The Canadian stock jumped with some solid gains on Friday as commodity prices led gains in the wake of strong retail and manufacturing data.  The S&P /TSX composite index jumped 169.84 points or 1.41% to 12,081.73.  Statistics Canada said manufacturing sales rose by 1.4% to $47.6 billion, which was the highest level since October 2008.

Stock markets had dipped in the wake of a disappointing read on American consumer confidence.  The University of Michigan’s consumer sentiment index for October dropped almost two points to 57.5, less than the 60 reading that had been forecast.  But analysts say the American retail and Canadian manufacturing reports indicate that the fragile economic recovery remains intact.  In short, the reports further confirm recent experiences, consistent low economic growth but not recessionary conditions.

Investors were also worried about the meeting in Paris of finance ministers and central bank governors of the world’s 20 leading economies, including Canada. They are discussing how to save Greece from bankruptcy, deal with Europe’s wider debt crisis and restart global economic growth.  Leaders have kept expectations low for Friday and Saturday’s Group of 20 meeting in Paris. They have promised a plan by the end of the month and the weekend is likely to be dominated by closed-door negotiations.

Markets ended the week higher on growing confidence that European leaders are finally serious about finding a comprehensive way to deal with the government debt crisis and the serious threat it poses to the financial sector.  The Canadian market was up 4.25% but remains 15.7% below its highs of the year from early March.

That said, headwinds remain as Standard & Poor’s cut Spain’s long-term debt rating, citing the country’s weak growth prospects and risks facing its banks.  And Fitch downgraded its outlook for three European banks and said it was reviewing ratings for a host of others, citing ongoing exposure to sovereign debt in Europe’s weaker economies and sluggish growth prospects.

In the United States stocks posted their 1^st back-to-back weekly gains since early July, on strong Google earnings and as investors kept riding the optimism for a solution to the euro zone’s debt crisis.  The gains put the Dow industrials and the Nasdaq back into positive territory for the year, marking a dramatic reversal from 2 weeks ago, when the threat of a Greek default and sour U.S. data had buyers running from the market.

Investors are reacting to some positive catalysts, corporate earnings are good, we have a more formalized policy action out of Europe and the economy is not heading for a cliff.

The benchmark S&P index has climbed 14% from the October 4^th intraday low of 1,074.77, which had temporarily tipped it into bear market territory. Now investors are looking to see if stocks can sustain a move above the 1,215-1,220 area that has been upper end of the market’s range since early August.  For the week, the Dow rose 4.9%, while the S&P 500 jumped 6% and the Nasdaq climbed 7.6%.

The sharp turnaround in stocks from a 2011 took many by surprise, and buying has spurred more buying.

This week 3^rd quarter earnings kick into high gear, with reports coming from Goldman Sachs, Bank of America, Apple and other prominent companies. Ten of the 30 Dow components are scheduled to report quarterly results this week.  Reported and estimated earnings growth for the current earnings season is seen at 12.4% for all S&P 500 companies, according to Thomson Reuters data. That is down from this year’s estimate peak of 17% in July.  However, companies like Apple and IBM, which hit lifetime closing highs on Friday, are expected to exceed expectations by a meaningful amount. And positive surprises could play into the buying momentum further confirming that the economy is less bad than feared and corporations are still doing well.

On Friday the Dow Jones industrial average was up 166.36 points or 1.45%, at 11,644.49, the Standard & Poor’s 500 Index was up 20.92 points, or 1.74%, at 1,224.58 and the Nasdaq Composite Index was up 47.61 points, or 1.82%, at 2,667.85.  The Chicago Board of Options Exchange (CBOE) Volatility Index or VIX fell 8% to end at 28.24, and closed lower for the 9^th day in a row, a pattern suggesting more gains could be in store as investors find less need for protection against losses.

Stronger-than-expected retail sales data added to the upbeat mood Friday.  U.S. retail sales rose 1.1% in September from a month earlier, a report showed, beating the median forecast in a Reuters poll of a 0.7% rise.

This morning, stock futures were initially up by a good margin but Europe then signaled that they need more time to formalize and approve their sovereign debt plan, which has still to be made public. This plan includes writing down Greek bonds by as much as 50%, establishing a backstop for banks and magnifying the strength of the 440 billion-euro ($620 billion) European Financial Stability Facility.

In short, recent positive sentiment has hit a wall after riding on a wave of hope that European leaders get it and a bold measure is coming.  Germany’s finance minister said a forthcoming European summit would not yield a definitive solution to the region’s debt crisis as many investors had hoped.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock index ended sharply lower on Friday as surprisingly strong North American jobs data was overshadowed by downgrades of Spain and Italy’s credit ratings.  Downgrades in sovereign debt contribute to investor fears that the global economy will slow and potentially endure another recession.

The index’s resource-heavy materials sector dropped 3%, energy shares dropped 2% and financials were down 1.1% to lead decliners.  It was a day of weakness after strong gains in the previous two days which cumulatively added more than 600 points to the index.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 191.71 points, or 1.6%, at 11,588.36.

Early in the day, the index hit its highest level in nearly 2 weeks as data showed U.S. employers hired more workers than expected in September and job gains for the previous 2 months were revised higher, easing recession fears.  Canada created 6 times as many jobs than forecast in September, once again outshining the United States.

Specifically, the U.S. economy added 103,000 jobs last month while the jobless rate held steady at 9.1%. The report beat very modest expectations: economists had looked for the U.S. economy to add out about 55,000 jobs.  In Canada, economists had expected about 15,000 jobs would be created last month and that the jobless rate would remain unchanged. However, Canada added 61,000 jobs in part because of the return to school which added 38,800 jobs in the education sector.

Further hurting equity markets was the news that 12 British banks have had their credit ratings downgraded by Moody’s Investors Services over doubts about the strength of the government’s support.  Within the week stock markets have fallen and risen sharply amid mounting hopes that European policy-makers were preparing a plan to shore up the banking sector in the event of a Greek debt default.

In the United States, after nearly falling into bear-market territory in the middle of the week, U.S. stocks on Friday finished the week higher, building on gains as encouraging jobs data and hopes that Europe is dealing with its debt crisis.

Wall Street’s wild week began with big losses that brought stocks to their worst levels in 13 months. After rebounding Tuesday, the S&P 500 rose about 5% from its worst levels as short-sellers rushed to cover losses on new optimism about Europe. The benchmark index ended with gains of 2.1% for the week.

The U.S. employment data was viewed as being relatively good, but this issue in Europe keeps coming back.  U.S. banks led the market volatility within the week as investors fear that large global banks will be negatively impacted by various sovereign debt issues.

The downgrades by Fitch came prior to a European summit on Sunday that was aimed at shoring up the region’s financial sector.

The Dow Jones industrial average was down 20.21 points, or 0.18%, at 11,103.12 and the Standard & Poor’s 500 Index was down 9.51 points, or 0.82%, at 1,155.46 and the Nasdaq Composite Index was down 27.47 points, or 1.10%, at 2,479.35.

For the week, the Dow rose 1.7%, the S&P 500 gained 2.1% and the Nasdaq was up 2.7%.

Within the week European leaders showed more determination to fix problem banks, with the European Central Bank offering more help to struggling banks through the purchase of bonds.  Worries about the euro zone debt crisis have hit Wall Street hard in recent months, along with concern about stalling economic growth in the United States and China.

On the weekend the leaders of Germany and France promised Sunday to unveil a new comprehensive package for solving the euro zone’s debt crisis by the end of the month, but offered no details and papered over differences on how to shore up European banks.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said after talks in Berlin their goal was to come up with a sustainable answer for Greece’s woes, agree how to recapitalize banks and present a plan for accelerating economic coordination in the euro zone by a G20 summit in Cannes on November 3^rd and 4^th of this year.

“We are very conscious that France and Germany have a particular responsibility for stabilizing the euro,” Sarkozy told a joint news conference.  “We need to deliver a response that is sustainable and comprehensive. We have decided to provide this response by the end of the month because Europe must solve its problems by the G20 summit in Cannes.”

Sarkozy will host the Cannes summit and is keen to deliver a big success that might bolster his flagging chances of winning re-election in a presidential vote next year.  But even if the two leaders can agree on a way forward, the experience of the past two years has shown that they could struggle to get the other 15 countries in the euro zone on board in a timely fashion.

The two euro zone heavyweights have come under pressure worldwide to resolve a crisis which is hurting stock markets. U.S. President Barack Obama, on Thursday, urged Europe to “act fast,” calling the common currency bloc’s crisis the largest obstacle to a recovery in the United States.

Belgian bank Dexia is the 1^st bank to fall victim to the 2-year-old euro zone debt crisis, has added a sense of urgency to the talks.  The prime ministers of France and Belgium and the finance minister of Luxembourg agreed a rescue plan for Dexia Sunday ahead of the meeting in Berlin.  Other French banks have come under intense pressure because of their exposure to Greece and other weak countries on Europe’s southern periphery.  BNP Paribas and Societe Generale denied a report Sunday that they could seek to raise a combined 11 billion euros as part of a broader European recapitalization plan.

Greece is expected to run out of cash as soon as mid-November. Inspectors from the European Commission, the IMF and the European Central Bank or the so-called “troika” are currently assessing whether Athens has fulfilled the criteria for more aid.

Yesterday was Thanksgiving holiday in Canada but stocks around the world jumped as much as 3% on Monday, extending gains into a 2^nd week as a pledge by German and French leaders boosted hopes that the euro-zone debt crisis may be resolved.

Financials, the most beaten-down stocks during the recent slide, led the rally. The KBW bank index jumped 5.3%.  Earnings season is set to begin with Alcoa’s report today after the closing bell and will likely become a driver for stocks in coming weeks.

The Dow Jones industrial average surged 330.06 points, or 2.97%, to end at 11,433.18, the Standard & Poor’s 500 Index climbed 39.43 points, or 3.41%, to 1,194.89 and the Nasdaq Composite Index shot up 86.70 points, or 3.50%, to close at 2,566.05.

This morning North American futures are pointing down by about 0.50% as investors pause and reflect on reality.

Expect volatility to remain elevated until there is some resolution to Greece and some tangible facts regarding how its default will be contained within the region and within the eurozone.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The “Bear” is back as Canadian stock prices took another hit yesterday losing more value as oil prices hit their lowest level in a year and fears of a looming recession intensified globally.  The bear market is the stock trader’s metaphor for sustained investor pessimism.

Greece’s persistent inability to put its debt crisis to rest dragged the Canadian stock market down 3.21% and edged it into official bear market territory at closing dropping 21% from its most recent high.  On the 1^st day of trading in the 4^th quarter the S&P /TSX composite index drop 372 points to 11,251.84.  The energy sector fell 5.31% as oil prices fell $1.59 to 2011 lows of US$77.61 a barrel, its lowest close since Sept. 28, 2010. Prices have dropped 15% this year.

Earlier yesterday, European markets fell, dragging Canadian and U.S. stocks down along with them, after Greece said it will miss deficit reduction targets it agreed to as part of an earlier bailout deal.

Many are worried a Greek default would damage the still battered European economy and plunge the world back into recession. That sparked another selloff of oil and mining stocks, since another economic crisis would destroy demand for Canada’s natural resources.  The commodity market is really tied to the global economic recovery and so when we see a slowdown globally it impacts Canada.

A recession would lower demand for oil, copper and other resources Canada produces, weakening exports and hurting profits in corporate Canada in turn, hitting share prices negatively as earnings growth has been a key driver for recent price appreciation.

The 2012 draft budget says Greece’s debts are projected to reach 172.7% of gross domestic product in 2012 while the deficit will drop to 6.8%, which is above the 6.5% originally agreed with international bailout creditors.  Debt inspectors from the International Monetary Fund, European Central Bank and European Commission, known as the troika, are in Athens reviewing reforms to see if Greece qualifies to receive the next €8-billion installment of its bailout. Without it, Greece will run out of funds in mid-October.

In the United States stocks dropped to a 13-month low as investors sold bank shares on fears that Greece’s worsening financial crisis could cause a large European lender to fail.  Investors pegged losses to the sharp fall in Franco-Belgian financial group Dexia, which fell 10% after a Moody’s warning about its liquidity due to concerns about exposure to Greece.

Most investors fear that markets in Europe are going to run well ahead of politicians that are not going to be able to get any kind of reasonable solution.  U.S. banks have become a target for speculators. Morgan Stanley closed at its lowest since December 2008.  The recession that wiped 12 years of gains off the S&P 500 was caused in part by a credit crisis.  In turn, investors fear today that we are going to have a disorderly default in Greece and there could be another banking crisis in Europe as they are undercapitalized and loaded with sovereign debt.

The Dow Jones industrial average dropped 258.08 points, or 2.36%, to 10,655.30, the S&P 500 fell 32.19 points, or 2.85%, to 1,099.23 and the Nasdaq Composite lost 79.57 points, or 3.29%, to 2,335.83.  The S&P 500 broke through a previously strong technical support level near 1,120 before hitting a 13-month intraday low just below 1,100.

The benchmark is also down 19.4% from its closing high this year, nearly entering a bear market, which is defined as a 20% decline from its recent high set on April 29^th of this year.

A stronger-than-expected reading in a gauge of U.S. manufacturing briefly lifted Wall Street stocks, but global manufacturing shrank for the 1^st time in over 2 years in September, reinforcing fears of another recession.

This morning stock index futures fell as European officials considered making banks take bigger losses on Greek debt and on expectations Greece would default soon.  Investors fear that the crisis in Europe could make a recession more likely in the United States.  To add to market pessimism, Goldman Sachs cut its gross domestic product (GDP) outlook for advanced economies for 2012, seeing growth of 1.3% versus its previous view of 2.1%.  “The main driver of our shift in views has been the escalation of bank funding stress in the Euro area, alongside deeper public budget cuts in a number of European countries,” Goldman said in a note.

The STOXX Europe 600 Banking Index dropped 4% this morning while Franco-Belgian bank Dexia dropped a further 14% to a record low in intraday because of its Greek exposure. European stocks dropped 3.4% this morning.  Today U.S. banks were likely to remain in focus and continue to be pressured by the same issue.

European finance ministers were considering making banks take bigger losses on Greek debt and delayed a vital aid payment to Athens until mid-November, setting up a crunch point in the region’s sovereign debt crisis.  The economy is slowing down, and until there’s a resolution with Greece, that situation will continue to linger over the stock market and the global economy.  This could turn into a self-fulfilling recession.

This morning North American futures are pointing down by about 1.0%.

Expect volatility to remain elevated until there is some resolution to Greece and some tangible facts regarding how its default will be contained within the region and within the eurozone.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

On Friday resource stocks led declines on the Canadian stock market as investors ended the 3^rd quarter in a pessimistic mood about the pace of economic recovery and the outcome of the European debt crisis.  The S&P /TSX composite index dropped 62.48 points or 0.53% to end at 11,623.84 with losses held in check by rising gold stocks.  It has been a difficult 3^rd quarter as the majority of stock markets dropped about 15% and many are officially in “bear market” territory, the Canadian market was down 12.6% for the quarter and 19% from its most recent peak.

Investors worry that the global economy is slipping into recession, which would reduce demand for oil, copper and other commodities that Canada produces. That would weaken exports and profits and further depress share prices on the resource heavy TSX.

Stocks have sold off because of the eurozone debt challenges and the political gridlock in the United States, which threatened to undermine global economic growth.  However, China’s economy which has been of vital importance to global economic growth recently and commodity markets also appears to be slowing down.

The European debt crisis has weighed heavily on capital markets recently over fears that Greece is on the brink of a default. That could send shock waves through the global economy, particularly in Europe, and wreak havoc on the continent’s banking sector which holds a lot of Greek assets/bonds.  As the Greek economy gets worse it makes hitting their financial targets harder and further compounds their issues.

In the United States stocks ended their worst quarter since the depths of the 2008 credit crisis also hit by Europe’s debt debacle, a U.S. credit downgrade and a sluggish global economy.  A steep slide on Friday closed out a 5^th month of losses as weak economic data from China sparked fears of a global economic slowdown while investment bank Morgan Stanley dropped by more than 10% on concerns about its exposure to European banks.

The S&P 500 index has lost more than 14% this quarter and over 7% in September alone. As of Thursday, Wall Street’s deep downturn in the 3^rd quarter wiped out $2.2 trillion in equity value.  Stocks have been battered by the threat of a slowdown and fears that a Greek debt default could spark a credit shock similar to that caused by Lehman Brothers in September 2008, sending markets into a tailspin.

Fears of a hard landing in the world’s 2^nd largest economy joined the potent mix troubling investors after China’s manufacturing sector shrank for the 3^rd month in a row.

The Dow Jones industrial average dropped 240.60 points, or 2.16%, to 10,913.38, the Standard & Poor’s 500 Index fell 28.98 points, or 2.50%, to 1,131.42 and the Nasdaq Composite Index lost 65.36 points, or 2.63%, to 2,415.40.

Wall Street’s “fear gauge,” the Chicago Board of Options Exchange volatility index, or VIX, rose more than 10% to 42.96, its highest close since mid-August and indicating investors expect more volatility ahead.

The MSCI All Country World Index had lost about $4.7 trillion in market value.

This morning stock index futures were modestly lower as concerns over Greece’s teetering finances.  Draft budget figures showed Greece would miss its deficit targets for both this year and next, which could force the country to seek more bailout funds. If it fails to get the financing, the government may be forced to default, an outcome that could accelerate a slide back into global recession.

While it appears that they will get additional help if needed (part of the poker game), there remains a lot of uncertainty over how much more money could be provided as well as the framework.  North America stock futures are pointing down about 0.40%.

Today investors will attempt to look ahead to September data on manufacturing from the Institute for Supply Management (ISM), seen coming in at 50.5, versus 50.6 last month. The data is due at 10 a.m.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market dropped another day with another steep decline on Friday, the 3^rd in a string of sell-offs.  Investors have fled the vulnerability of stocks as the world wrestles with the real possibility of another recession.

The key story on Friday was the steep decline in gold prices and precious metals which helped push the S&P /TSX composite index 99.65 points lower or about 0.88% to 11,462.87, leaving the main index 20% below its highs of early March and is officially in what analysts call a “bear” market.

The S&P/TSX ended the week down 925 points or 7.46% for the week, leaving the key index at its lowest level since July of 2010.  There are worries that losses could get worse. Predictions about flagging growth in the world’s largest economy and the possibility of a painful outcome to the European debt crisis have spooked many into seeking a safe haven for their money.

The simple reality is that we have a potentially bigger crisis mounting because governments, which bailed out stocks in the past, are now insolvent and broke.  The drop in stock markets was sparked initially by a warning from the U.S. Federal Reserve that the U.S. economy faces sizable downside risks, which added to uncertainty that Europe’s fiscal crisis would be contained.

In turn, investors were not assured by a pledge to stabilize markets from the world’s leading economies.  Finance ministers from the G20 countries meeting in Washington vowed Thursday to “take all necessary actions to preserve the stability of the banking systems and financial markets” and to make sure banks have the cash they need to pay their day-to-day expenses.

The Moodys bond rating agency downgraded 8 Greek banks Friday due to their exposure to Greek government bonds and the deteriorating economic situation in the country.

Greece has been kept solvent by a euro 110 billion bailout in 2010 from other eurozone countries and the International Monetary Fund. But it has needed another massive bailout this summer, and has angered international creditors by lagging behind in its commitments to implementing reforms and carrying out pledges.  European officials have begun to speak openly of the possibility of a Greek default, and the fears have further “hit” global stock markets and economic prospects.

On Friday the gold sector was the hardest hit, down about 5.0% as the December bullion contract on the New York Mercantile Exchange fell $101.90 to US$1,639.80, for a loss of 9.6% for the week, despite the precious metal’s reputation as a safe haven amongst chaos.  Analysts point out that gold also got caught up in the intense volatility on stock markets this week.

Investors are concerned that a slowing global economic slowdown will push commodity prices sharply lower as oil price fell US$81 a barrel mark.

In the United States the Dow Jones industrial average on Friday suffered its worst week since the depths of the financial crisis in 2008, stung by anxiety over Europe’s spiraling debt crisis and a warning from the Federal Reserve about the U.S. economy. This went downhill quickly on Wednesday after the Fed announced it would trade out about $400 billion in short-term Treasury’s for ones with longer-term maturities. The bond-exchange program termed “Operation Twist” is aimed at lowering long-term consumer borrowing costs. But analysts noted that it’s more limited than some of the Fed’s past stimulus programs and may only help the lagging U.S. economy at the margins.  At least stocks ended higher after a disastrous 4 days of selling by the end of the week, which helped push down the S&P 500 index 6.6% for the week.

Fears of a Greek default and the Federal Reserve’s gloomy prognosis for the U.S. economy precipitated heavy selling in equities.  Stocks see-sawed between gains and losses on Friday, but the S&P was able to hold above the August 8^th low of 1,119, a key support level that served as a trigger for buyers during the week.

While the market remains susceptible to further losses, many traders believe it will take a significant deterioration, either in the economy or in Europe, to spur another sharp decline.

For the week, the Dow dropped 6.4% for its worst weekly performance since October 2008 and the Nasdaq lost almost 5.3%.  The primary trigger for the rebound late in the week came from policymakers suggesting additional steps will be taken to support Europe’s financial system (by having the European Central Bank add more liquidity into the banking system.)

The Dow Jones industrial average gained 37.19 points, or 0.35%, to 10,771.02, the Standard & Poor’s 500 Index gained 6.83 points, or 0.60%, to 1,136.39 and the Nasdaq Composite Index gained 27.56 points, or 1.12%, to 2,483.23.

The escalating turmoil in global markets has led many analysts to cut their year-end targets for the benchmark S&P 500 index, with even some of the most bullish investors beginning to scale back their optimism a bit.

It is clear that stock investors are very much “sick and tired” of the authorities in Europe and in the U.S. twiddling their thumbs and not doing substantive things to solve this crisis of the global economy, the odds of a double dip recession on a global basis are increasing rapidly.

It is clear that European policymakers are quickening their preparations to cope with an escalation of the region’s debt crisis as talk of a possible Greek default gained pace.  Finance officials from around the world have turned up the heat on Europe to do more to prevent Greece’s debt crisis from infecting other euro zone countries and the world economy.

Concern now appeared to be turning toward safeguarding the banking system more than rescuing Greece, as international lenders were increasingly losing patience with Athens consistently missing fiscal and reform targets.

Euro zone leaders need to have the situation under control by the time leaders of the Group of 20 economies meet in France in November.

Pressure is growing on European governments for a recapitalization of the region’s banks to strengthen them in the event of a Greek default.  At the same time, European policy-makers seemed to be warming to the idea of giving more muscle to their bailout fund which would be tested in the event of a Greek debt default.  Finance Minister Evangelos Venizelos was quoted by 2 newspapers as saying an orderly default with a 50% haircut for bondholders was one way to resolve the heavily indebted euro zone nation’s cash crunch.

Greece is in tense talks with the International Monetary Fund and European authorities, known as the “troika”, to secure a new 8 billion-euro installment of its rescue package to avoid bankruptcy in October in return for austerity measures.

The growing talk of a Greek default met with stiff opposition from Germany’s Chancellor Angela Merkel. She told a meeting of her political party members that was not an option for her because it might trigger a domino effect in other struggling economies. “The damage would be impossible to predict,” Merkel warned.

G20 finance ministers and central bankers had pledged on Thursday to “take all necessary actions to preserve the stability of the banking system and financial markets as required,” a statement that failed to calm investors.

Canadian financial policy-makers ended 2 days of meetings Saturday expressing some confidence “that European authorities have been seized with the urgency of resolving their sovereign debt crisis.”  Bank of Canada governor Mark Carney said he was “somewhat encouraged” by the stance of European officials at the Washington meetings.  “There’s some progress, but I repeat in the end it’s about actions. Actions will have to be taken in a timely manner.”

Carney made it clear that Europe’s debt woes extend beyond Greece, a reference to debt overhangs that Ireland, Portugal, Spain and Italy also face. And he stressed “that if those issues aren’t resolved and quickly, the ensuing whirlwind hitting the global economy would be difficult to corral”.  Canada has sound fundamentals but Canada would still feel its aftershock.

Finance Minister Jim Flaherty, along with his U.S. counterpart and others here, have stressed the need to impress markets with their resolve by urging eurozone leaders to “overwhelm the problem” with a massive bailout fund, as the U.S. did in 2008 in passing the near US$750-billion rescue package known as TARP.  “They need to overwhelm the problem in order to get ahead of the markets,” Flaherty said Friday night. “The sooner the better, uncertainty and delay are the enemies.”  On Saturday, U.S. Treasury Secretary Timothy Geithner also urged European leaders to work with the European Central Bank to enhance the eurozone’s emergency bailout fund, but gave no specific number.

Carney and Flaherty said they did not expect a recession in Canada, but admitted growth is already much slower than predicted earlier in the year, prospects going ahead are dimmer, and the risks are greatly elevated.

Not much has changed this morning but stock index futures rose by about 1% on hopes European policymakers were putting together new measures to help ease the region’s debt crisis, but the lack of clarity on their potential effectiveness was seen keeping markets volatile.

A move by European leaders to strengthen the European Financial Stability Facility bailout fund as well as reports of a possible repurchase of covered bonds by the European Central Bank lifted investor sentiment.

Valuations or fundamentals for corporate profits remain attractive but the headline overhand will keep investors on edge.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

Fears of a global recession set in and sent the Canadian stock market into a downward tailspin after the U.S. central bank delivered a blunt warning about worsening economic prospects.  The S&P /TSX composite index tumbled 392.5 points or 3.29% to 11,562.51 after the Federal Reserve warned there are “significant downside risks to the economic outlook.”

The Canadian dollar tumbled 2.08 cents to 97.33 cents US, its lowest level in about a year as the Fed’s warning pushed investors to the perceived safe haven status of U.S. Treasury bonds.  Demand concerns sent oil pricing down $5.41 to US$80.51 a barrel and the price of gold, silver and other commodities followed.

In the United States stocks dropped extending a sell-off to 4 days, as policymakers’ failure to stop the global economic stagnation sent markets spiraling downward.  Energy and material stocks were among the hardest hit sectors on worries of slowing worldwide demand. Signs of a slowdown in China exacerbate those fears.

The Dow Jones industrial average dropped 391.01 points, or 3.51%, to 10,733.83, the Standard & Poor’s 500 Index lost 37.20 points, or 3.19%, to 1,129.56 and the Nasdaq Composite Index slid 82.52 points, or 3.25%, to 2,455.67.

Weak data from China followed an unsettling outlook about the U.S. economy from the Federal Reserve on Wednesday in stoking recession fears. Wednesday last minute losses were sparked after the Fed said it saw “significant downside risks” facing the economy.  China’s once-booming manufacturing sector contracted for a 3^rd consecutive month, while the euro zone’s dominant service sector shrank in September for the 1^st time in 2 years.

Bank shares were also hard hit with the Fed’s plan to lower long-term rates, compressing margins for banks that borrow at short-term rates and lend at longer-term rates. The declines also came a day after Moody’s cut debt ratings for big lenders.  In addition to the statement on Wednesday, the U.S. central bank detailed additional stimulus measures to help push down long-term rates. Investors worried the latest plan would have little effect on lending and that there appeared to be few solutions to sluggish worldwide demand.

This morning stock index futures fell as talk of a Greece default gained pace and a day after markets spiraled downward on deepening worries about global economic stagnation.  Greek Finance Minister Evangelos Venizelos was quoted by 2 newspapers as saying an orderly default with a 50% haircut for bondholders was 1 of 3 scenarios for resolving the country’s fiscal woes.  European stocks dropped on fears the region’s banks would take more write downs on their Greek debt exposure.

Group of 20 major economies pledged a strong and co-ordinated response to the European debt crisis and weak economic growth in the United States and other countries but that did not help the S&P 500, Dow Jones and Nasdaq 100 futures which are all lower by about 1.0% this morning.

A lot can change within minutes or hours at times like these. I would expect investors to sell into the weekend and then have some policy announcements on the weekend in order to shore things up for next week but it is hard to imagine something other than a organized and controlled Greek default.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The S&P /TSX composite index fell 254.87 points or 2% yesterday to 11,955.01 responding to the U.S. stock markets.  U.S. stocks fell sharply Wednesday after the Federal Reserve moved to lower interest rates on consumer loans with a $400 billion debt-swap program that was widely expected, and noted “significant downside risks” to the economic forecast.   Also, a downgrade of several Italian bank ratings by Standard & Poor’s kept alive investor concerns over Europe’s sovereign-debt situation.

The Dow Jones Industrial Average closed down 283.82 points, or 2.5%, at 11,124.84, the blue-chip index lost about 191 points in the last hour of trading.   Investors wanted more than they received.  Stock investors’ negative reaction came as analysts noted divisions within the central bank, and questioned how much relief its latest move would bring given how much extra money the Fed already has pumped into the economy.

Fed policy makers said they would replace short-term debt in the central bank’s portfolio with longer-term Treasury bonds in a bid to further cut borrowing costs. The central bank, which also kept rates at historic lows near 0%, said that it was acting in view of “significant downside risks to the economic outlook, including strains in global financial markets.”

The bond exchange, dubbed “Operation Twist” by economists after a similar move by the central bank in 1961, bypasses the money creation that fueled a Republican outcry last year. Also, like at the last Federal Open Market Committee meeting in August, three Fed members dissented.

“Stocks fell because equity investors were hoping for action beyond the ‘twist.”

A grim outlook for the U.S. economy from the Federal Reserve and signs of a slowing in China and Germany sent world stocks down further this morning and drove investors into safer currencies and government bonds.

European stocks fell more than 4% to a 2-year low, helping drag global equities to a new 1-year low. North American stocks look set for sharp loss at the opening.  Concern was increased on Thursday when HSBC’s China Flash PMI showed the factory sector shrank for the 3^rd consecutive month in September, pointing to a slowdown in the world’s 2^nd largest economy.  Business activity in Germany also grew at its weakest pace in more than 2 years in September and new orders fell for a 3^rd month.

World stocks as measured by MSCI were down more than 2.5% to a new year low, making for a more than 14% year-to-date loss. The more volatile emerging markets stock index was down 4.2% for a nearly 22% 2011 loss.  In Europe, where questions about the ability of the euro zone to manage some of its countries’ heavy debt remain, stock losses amounted to a fall of over 21% for the year-to-date.

The mood drove investors to seek relative safety. The yield on 30-year German debt sank to a new record low.  Yields on 10-year U.S. Treasuries, the target of Fed activity, were down below 1.8%.

Indebted Greece, struggling to avoid default, made new budget-cutting pledges on Wednesday aimed at securing the next slice of bailout funding from international lenders.

This morning it looks like North American stock markets will open down a further 1.5% to 2.0%.  Europe needs to get their act together and do something big and creditable, anything less just makes things worse versus better.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market posted a triple-digit loss Friday as a drop in Canadian technology heavyweight Research in Motion (RIM) shares price led the way.  The S&P /TSX composite index dropped 161.13 points or 1.22% to 12,263.71 as the information technology sector, as well as the influential financial, energy and mining sectors dragged it lower.  The market ended the week down 0.9%.

RIM stock dropped 20%, wiping out $3 billion of the company’s stock value, after the BlackBerry maker reported lower device sales, weaker profits and revenues.  RIM fell $5.90 to $23.50. The information technology sector was the biggest decliner, down 5.25%.

On Friday, the European Union’s 27 countries overcame a year of infighting to agree Friday to tougher budget rules that make it easier to punish overspending governments, but failed to produce any new measures that might contain the debt market turmoil threatening it.   Top European Union officials rejected calls by Treasury Secretary Timothy Geithner to provide a decisive solution that would help Greece avoid a default on its debt.

Geithner’s presence at the informal meeting is a first for an American Treasury chief and is an indication of the international pressure building on European officials to fix their crisis and keep it from hurting the global economy.  The group’s leader said Friday that it will not decide until next month whether Greece has qualified for its next round of bailout money.  Worries about a possible default by Greece have weighed on financial markets all summer. There are widespread concerns that that kind of financial shock might tip the global economy back into recession.

In the U.S., the Labour Department reported that unemployment rates rose in a majority of states in August for a 3^rd straight month, further proof that job growth is weak nationwide. The unemployment rates increased in 26 states. They fell in 12 and remained unchanged in 12.

But the Thomson Reuters/University of Michigan’s consumer sentiment index showed U.S. consumers were slightly more confident in the economy in September, but are increasingly worried about the future. The index inched up to 57.8 in September from 55.7 in August, according to a Reuters report. The August reading was the lowest since November 2008.

In the United States stocks rose for a 5^th straight day on Friday and the S&P 500 scored its best week since early July on signs that leaders were taking action to limit the damage from a sovereign debt crisis.

The Dow Jones industrial average markets gained 75.91 points, or 0.66%, to 11,509.09, the Standard & Poor’s 500 Index gained 6.90 points, or 0.57%, to 1,216.01 and the Nasdaq Composite Index gained 15.24 points, or 0.58%, to 2,622.31.

The Dow rose 4.7% for the week, its 1^st weekly gain in three.  The Nasdaq Composite Index advanced 6.3% for the week, the best weekly percentage gain since July 2009.  The S&P 500 advanced by 5.4%.

As mentioned, Wall Street has moved up as investors looked to developments in Europe, where U.S. Treasury Secretary Timothy Geithner joined finance ministers gathered to talk about the debt crisis that brings the threat of a default by debt-stricken Greece. The group said it would decide next month whether Greece would get its next round of financial aid.

In short, investors are looking for some kind of certainty between Europe and the U.S., and we’re hoping by October 11^th for a conclusion to Greece, and more important Italy and Spain

This week stocks may extend their rally, with investors encouraged by euro-zone efforts to stem the region’s debt crisis, but gains are far from a sure thing as Federal Reserve and International Monetary Fund policymakers meet.   The 2-day gathering of the Fed’s Federal Open Market Committee (FOMC) ends Wednesday and the IMF/World Bank gathering includes a speech by Greek Prime Minister George Papandreou in Washington Tuesday.

Also on deck are earnings from Oracle Corp., Adobe and Nike and U.S. economic data include housing starts and existing home sales.

This morning Wall Street was set to open sharply lower, as concerns escalated over the possibility of a Greek debt default, while the spotlight in the U.S. will be on President Barack Obama’s plan to reduce the federal deficit.

Futures on the Dow Jones Industrial Average dropped 139 points to 11,307 and those on the Standard & Poor’s 500 stock index fell 18.2 points to 1,193.60 and the Nasdaq 100 futures declined 32.5 points to 2,274.75.

In Greece, the cabinet of Prime Minister George Papandreou met on Sunday to discuss growing concerns over the nation’s ability to meet fiscal targets. The so-called ”troika” of international lenders are withholding the next disbursement of aid to Greece until the government comes up with a credible plan to meet its deficit-reduction commitments.

President Obama is expected to unveil his plan to reduce the federal deficit by more than $3 trillion over 10 years. He is due to speak at 10:30 a.m. U.S. Eastern Time in the White House.

The Wall Street Journal reported that the president’s plan includes $1.5 trillion in tax increases, mostly on wealthy individuals and corporations. The call for tax hikes is likely to be met with stiff resistance from Republican lawmakers.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market closed down nearly 300 points Friday as investors worried over weaker than expected Canadian jobs figures, a U.S. employment plan and the sudden resignation of a European Union official.  The S&P /TSX composite index lost 296.4 points or more than 2% to 12,387.54. That erased the index’s earlier gains and left the stock market down 1.7% for the week.

Statistics Canada data showed the economy shed jobs in August for the 1^st time in 5 months. That pushed the Canadian unemployment rate up by 1/10^th of 1.0% to 7.3%.  Canada’s loss of employment was small in August at 5,500 but it was the 2^nd consecutive month that jobs growth was flat in Canada, a clear signal that the economy continues to struggle. Economists had expected a 25,000 job gain.  There was also more Canadian data released Friday morning that suggested a slowdown in the economy.

The Canada Mortgage and Housing Corp (CHMC) says the pace of home construction slowed last month to a seasonally adjusted annual rate of 184,700 units down from 204,500 in July.

Investors appeared unmoved by President Obama’s announcement of a $447-billion plan for jobs creation announced on Thursday and stock markets dropped further after a top European Central Bank official unexpectedly resigned.  The European Central Bank (ECB) said Juergen Stark, part of the 6-member governing board, was quitting for personal reasons. Juergen Stark has been a consistent critic of the ECB’s program to purchase government bonds in the markets.

The Group of Seven (G-7) economies of the U.S., Canada, Japan, the U.K., France, Italy and Germany are all facing a similar challenge. The economic recovery that began a little over a year ago is already running out of steam but governments’ ability to boost growth is hampered after the financial crisis pushed up their deficits and corresponding debt and interest rates are at historic lows.

In the United States stocks tumbled more than 2% on Friday after the top German official at the European Central Bank resigned in protest of the bank’s bond-buying program, which has been a major tool in fighting the region’s debt crisis.

Investors’ rising fears were highlighted by a 12% jump in the market’s main measure of expected volatility, the Chicago Board of Options Exchange (CBOE) VIX volatility index.  The VIX almost hit 40, close to its highest level this year, as it marked its biggest jump in 3 weeks.  Juergen Stark’s resignation is suggesting that there is a lot of pressure (stress) being built in the senior levels in the ECB.  In short, there is an increasing realization that this is a major solvency issue in the banking system.

Doubts about President Barack Obama’s $447 billion stimulus proposal added to the negative sentiment, with investors unconvinced his administration has the tools to revive the fragile U.S. economy.

The sell-off was broad with all 10 S&P sectors in the red and more than 80% of stocks listed on the New York Stock Exchange falling.  There is an extreme amount of negativity amongst investors.

The Dow Jones industrial average dropped 303.68 points, or 2.69%, to 10,992.13, the Standard & Poor’s 500 Index dropped 31.67 points, or 2.67%, to 1,154.23 and the Nasdaq Composite Index dropped 61.15 points, or 2.42%, to 2,467.99.  The S&P 500 ended the week down 1.7% lower and is now down 8.2% for the year.  The yield on the 10-year Treasury note hit its lowest level in 50 years.

The ECB has been buying up sovereign bonds to help hold down borrowing costs in some debt-strapped euro zone members, and the program has been considered critical to avoiding market contagion. The resignation of Stark may exacerbate the fragile relationship between the ECB and Germany.

U.S. Treasury Secretary Timothy Geithner on Friday pressed Europe’s strongest economies to give “unequivocal” financial support to weaker euro zone countries to overcome a debt crisis that threatens the world economy.

This morning global stock markets fell sharply amid continued anxiety over Europe’s debt problems and a potential default by Greece that would wreak havoc on the global economy.   The Japanese stock market hit a 28-month low.

Investors sold stocks amid concern that Greece’s problems would spread across Europe, and headed for safer havens like bonds.

European shares fell with Britain’s FTSE 100 down 2.2%, Germany’s DAX falling 3% and France’s CAC-40 dropping 4.5%. Wall Street is also preparing for a drop, with Dow Jones industrial futures down 1.5% and the  S&P 500 falling the same.

Greece basically has its back against the wall and it will default but the bigger issue is who will follow.  Debt-crippled Greece urgently needs to keep a program of cutbacks on track to secure the continued flow of international rescue loans worth €219 billion ($302.6 billion) protecting it from bankruptcy.

Recent talks among the G-7 finance ministers and central bank governors, ignored calls for a stronger unified response to Europe’s debt crisis. They instead insisted that each country should tread its own path back to growth amid concerns of a global slowdown.  In short the unified bailout is starting to lose traction.  The key will be ensuring that there is some orderly restructuring Greece sovereign debt but until there is visibility investors will sell first and ask questions later.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

Canadian stock markets dropped Friday before the long-weekend as the United States registered no job growth in the month of August, which increased investor worries about whether the U.S. can avoid slipping back into another recession.  Things were further compounded as previously reported job data for June and July were also revised lower and the unemployment rate stayed at 9.1%.

The S&P/TSX composite index fell 98.33 points or 0.77% to 12,602.41, with losses limited by a strong gain in the gold sector as investors fled to safe havens such as bullion.

If the U.S. economy doesn’t start to contract again, any expansion is going to be very modest and fall short of what would be needed to push the unemployment rate lower.

The TSX gained 274.9 points or 2.2% on the week as gold stocks rose alongside bullion prices. Financials also advanced in the wake of a string of positive earnings reports from the big banks in Canada.

In the United States, stocks dropped 2% on Friday after data showing zero jobs growth in August brought investors closer to the reality of another recession.  The declines left Wall Street lower for the 6^th week out of 7.

Stocks had rebounded recently on expectations the Federal Reserve would introduce new stimulus to boost the sluggish economy. However, the U.S. Labor Department’s latest report underscores that action by the Fed alone cannot address the economy’s deep problems.

Bank stocks were again among the day’s biggest losers, with Bank of America (BofA) dropping 8.3%, making it the top decliner on the Dow, where all 30 components fell. The KBW banks index lost 4.5%.

U.S. President Barack Obama, in a speech set for Thursday, will unveil a jobs program he hopes will provide “meaningful” tax relief and help the nation’s long-term unemployed.

The likelihood of more stimulus has increased dramatically as a result of this data and some other recent data, but at this point it’s unclear how much that will really help stock markets.

The Dow Jones industrial average was down 253.16 points, or 2.20%, at 11,240.41, the Standard & Poor’s 500 Index was down 30.46 points, or 2.53%, at 1,173.96 and the Nasdaq Composite Index was down 65.71 points, or 2.58%, at 2,480.33.

Friday marked the S&P’s biggest drop in 2 weeks.  Stocks were only modestly lower for the week, after a rally at the start of the week, for the week, the Dow fell 0.4%, the S&P lost 0.2%, and the Nasdaq was flat.

Energy shares dropped as U.S. crude futures fell 2.5% on concerns economic weakness could curb fuel demand.

On the weekend there was more action in turn, this morning U.S. stock futures are likely going to open lower by about 1%.  Investors returning from the long weekend will face more European debt turmoil and the lingering disappointment over last week’s jobs data.

The Swiss franc tumbled against the euro and other major rivals after the Swiss National Bank took the extraordinary step of setting a floor for the euro/Swiss franc exchange rate. The Swiss franc has been a safe haven for investors seeking shelter from worries over global growth and the European debt crisis. But the strong currency has wreaked havoc for many Swiss companies as their exports have grown more and more expensive.

Each euro-zone country rescue launched over the past couple of years has been less convincing.

The Stoxx Europe 600 index rose 0.3% this morning after dropping 4.1% yesterday. Monday’s fall was the biggest 1-day percentage decline since August 18^th amid worries over Europe’s sovereign-debt crisis and concerns that growth in the U.S. is stalling.

Worries over the sovereign-debt crisis were aggravated after a weekend loss by German Chancellor Angela Merkel’s Christian Democratic Union in regional elections in her home state.

It is widely thought that the crisis in Europe will claim many of the current euro-zone governments upon reelection, leaving in their place administrations or newly elected officials that are even more opposed to giving financial aid to the more at-risk nations, and the creation of euro bonds, the only measure that some think will save the euro. In short, things are not pretty in Europe.

Italy contributed to worries, with the government under pressure to implement austerity measures, as the country braced for a general strike today protesting those very reforms. Bonds yields have been rising for both Spain and Italy.

In the United States this morning, the Institute for Supply Management, will release its index of activity for the U.S. services sector. That’s expected to show a slowdown, but not outright contraction, in the rate of growth for non-manufacturing firms.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner