economic optimism. It rose to 49.1 from 45.3 in March. Economists had expected a reading of 46.5.

Moody's also released data showing that the number of corporate defaults in the U.S. during March reached the highest level for a single month since the Depression.

Most recently, the Dow Jones industrial average was down 161 points to 7815, with the S&P 500 down 18 points to 817 and the Nasdaq down 31 points to 1575. In Canada, the S&P/TSX composite index was down 113 points to 8903.

Some of the pessimism began in overseas markets. In Europe, European GDP fell 1.6% in the first quarter, slightly worse than the 1.5% estimate, and the worst decline in at least 13 years.

The Stoxx 50 was most recently down 21 points to 1861, the UK FTSE 100 was down 76 points to 3918 and the German DAX was down 64 points to 4286.

In Australia, the RBA lowered interest rates to a 49-year low as it anticipates the country will enter its first recession since 1991. New Zealand business sentiment also fell to a 35-year low.

In Asia, the Nikkei closed down 25 points to 8833 and the Hang Seng Index closed down 69 points to 14929.

In foreign exchange, more bad news from the International Monetary Fund is weighing on the euro as investors move back into the safety of the U.S. dollar. The IMF said global toxic debt could rise to US$4 trillion. The news has caused the U.S. dollar to make broad gains, and drag the euro below strong support levels.

The euro is down 0.0167 to 1.3250 against the U.S. dollar, down 0.0138 to 1.6476 against the Canadian dollar, down 0.0068 to 0.9016 against the pound sterling and is lower by 2.68 to 132.81 against the yen.

Elsewhere, the Canadian dollar is down 0.0036 to 0.8039 against the U.S. dollar (1.2438 USD/CAD) and down 0.97 to 80.61 against the yen.

The U.S. dollar is down 0.73 to 100.26 against the yen and the Dollar Index is up 0.760 to 85.331.

The pound sterling is down 0.0076 to 1.4693 against the U.S. dollar and down 0.0011 to 1.8278 against the Canadian dollar.

The commodity complex is under pressure with the exception of gold. WTI crude oil is down $1.34 to $49.71. The front month gold contract at the Chicago Board of Trade is up $8.30 to $881.10 per ounce.

In fixed income, U.S. two-year yields are down 2.4 bps to 0.91%, with five-year yields down 3.0 bps to 1.86%, 10-year yields down 2.0 bps to 2.90% and 30-year yields flat at 3.73%. The Eurodollar September 09 contract is up 3.5 ticks to 98.86. The yield curve is steeper, with the 10/2-year spread up 0.5 bps to 198.68 bps.

Yields on two-year Canadian government notes are flat at 1.14%, with five-year yields down 1.1 bps to 1.90%, 10-year yields flat at 2.98% and 30-year yields down 0.8 bps to 3.70%. The September 09 BAX contract is up 2.0 ticks to 99.46.

In Germany, returns on two-year German notes are down 3.8 bps to 1.46%, with five-year yields down 2.9 bps to 2.44%, 10-year yields down 0.8 bps to 3.21% and 30-year yields up 1.8 bps to 4.07%.

Yields on UK two-year notes are down 1.5 bps to 1.47%, with five-year yields flat at 2.60%, 10-year yields down 0.5 bps to 3.44% and 30-year yields up 0.8 bps to 4.34%.

All data taken at 9:50 a.m. EDT

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

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