Canadian stock markets fell yesterday ending a 2 day rally, as a decline in commodity prices erased an earlier rally in the day that had lifted the resource-heavy index to its highest level in over 14 months. Shares of EnCana led major decliners a day after EnCana completed its split into separate gas and oil businesses. The drag in energy shares came as the price of oil slipped on weak U.S. service sector data and rising U.S. crude inventories.
Also contributing to the broader decline was a slide by gold miners, which fell as the price of gold backed away from a record high. The S&P/TSX composite index finished down 1.22% but the index has advanced significantly since establishing 5-year lows in March of this year. Early in the day stocks advanced as financials advanced after some upbeat bank earnings helped power the initial advance. Canadian Imperial Bank of Commerce (CIBC) and Toronto-Dominion Bank (TD) reported better than expected profits and offered signs that bad loans may have peaked. Bank executives said they were heading into 2010 “primed for growth.”
The Canadian dollar fell for a 2nd straight day (U.S. dollar declined) as investors “pruned” risky positions ahead of today’s highly anticipated Canadian and U.S. jobs data. This data will drive the market direction today. Canadian and U.S. jobs data are the priority event as investors look for further evidence that both economies are on a healing track. Canada is due to report November employment data this morning and the figures are expected to show a gain of 15,000 jobs, after a loss of 43,200 in October. Analysts expect job losses of 130,000 in the United States in November, down from 190,000 in October.
In the United States stocks fell after data showed the vast U.S. services sector unexpectedly shrank in November and investors worried that today’s non-farm payrolls report may show the recovery is sluggish. Stocks sold off going into the close, led by a slide in financials, as Bank of America Corp’s massive equity offering of $19.3 billion spurred concerns that other banks could sell new shares and dilute existing shareholders’ equity. The S&P financial index ended down 2.1%. However, shares of Bank of America, the largest bank ranked by assets on optimism that its plan to repay $45 billion of government bailout money will free the bank from government restrictions.
The Dow Jones industrial average declined by 0.83%, the Standard & Poor’s 500 Index declined 0.84% and the Nasdaq Composite Index declined by 0.54%.
In economic news U.S. retailers posted much weaker-than-expected sales for November in a slow kickoff to the holiday shopping season. The Institute for Supply Management (ISM) said its services index shrank to 48.7 from 50.6 in October, well below the 51.5 median forecast in a Reuters poll. A reading above 50 indicates expansion. The ISM report was a key catalyst for the late day sell-off in stocks since it is a disappointing number. Manufacturing is being helped by low inventories but the service sector is taking longer to get a turnaround started. The services sector, which represents about 80% of U.S. economic activity, includes businesses such as banks, airlines, hotels and restaurants.
The weak employment market, which is seen as the biggest threat to recovery from the worst recession since the 1930s, is being closely watched. President Barack Obama called on corporate America to help tackle the nation’s highest unemployment in 26 years and dismissed skeptics who have doubted his efforts to boost employment.
U.S. Treasury Secretary Timothy Geithner said on Thursday the economy was slowly healing but he told CNBC television that given there were still problems in the housing market and that credit remained tight, economic problems were far from over. Federal Reserve Chairman Ben Bernanke added that the economy needs to grow by 2.5% annually to keep the unemployment rate stable and that the current high unemployment rate will leave long-term scars in the employment market.
This morning Canada reported that the country added 79,000 jobs almost half of those jobs were full time which caused the Canadian dollar to leap forward. North American futures are up, Europe is down and commodities are weak.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
