(CEP News)

• S&P 500 Flat at 784

• Euro Falls One Cent

• Commodities and Treasuries Flat

Stocks Mixed Ahead of Options and Futures Expiration

Stocks are searching for direction on Friday ahead of a derivatives expiration that is expected to generate huge trading volumes.

The S&P 500 was most recently down 0.3 points to 784, while the Dow Jones Industrial Average is higher by 16 points to 7,417.

Financials are among the laggards, with Bank of America shares lower by 9% and those of J.P. Morgan Chase down by 3%.

The relative stability in equity markets is a surprise considering Friday is a 'quadruple witching' day: one of the four days a year when stock index futures, stock index options, stock options and single stock futures expire simultaneously. Market watchers expect a surge of activity at the end of the session, when the contracts expire.

Dennis Gartman warned investors to beware of sudden movements. We shall see some rather great, perhaps even titanic battles, fought as the options traders on the floors try to get stocks and indices to close at or near 'Big Figure' for the expiry. We shall try our best to stay out of the way, for as elephants play, the mice come under assault, he wrote in Friday's Gartman Letter.

Commodity options and futures also expire on Friday and that has the potential to rattle the commodity-driven Canadian stock market. So far, commodity prices have been relatively stable with oil lower by 8 cents to $51.98 per barrel and gold down $4 to $955 per troy ounce.

The S&P/TSX was most recently higher by 3 points to 8,704. The index has so far made gains in eight consecutive sessions.

If U.S. equities are unable to get back above water today, the TSX will be vulnerable to catch-up selling as it still closed Thursday with a gain, but this is not going to be a day for aggressive bets either way, said Andrew Pyle, wealth advisor at ScotiaMcLeod. It's better to wait for the dust to clear.

In Europe, the Euro Stoxx 50 closed up 2 points to 1,766, the UK FTSE 100 up 26 points to 3,843 and the German DAX up 25 points to 4,069.

Meanwhile, on the week, the Stoxx 50 gained 2%, the FTSE 100 gained 2.4% and the DAX climbed 2.9%.

Euro Falls Sharply as Positive Sentiment Weakens

A pause in the rally in global equities is helping to drag down the single currency against the U.S. dollar after three days of massive gains. Despite Friday's one-cent drop, however, the euro remains near 3-month highs.

The Asian session was relatively quiet for EUR/USD, which traded within a tight range. Japanese markets were closed for the vernal equinox. During the European session, the cross managed a modest rally, hitting highs at 1.3726 USD. However, the euro dropped sharply just ahead of the North American session and was most recently lower by 0.0108 to 1.3558.

Weaker European data is hurting the momentum of the euro, according to some currency strategists. Euro zone industrial production fell at its sharpest pace on record to kick off the year, Eurostat reported on Friday. On an annual basis, production fell 17.3%, which was much lower than the consensus call for a drop of 15.5%.

In more European news, EU leaders agreed to double the amount of aid allowed to non-euro zone members. According to media reports, the members are also closer to an agreement on a €5 billion stimulus plan.

With no data expected to be released in the U.S., currency strategist are expecting equities and market sentiment to dominate currency markets

Brian Dolan, chief currency strategist from Gain Capital, said it is only a matter of time before market sentiment once again supports the U.S. dollar. He added that concerns over the European economy will limit major gains

Currency strategists from Brown Brothers Harriman said today's bounce in the U.S. dollar is nothing more than a technical correction. They are looking for more greenback weakness during the North American session.

Look for North American players to take advantage of the dollar's bounce to sell it, they said. The market wants to push the dollar lower.

Elsewhere in foreign exchange, the Canadian dollar is up 0.0002 to 0.8072 against the U.S. dollar (1.2388 USD/CAD) and up 1.04 to 77.32 against the yen.

The U.S. dollar is up 1.27 to 95.80 against the yen and the Dollar Index is up 0.531 to 83.660.

The pound sterling is down 0.0043 to 1.4461 against the U.S. dollar and down 0.0066 to 1.7917 against the Canadian dollar.

Commodity and Treasury Markets Quiet

After two days of volatile trading, commodity and Treasury markets are quiet.

WTI crude oil is up $0.08 to $52.12 and gold at the Chicago Board of Trade is down $5.90 to $953.70 per ounce. The front month contracts expire at the close on Friday.

U.S. two-year yields are flat at 0.86%, with five-year yields flat at 1.65%, 10-year yields up 2.0 bps to 2.62% and 30-year yields up 1.0 bps to 3.64%. The Eurodollar September 09 contract is down 2.0 ticks to 98.77. The yield curve is steeper, with the 10/2-year spread up 2.1 bps to 176.27 bps.

Yields on two-year Canadian government bonds are up 1.2 bps to 1.00%, with five-year yields up 1.3 bps to 1.73%, 10-year yields up 2.0 bps to 2.72% and 30-year yields up 1.6 bps to 3.58%. The September 09 BAX contract is flat at 99.48.

In Germany, returns on two-year government bonds are down 6.6 bps to 1.33%, with five-year yields down 5.2 bps to 2.22%, 10-year yields down 6.0 bps to 2.99% and 30-year yields down 4.7 bps to 3.88%.

Yields on UK two-year bonds are down 5.1 bps to 1.34%, with five-year yields down 2.1 bps to 2.24%, 10-year yields down 1.4 bps to 3.02% and 30-year yields down 2.7 bps to 4.07%.

All data taken at 12:37 p.m. EDT.

By Adam Button, abutton@economicnews.ca; edited by Nick Say, nsay@economicnews.ca