The Canadian stock market posted a modest gain yesterday as further weakness in the U.S. dollar boosted commodity prices. The S&P/TSX composite index rose by 0.26% led by the financial and materials sectors. There wasn’t a lot of news in Canada yesterday but Potash Corp. was a lift with the index rising 5.66% after Bank of America Merrill Lynch said that BHP Billiton, the world’s biggest mining company, could boost earnings and cut excess cash by purchasing the Canadian fertilizer giant at a 30% premium to the share price.
The Canadian dollar added almost a cent as the Bank of Canada is not likely going to hike rates in the near term. The Bank of Canada is expected to keep interest rates steady at record lows and only tinker with its economic forecasts today as it waits for firmer evidence of economic recovery.
In the United States stocks rose to a fresh 12-month high as optimistic investors reacted to solid quarterly earnings. These continued after the day’s closing bell when Apple shares jumped on its results, as the iPhone maker beat estimates and its shares jumped 7% in extended trading. They beat estimates and that tells investors that they are selling music, telephones and personal computers in a market where everyone had thought that the consumer was not spending. Consumer spending is a closely watched economic indicator, as it accounts for roughly 2/3rds of the U.S. economy.
The Dow Jones industrial average added 0.96%, the Standard & Poor’s 500 Index added 0.94% and the Nasdaq Composite Index added 0.91%. The Dow industrials and the S&P 500 closed at levels not seen since October 2008, while Nasdaq is at an almost 13-month closing high. As of yesterday, 62 companies in the S&P 500 had reported earnings, with 79% above analysts’ expectations, according to data compiled by Thomson Reuters. This week’s earnings include 13 Dow components and 135 companies in the S&P 500. Stocks move on news thus, this is a very heavy ‘news’ week.
Monday’s rally coincided with the 22nd anniversary of Black Monday, as October 19, 1987 is known. On that day the Dow industrial average fell 22.6% which is still the largest single day percentage drop on record.
U.S. Federal Reserve Chairman Ben Bernanke warned yesterday that “Asian export-promotion policies and large U.S. budget deficits could refuel global economic imbalances and put efforts to achieve more durable growth at risk if not curbed”. Throwing his support behind a recent call by leaders of the Group of 20 major powers to rebalance the global economy in the wake of a devastating financial shock, Bernanke said “Asian nations, like China, that enjoy large trade surpluses should discourage excess saving and boost consumption”. At the same time, he said “the United States needed to increase its saving and substantially reduce federal deficits over time.” “To achieve more balanced and durable economic growth and to reduce the risks of financial instability, we must avoid ever-increasing and unsustainable imbalances in trade and capital flows,” Bernanke said. U.S. officials have long pressed China to allow its yuan currency to appreciate, which would lessen any price advantage Chinese goods may have in global markets. China has vowed to move toward more currency flexibility, but it has kept the yuan on a tight leash.
Today investors will be watching the Bank of Canada. The bank will have two opportunities to speak, this morning during the scheduled policy rate announcement, and again on Thursday when the central bank will issue an extensive new outlook for the economy. Economists are unanimous that Governor Mark Carney, will keep the policy rate at the lower bound of 0.25% a few months longer. However, markets will be looking closely for clues on whether he is having 2nd thoughts about his “conditional commitment” to keep rates unchanged until at least next July, especially after Australia became the 1st developed economy to move to higher rates earlier this month.
This morning stock markets are looking up as positive earnings from Texas Instruments, Apple and Caterpillar all boosted optimism and oil prices briefly hit $80.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
