Canada’s main stock index rose to its highest level in more than 5 months on Friday, and posted its 7th straight week of gains, as rising oil and gold prices powered heavily weighted commodity index higher. The materials sector appreciated by 4.28% as gold mining shares were supported by higher bullion prices while the energy sector appreciated by 1.04% as the price of oil jumped above $51 a barrel. Financials were also up 1.42%.
The S&P/TSX composite index finished up 139.98 points or 1.49%, at 9,549.48. The TSX is up 1.2% from the week before, and up nearly 26% in the past 7 weeks. The TSX rose to its highest level since November in the morning. The index pared gains briefly in the afternoon along with U.S. stock indexes after the release of a much anticipated concept paper on U.S. government stress tests for the 19 biggest U.S. financial institutions, but then rose again. The paper was a precursor to the May 4 release of the results of the stress tests, which are designed to ensure banks have enough reserve capital. Stock markets will remain volatile in advance of the full report but investors are currently not expecting any big surprises. However, unexpected results showing that U.S. banks are on shaky ground would upset market momentum and a reversal could come in a hurry. The Federal Reserve said the top 19 U.S. banks need to hold a “substantial” amount of capital above regulatory requirements to weather a potential worsening of the economic recession, according to the Fed’s white paper on bank stress tests.
“This is very, very basic. You come out of this knowing that the banks have to build up a buffer (for) a tighter, more challenging credit market. They do that anyway,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.
Stocks rallied on Friday as corporate earnings showed companies have weathered the recession and economic data raised hopes the economic cycle may have hit a bottom.
Ford Motor also posted a smaller than expected 1st quarter loss and said it was on track to at least break even in 2011 and did not expect to seek U.S. government loans, sending its shares up 11.4% to $5. Economic data also fed the bull frenzy after durable goods orders slipped in March, but fell far less than Wall Street expected. In addition, sales of new single family homes dropped, but inventories dropped at a record pace.
The Dow Jones industrial average added 1.50%, the Standard & Poor’s 500 Index added 1.68% and the Nasdaq Composite Index added 2.55%. For the week, the Dow fell 0.7% while the S&P fell 0.4% and the Nasdaq rose 1.3%. The declines for the blue-chip Dow average and the broad S&P 500 snapped a 6 week winning streak.
This morning Asian investors, all too familiar with economic fallout from health scares, sent airlines sharply lower and drug makers soaring as a deadly flu outbreak across the Pacific stirred fears of a pandemic. Major Japanese travel agencies suspended package tours to Mexico while restaurants pulled pork from their menus. The actions followed the discovery of swine flu in Mexico where the disease has sickened 1,600 people and has possibly killed more than 100. The disease is also spreading to the United States, Canada and Spain.
For many investors, the disease drew easy parallels with the region’s past struggles with infectious disease. This time they are also mindful that a major public health emergency could derail what some believe are the beginnings of a recovery in the global economy, still reeling from its worst downturn in years. In 2003, severe acute respiratory syndrome (SARS) devastated Asia’s tourism industry for months after surfacing in China in late 2002 and then spreading to Hong Kong.
As if we didn’t have enough to contend with.
The Dow Jones Stoxx 600 Index of European shares dropped 1.2% and futures on the Standard & Poor’s 500 Index slipped 1.8%. The concern of a pandemic stopped the rebound in stocks that has pushed the MSCI World Index up 27% (in local currency) since March 9th. Shares also fell after Lawrence Summers, director of the White House National Economic Council, said the U.S. economy will continue to contract “for some time to come,” in an interview on “Fox News Sunday.”
Oil prices fell toward US$49 a barrel this morning in Asia, benchmark crude for June delivery was down $2.14 to $49.41 a barrel.
Chrysler is racing against an April 30th deadline to cut labor costs or face bankruptcy has reached a tentative contract agreement with its biggest U.S. union and won ratification of an accord with Canadian workers. Members of the United Auto Workers must still vote on their proposed money saving contract, according to a statement yesterday from the Detroit-based union. Employees represented by the Canadian Auto Workers approved a contract that may save the automaker C$240 million ($197 million) annually. The moves boost Chrysler’s attempt to avoid a government ordered bankruptcy. Union workers must accept less generous contracts so Chrysler can form an alliance with Italy’s Fiat and qualify for more U.S. and Canadian aid. The company still must get lenders to erase most of $6.9 billion in secured debts.
General Motors is working to beat a June 1st U.S. ordered bankruptcy deadline, will provide details today on the latest plan to cut costs and keep $15.4 billion in U.S. loans it needs to survive. The largest U.S. automaker will discuss elimination of the Pontiac brand and reductions in plants and employees as well as initiatives to complete cuts as much as four years sooner than planned. The cuts may mean GM can be profitable in a U.S. market with sales of as few as 10 million autos. In short, this is pretty bad.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
