Canada’s main stock market ended lower yesterday as falling commodity prices hurt the resource-heavy Canadian stock market, even though the Federal Reserve said the U.S. economy was recovering. The index’s energy sector closed down 1.35%, a move attributed to a drop in oil prices of nearly 4% after U.S. data showed a big jump in crude and product stockpiles (more supply on hand). In turn, investors are concerned about demand in the world’s top energy consumer. The U.S. Energy Information Administration (EIA) reported commercial stockpiles of crude rose 2.8 million barrels in the week to September 18th, against analyst expectations of 1.5 million barrels fall.
The report reflects the real state of the economy in which demand for refined products is very weak and so supplies are high. The global recession has battered demand in the United States and other big consumer nations, helping to push crude off record highs near $150 a barrel struck in July 2008 to below $33 a barrel in December of the same year. Prices have since rebounded on signs of an economic turnaround, and oil markets are trading in line with equity markets and macroeconomic data. This is in expectation of a turnaround that would increase fuel consumption and fuel prices versus oil prices trading more on supply and demand.
The S&P/TSX composite index closed down 0.59%. The materials sector declined in value by 1.7% and 6 out of the 10 sectors finished the day lower.
In the United States stocks also fell as investors worried the Federal Reserve is closer to pulling back on extraordinary measures to inject funding and liquidity to shore up the economy and the banking system. The Fed’s policy committee met and kept interest rates unchanged, as expected, but they also said the U.S. central bank would slow purchases of mortgage debt to extend that program’s life until the end of March of 2010 which is a little longer than anticipated. That was seen as a step toward a measured withdrawal of its extraordinary support for the economy during the downturn.
Investors have focused on when central bankers and governments will begin to unwind some of the measures they have taken to boost the global economy since the onset of the global financial crisis 1 year ago. I think people get scared when the central bankers talk about the withdrawal from the market — taking the training wheels off just makes people a little nervous.
They are clearly talking about removing some of the various packages and programs they have in place for purchasing mortgages and other instruments in debt markets that were keeping everything moving forward or at the very least ensuring things were not getting worse. Investors will be concerned about what happens when the Fed gets out of the way and no longer bails out banks or stops keeping interest rates low.
The Dow Jones industrial average lost 0.83%, the Standard & Poor’s 500 Index lost 1.01% and the Nasdaq Composite Index lost 0.69%.
This morning investors will continue to focus on when central bankers and governments will begin to unwind some of the measures they have taken to boost the global economy since the onset of the global financial crisis. In turn, stocks are looking to start the day with some headwinds as European markets are down slightly and futures are pointing lower to flat.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
