The Canadian stock market rose to its highest level in more than 3 weeks yesterday as oil and gold prices jumped big time, leading resource shares higher, and as risk appetite returned to the market. The Canadian dollar also appreciated in value while the U.S. dollar declined in value which helped boost the prices of oil and gold. This was also helped by investor momentum from a strong overseas trading day, where worries about Greece’s debt woes were put on pause.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 1.02% with 8 out of the index’s 10 main sectors higher.
Along with energy, gold and materials the financial sector also received a strong boost as Ottawa said it would bring in new mortgage rules to help cool a red-hot housing market and avoid speculation. These actions will help limit the loan loss provisions for banks on a going forward basis.
In the United Sates stocks posted their biggest daily percentage gain in 3 months after strong revenue from drug maker Merck and regional manufacturing data instilled confidence in the economic outlook. The New York Federal Reserve Bank’s gauge of manufacturing in New York State rose more than expected in February as inventories jumped. Resource-related shares were among the strongest gainers as a weaker U.S. dollar sparked buying in oil and other commodities.
Earnings have been strong and investors are starting to believe the recovery we’re seeing in the economy is real. There is more investor fear associated with missing the next move up versus not investing and watching the market go down. The S&P resumed weekly gains last week after 4 consecutive weeks of declines, which were triggered in part by fiscal weakness in Greece and other Euro zone countries as well as uncertainty about China’s moves to curb bank lending.
The Dow Jones industrial average rose 1.68%, the Standard & Poor’s 500 Index added 1.80%, the Nasdaq Composite Index gained 1.40%.
As mentioned the New York state manufacturing gauge hit its highest level since October this month, while sentiment among home builders rose more than expected, signaling continued improvement in the U.S. economy. The index appeared to reinforce the impression that industrial companies are continuing to bounce back after the long recession. However, the U.S. continues to lag behind other economies.
In part (maybe a large part) the U.S. dollar dropped in value because a report showed yesterday that China has been a net seller of U.S. Treasuries over the last 5 months. That could be long enough to suggest a trend and the trend doesn’t favour either the U.S. dollar or the U.S. interest rate environment.
This morning global stock markets rose on upbeat corporate earnings reports and as worries about Greece’s debt crisis eased. Kraft Foods and apparel retailer Abercrombie & Fitch reported earnings that beat expectations on yesterday while drug maker Merck & Co. and UK banking giant Barclays also reported a big jump in profits. France’s BNP Paribas, the Eurozone’s largest bank, posted its 4th straight quarterly profit. In Canada, telecommunications firm Rogers beat estimates, increased its dividend by 10% and approved a share buy back.
European stocks are up about 0.70% while North American futures are pointing up by about 0.30%. Commodity prices are also higher. Signs of growth in the U.S., the world’s largest economy, also helped investor sentiment. Investors will be turning their attention to other U.S. data, including housing starts, jobless claims and inflation, as well as minutes from the Federal Reserve’s latest policy meeting for further clues on the sustainability of this recovery.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
