Canada’s main stock index closed lower yesterday as a slide in oil prices translated into a drop for the energy sector. Disappointing debt auctions in the United Kingdom and the United States (investors are not scrambling to invest in more U.K. or U.S. debt) spooked stocks in their yo-yo session and hurt investor sentiment in Canada. Oil prices fell after data from the United States showed crude stocks were at their highest since 1993. Crude supplies rose by 3.3 million barrels last week, about twice the amount expected.
The S&P/TSX composite index ended down 0.59% from a session high that had the index up 1.5% early in the morning. The TSX energy sector was off, as new U.S. inventory figures showed. The financial sector was under pressure as the U.K. experienced its 1st incomplete auction of government bonds in almost 7 years. The U.K. treasury auction attracted bids for only 1.63 billion pounds of a 1.75 billion pound issue of 40-year bonds. The U.S. treasury auction was perceived to be weak and it is hard to stimulate the economy or bailout banks if the government cannot raise the required funds via a treasury auction. It is estimated the U.S. Treasury will sell about $2 trillion of debt this year.
That said, equities have been rallying in recent weeks on optimism that the economy and credit markets are getting closer to stabilizing and that the pace of the contraction is slowing. In addition, many stocks have dropped in value so dramatically that current prices make them attractive to investors again.
In a primetime news conference Tuesday, U.S. President Obama (or media mogul) said there would be no “quick fixes” for the recession and that it would take time for the economy to recover. He also insisted that his administration’s strategy is to “attack this crisis on all fronts.” The U.S. Commerce Department reported that orders to U.S. factories for big-ticket goods rose 3.4% in February which is much better than the 2% drop that had been expected by many analysts. It was the 1st advance since July 2008 and the strongest single month gain in 14 months. The Commerce Department also said new-home sales rose 4.7% in February.
Stock trading in the United States was also volatile but in the end stocks advanced in value as investors bet that the economy was improving and that stocks would continue advancing from their recent 12-year lows. The Dow Jones industrial average advanced by 1.17%, the Standard & Poor’s 500 Index advanced by 0.96% and the Nasdaq Composite Index advanced by 0.82%.
Investor sentiment that the banking system is stabilizing was reinforced after Bank of America Chief Executive Kenneth Lewis, in an interview, said the bank wants to start repaying $45 billion of federal bailout money next month.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
