The Canadian stock market ended the day sharply lower yesterday as the resource heavy S&P/TSX Composite index was hit hard by sliding commodity prices as the U.S. dollar strengthened. Investors worried about downgrades to government credit ratings in the United States and the United Kingdom. The S&P/TSX composite index dropped 120.7 points to 11,368.93. The financials sector slipped almost 1%, the gold sector was down 2.75% and the base metals sector was off 2.14%.
Investor sentiment took a hit after Moody’s Investor Services warned that the United States and Britain must get a grip on their public finances to avoid threats to their top Triple-A credit ratings. Moody’s said the public finances in both countries are deteriorating considerably and may therefore “test the AAA boundaries” in the future.
Analysts also pointed out that investors are finding it tough to find reasons to send markets higher in light of the strong rally that started in early March of this year. In short, stocks are fairly valued and investors tend to buy on dips and sell into strength as we await the start of a new year in a couple of weeks.
The Bank of Canada said it was leaving interest rates unchanged at 0.25%. The Canadian dollar was down 0.99 of a cent to 93.99 cents U.S. The central bank warned that the main risks to an economic rebound are “a more protracted global recovery and persistent strength in the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation.” The Bank of Canada repeated its pledge to keep interests rates at historic lows until the middle of next year to stimulate growth and a sense of stability in the midst of a slow economic recovery.
On the Canadian economic front, Canada Mortgage and Housing Corp.(CHMC) said the seasonally adjusted annual rate of housing starts reached 158,500 units in November, up 1,100 units from October. The agency added that the November total is the highest of the year. In short, the Canadian housing market is starting to feel boom again with lower mortgage rates and pent up demand and consumers grow more confident in their own financial security.
In the United States stocks fell yesterday after disappointing corporate news from 3M Co. and McDonald’s, while negative developments in global credit markets caused investors to shift to safe-haven assets. U.S. corporate news raised some doubts about consumer spending, a key requirement for the recovery to take hold. McDonald’s closed down after reporting disappointing sales for a 2nd straight month.
Investors expect a relatively strong economic recovery and we are seeing signs that indicate the global economy is not recovering as fast as investors expected, and at times of uncertainty, investors currently run to the perceived safety of the U.S. dollar.
The Dow Jones industrial average fell 1.00%, the Standard & Poor’s 500 Index closed down 1.03% and the Nasdaq Composite Index closed down 0.76%.
This morning stocks are looking up and they could break their recent losing streak. Citigroup and Bank of America are leading financials higher in the pre-market as people familiar with the matter said Treasury Secretary Timothy Geithner is seeking to extend the financial- rescue program for another 10 months giving banks more options or more time to repay their debt obligations to the government. Commodity prices are also higher.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
