Canada’s main stock index touched its highest level in a week yesterday as a European Union rescue plan for debt-laden Greece helped lift market confidence and commodity prices.
A pledge by European leaders to support Greece helped to provide a good boost to commodity prices, including oil, which closed above $75 a barrel, while gold and base metals were firmer (just days ago oil was below $70). The Canadian dollar was also higher against the U.S. dollar on increased investor willingness to embrace risk.
The Toronto Stock Exchange’s S&P/TSX composite index finished the day up 149.16 points, or 1.32%, at 11,435.49. The index’s materials sector, home to miners and fertilizer companies, led the way higher with a 3.4% while the oil and gas sector rose 1.5%. The index had been held back earlier in the day by weaker than expected quarterly results from two of Canada’s big life insurers. Manulife Financial and Sun Life Financial both fell by about 3%.
In the United States stocks rose after a pledge by European leaders to support debt-laden Greece eased fears of a broader Euro zone crisis and upbeat data from China spurred mining and material stocks.
Data pointing to stabilization in the U.S. employment market gave the market a further boost, along with a broker stock upgrade of bellwether stocks like 3M Co. China, the world’s top base metals consumer, reported a jump in lending and slower inflation, suggesting the economy is on track for growth. Caterpillar Inc, a big mining equipment maker, rose 5.6% and provided the biggest boost to the Dow industrials. However, the big boost was the European Union pledge to support Greece. Investors saw an EU bid to avert fallout from fiscal troubles in Greece and other European single currency countries like Portugal and Spain.
The Dow Jones industrial average rose 105.81 points, or 1.05%, to 10,144.19, the Standard & Poor’s 500 Index gained 0.97%, while the Nasdaq Composite Index added 1.38%. Prior to the market open a government report showed applications for jobless insurance fell more than expected in the latest week, a signal the employment market continues to improve.
With the S&P 500 falling more than 7% from its 15-month closing peak of January 19th of this year in recent days, investors had been looking for a major catalyst to spur a search for beaten-down stocks. Indeed, some of the day’s best performers were some of the market’s worst laggards in the past 3 weeks including technology, materials and energy sectors. The S&P 500 is now only up 59.4% since its March 2009 bottom after having pulled back from a run-up of 70% since that significant low.
As mentioned European leaders sought to prop up Greece with words of support at a summit but failed to offer concrete proposals to help the country tackle its debt crisis, prompting a negative market reaction. EU President Herman Van Rompuy told a news conference after the summit that Europe was sending Greece a “clear message of solidarity,” a line echoed by Germany and France. A deal to provide financial aid to Greece to stave off a broader crisis in the 16-nation bloc would be unprecedented.
Financial markets had hoped EU leaders would lay out specific plans to provide Greece with a credit life-line or a scheme in which state-owned European banks would buy Greek bonds in order to help the government finance its borrowing.
The number of U.S. workers filing new claims for unemployment benefits fell more than expected last week, welcome news for the White House as it predicted more than a million jobs will be created this year. President Barack Obama has made job growth his top 2010 priority as voters increasingly blame his Democratic party for unemployment near the highest level since 1983. In an annual economic report to Congress the White House predicted an average of 95,000 jobs a month will be created this year, yet the jobless rate may tick back up to 10% as discouraged workers come back into the market.
The drop in jobless claims helped lift stock prices, which have been under pressure on concerns over a European deal to help Greece with its debt crisis. Investors are keeping a close eye on jobless claims for evidence that the economy is on the verge of adding jobs again. With the exception of November 2009, payrolls have declined in every month since the recession began in December 2007. That has piled political pressure on Obama, whose popularity has fallen as the jobless rate rose.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
