The Canadian stock market fell slightly yesterday as strength in commodity prices was not enough to offset a drop in banking shares which mirrored weakness in U.S. financial sector. Without much news to influence the direction of the Canadian stock market it still had a relatively volatile day. Financial shares make up about a 1/3rd of the index’s weighting and they fell 1.6%. The oil & gas and materials sectors which together account for more than 40% of the index’s weighting, were well supported by a record high gold price and a 4th straight day of higher oil prices.
The S&P/TSX composite index closed down 0.21%. Concern about a heavy slate of upcoming U.S. earnings reports also persuaded some investors to pocket profits after the index’s 4.4% gain last week.
In the United States U.S. stocks weakened as disappointing sales from Johnson & Johnson stirred jitters about the strength of earnings, snapping the S&P 500’s 6-day winning streak. With the last two earnings periods characterized by cost cutting, investors have been hopeful that companies may start to show revenue growth in 3rd quarter results or have improved outlooks. Though investors remain optimistic about the earnings season, the hope for strong revenue could be premature and keeping investors nervous in the short-term. J&J beat Wall Street’s earnings expectations, but reported revenue that was below forecasts, sending its shares down. Although, it is interesting to note that after-hours results from Intel has boosted stock futures after the chip maker reported earnings and revenue that surpassed expectations.
The Dow Jones industrial average dropped by 0.15%, the Standard & Poor’s 500 Index dropped by 0.28% but the Nasdaq Composite Index added 0.04%.
Oil prices rose to a 7-week high above $74 a barrel after OPEC raised its 2010 demand forecast and the dollar weakened, boosting demand for commodities. The Organization of the Petroleum Exporting Countries (OPEC) said a recovering world economy is expected to boost world crude demand by 700,000 barrels per day next year, to almost 85 million barrels a day.
The U.S. dollar touched a 14-month low against a basket of other currencies, which helped gold rally to a fresh record high. Dollar-priced commodities such as oil and gold tend to rise when the greenback falls as they become cheaper for holders of other currencies. Cold weather in the United States also helped boost oil prices. The National Weather Service forecast the first seasonal wave of cold weather in the Northeast and Midwest would boost demand for heating oil to 43% above normal levels.
U.S. weekly oil inventory data from the American Petroleum Institute (API) will be delayed until today due to Monday’s Columbus Day holiday, while the Energy Information Administration (EIA) report will be released tomorrow. A Reuters poll of analysts forecast that the data will show a 700,000-barrel build in crude stocks last week, after a surprise drawdown in last week’s report. Oil prices are up again this morning to over $75.00.
Some of the Canadian dollar’s sharp climb is justified by fundamentals, but too rapid a rise could damage the country’s economic recovery, Prime Minister Stephen Harper said on Tuesday. In turn, this could put a lid on increasing interests rates in the short-term. Canada’s dollar hit a 14-month high, putting it within striking distance of parity with a weakening U.S. dollar. The currency closed the session at C$1.0365 to the U.S. dollar, or 96.48 U.S. cents — this morning it is up another 3/4rds of a cent.
“Obviously, it is a concern,” Harper told reporters noting that Bank of Canada Governor Mark Carney had also worried about volatility in the currency. The central bank has said it would not have to counteract rises in the Canadian dollar that are due to fundamental factors, and Harper said at least some of the increase was because of such economic strength. “We know that Canada’s economy is relatively stronger than certainly virtually any other developed country, industrialized economy — certainly stronger than all of the G7 economies and stronger than most in the developed world,” he said. “As we said before, we’re not out of the woods. There are many risks, some of them within our control, some of them beyond our control, and obviously the value of the Canadian dollar is a risk to recovery. I don’t think it’s a risk to choking off the recovery but if it goes up too rapidly it does have difficult effects on our economy. So that’s why the governor has expressed those concerns.”
European and Asian markets have posted strong gains this morning based on the Intel results, commodity prices, the Canadian dollar and North American futures are all trading higher.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
