Canada’s main stock index closed higher on Friday, but closed off with significantly higher gains early in the day as the energy and materials sectors got a lift from higher commodity prices. The materials sector, home to gold miners and fertilizer companies, gained 1.2% and led the TSX higher. The price of gold was steady, while industrial metals prices were mostly higher on the back of a weaker U.S. dollar and steady equity markets. The energy sector was up 1.1%.
The story of the shortened trading week has been the weak U.S. dollar. The Canadian dollar is absolutely on fire in part due to market worries about the potential drop in the U.S. credit rating due to rising government debt.
The S&P/TSX composite index was up 0.44% to 9,993.42 just shy of the 10,000.00 mark, on the week, the index was up 2.36%.
Stocks fell for a 4th day in the United States after an unbelievable start to the week on Friday on persistent worries about the U.S. budget deficit, with U.S. Treasuries and the dollar losing ground. Investors have reduced positions in U.S. assets (debt & equity) due to concerns about the country’s debt.
Gold, a traditional safe haven, hit a 2 month high, rising above $960 an ounce for the first time since late March, while the Chicago Board Options Exchange Volatility Index (CBOE) or VIX, also known as Wall Street’s “fear” gauge, climbed and remained well above 30, a key psychological level. Investors are coming to a realization that interest rates are heading higher (as government borrowing costs go up) and that the US dollar is going to be under pressure (as investors sell US assets). We also see energy moving higher as China continues to stockpile and buy all the commodities they can (instead of buying U.S. bonds which they lose money on if yields go up and/or currency goes down).
The Dow Jones industrial average dropped 0.18%, the Standard & Poor’s 500 Index dropped 0.15% and the Nasdaq Composite Index dropped 0.19%. For the week, though, stocks finished moderately higher, with the blue-chip Dow average up 0.1%, the S&P 500 up 0.5% and the Nasdaq up 0.7%.
On Friday, General Motors borrowed another $4 billion from the U.S. Treasury and won a cost cutting deal from Canadian auto workers as a showdown with bondholders set the stage for a bankruptcy filing by the end of the month (within a week). The latest emergency funds extended by the Obama administration makes the total government funding to keep GM afloat since the start of the year to $19.4 billion. GM said it expected that total to rise to $27 billion after June 1st, a government imposed deadline for the embattled automaker to achieve an sweeping restructuring that will likely require a bankruptcy to complete. GM shares, which the automaker has warned could be worthless in bankruptcy, closed down 25% on Friday. GM bonds have been trading for pennies on the dollar for months in a sign of expected default. GM’s 8.375% notes due in 2003 traded on Friday at about $0.05 on the dollar as the government asks bondholders to exchange their $25 billion in debt for $1 equity (note: the government has injected almost this much).
I would expect a relatively quiet day today but oil is down which will have an impact on stock markets but the majority of global stocks markets including the U.S. is closed today.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
