(CEP News) - Stock markets are choppy on Tuesday as a dividend cut from Alcoa competes with an unexpected surge in U.S. housing starts.Most recently, the Dow Jones industrial average was up 1 point to 7218, the S&P 500 was up 3 points to 757 and the Nasdaq was up 13 points to 1417.
After the close on Monday, aluminum giant Alcoa cut its quarterly dividend to 3 cents from 17 cents. Shares of the company, a Dow component, are down 11.4% and fellow miners and metals stocks are also down.
The U.S. housing sector showed unexpected strength in February, with housing starts and building permits both climbing far above expectations.
Starts rose 22.2% in the month to an annualized pace of 583k, according to the U.S. Department of Commerce. Economists were looking for starts to decline to a pace of 450k.
Oil prices are higher by more than a dollar on Tuesday at $48.47 per barrel. A close at this level would be the highest since late January. Analysts at Barclay's Capital expect the rally to continue.
"Unless the macroeconomic environment gets much worse, there is a wider acceptance that OPEC cuts and a chronically weak non-OPEC supply will make inroads into the oil market balances as the year progresses, potentially over-tightening the market," they wrote in a client note.
Fixed income market participants are watching the Federal Reserve as it begins a two-day meeting on Tuesday. With rates close to zero the focus is on quantitative easing.
"While there is a lot of market talk about the Fed buying Treasuries, we do not believe it will happen this week," wrote analysts at CitiFX.
"The spreads between U.S. mortgages and government yields [are] still high and more effort will be made to bring these spreads down instead of bringing the government yield itself down. If we are correct and the Fed does not buy Treasuries, it could turn out to be a serious trigger for further gains in yield, as we believe the dominant trend is still up. The setup on U.S. 10-year yields still argues for a significant rally (in yields)."
U.S. two-year yields are down 1.6 bps to 0.98%, with five-year yields down 1.3 bps to 1.90%, 10-year yields down 2.6 bps to 2.93% and 30-year yields down 4.0 bps to 3.72%. The Eurodollar September 09 contract is up 6.5 ticks to 98.64. The yield curve is flatter, with the 10/2-year spread down 0.8 bps to 194.55 bps.
Yields on two-year Canadian government bonds are flat at 0.99%, with five-year yields flat at 1.88%, 10-year yields down 1.5 bps to 2.87% and 30-year yields down 0.7 bps to 3.60%. The September 09 BAX contract is up 2.0 ticks to 99.45.
In Germany, returns on two-year German bonds are down 2.0 bps to 1.33%, with five-year yields down 2.8 bps to 2.27%, 10-year yields down 1.6 bps to 3.13% and 30-year yields down 0.5 bps to 4.00%.
Yields on UK two-year bonds are up 0.6 bps to 1.46%, with five-year yields up 0.9 bps to 2.23%, 10-year yields up 1.1 bps to 3.05% and 30-year yields up 1.6 bps to 4.04%.
In foreign exchange, the Japanese yen is under pressure in an otherwise quiet day of trading. The Canadian dollar is down 0.0009 to 0.7853 against the U.S. dollar (1.2734 USD/CAD) and up 0.39 to 77.58 against the yen.
The U.S. dollar is up 0.62 to 98.80 against the yen and the Dollar Index is up 0.296 to 87.242.
The euro is down 0.0011 to 1.2958 against the U.S. dollar, up 0.0005 to 1.6500 against the Canadian dollar, up 0.0037 to 0.9259 against the pound sterling and is higher by 0.70 to 128.01 against the yen.
The pound sterling is down 0.0066 to 1.3996 against the U.S. dollar and down 0.0064 to 1.7824 against the Canadian dollar.
The front month gold contract at the Chicago Board of Trade is down $5.00 to $917.40 per ounce.
All data taken at 10:18 a.m. EDT.
By Adam Button, abutton@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca
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