â€¢ S&P 500 up 4.5%
â€¢ USD/CAD Falls by Half-Cent
â€¢ Oil Hits $54
Geithner Plan Boosts Stocks
Markets cheered after the U.S. Treasury unveiled a long-anticipated plan to remove toxic assets from the balance sheets of financial institutions on Monday.
North American equity markets climbed more than 4% higher after Treasury Secretary Timothy Geithner said the U.S. will spend as much as $1 trillion in the Private Public Investment Program.
The plan involves creating five different public-private funds that will bid on toxic assets and sell them to the broader public. Bill Gross, co-chief investment officer of Pimco, said his firm intends to participate as a manager and buyer.
This is perhaps the first win/win/win policy to be put on the table, Gross said in an emailed statement. He also said the returns could be in the teens.
The Dow Jones industrial average was most recently up 327 points to 7605, the S&P 500 up 35 points to 804 and the Nasdaq up 62 points to 1519.
In Canada, the S&P/TSX composite index was up 400 points to 8907. The index was boosted by an all-stock takeover of Petro-Canada by Suncor Energy. Shares of Petro-Canada are up 25% while Suncor is up 1%.
In Europe, the Stoxx 50 closed up 66 points to 1832, the UK FTSE 100 up 118 points to 3961 and the German DAX up 111 points to 4180.. The Japanese Nikkei closed up 270 points to 8216 and the Hang Seng Index gained 614 points to 13447.
Canadian Dollar Whipsawed as U.S. Plans to Buy Toxic Assets
It has been a volatile day for USD/CAD following the announcement of the U.S. Treasury's plan to purchase toxic assets, and better than expected U.S. housing data.
USD/CAD has traded in a one-cent range overnight and is reacting to equity markets. The cross appears to have formed a double bottom at the 1.23 CAD level and was most recently trading at 1.2345.
Most of Monday's volatility is due to the news that the U.S. Treasury will invest up to $1 trillion to purchase mortgage-backed securities and other toxic debt. Over the weekend, the Wall Street Journal published a story releasing some of the proposed details. Those details were made official in a Treasury press release at 8 a.m. this morning.
USD/CAD moved higher following the release of the official report. Currency strategists said the stronger U.S. dollar reflects some uncertainty over the plan.
Steve Butler, director of FX trading at the Bank of Nova Scotia, said he sees the rally in the U.S. dollar as short covering, as investors take some profits off the table.
It sounds like a great plan but I think people might have some questions as to exactly how this would work, he said.
The Canadian dollar recovered some of its losses following a better-than-expected U.S. existing home sales report. Existing home sales grew 5.1% in February against expectations for a 0.9% decline, according to the National Association of Realtors.
Marc Chandler, senior currency strategist from Brown Brothers Harriman, said he is looking for the U.S. dollar to continue to weaken throughout the morning as risk appetite continues to improve.
As Treasury Secretary Timothy Geithner detailed the Public Private Partnership Investment Program, the U.S. dollar strengthened against the euro.
This week should help determine the veracity of the dollar selloff, and whether the current trend of 'weaker dollar-strong commodities/risk appetite' has any durability beyond the knee-jerk reaction of the FOMC, said Ashraf Laidi, chief currency strategist at CMC Markets.
Elsewhere in foreign exchange, the U.S. dollar is up 1.29 to 97.24 against the yen and the Dollar Index is up 0.077 to 83.918.
The euro is down 0.0017 to 1.3565 against the U.S. dollar, down 0.0108 to 1.6745 against the Canadian dollar, down 0.0026 to 0.9363 against the pound sterling and is higher by 1.63 to 131.90 against the yen.
The pound sterling is up 0.0022 to 1.4487 against the U.S. dollar and down 0.0069 to 1.7885 against the Canadian dollar.
Positive Housing Data Helps Boost Oil Prices
The U.S. Treasury's plan to purchase toxic assets and stronger-than-expected existing home sales are helping to boost oil prices this morning, as it trades near a two-and-a-half month high.
The rally in oil prices started at 10 a.m. EDT on Monday. Prices dropped near session lows ahead of the existing home sales report and rebounded sharply following the better-than-expected data. Existing home sales rose 5.1% in February against expectations for a 0.9% decline, according to the National Association of Realtors.
The positive news helped WTI crude break through $54 per barrel, hitting session highs at $54.03.
Also helping to boost risk appetite is the latest news from the U.S. Treasury to help resolve the credit crisis. Treasury announced it would invest up to $1 trillion to purchase mortgage-backed securities and other toxic debt.
Colin Cieszynski, market analyst from CMC Markets, said rising risk appetite could suggest that underlying investor confidence is improving. He added the commodities market could also be moving higher in anticipation that global supply and demand will move back into balance.
US crude oil has broken through $53.00/bbl today, and out of a trading channel that has been in place since December. While a measured move suggests $71.00/bbl may be attainable over time, nearer term resistance looms near $60.00/bbl, he wrote.
Analysts from Citigroup said the technical indicators are pointing to further gains in oil prices. They noted that last week oil prices closed above $50 per barrel, and they believe this opens the way for $68.
Most recently, WTI crude oil was up $1.65 to $53.72
All data taken at 12:35 p.m. EDT.
By Adam Button, firstname.lastname@example.org, edited by Megan Ainscow, email@example.com