Index Daily Change Weekly Change
S&P/TSX composite index 0.76% Gain 0.55% Drop
Dow Jones industrial average 0.35% Drop 1.10% Gain
Standard & Poor’s 500 Index 0.51% Drop 0.90% Gain
Nasdaq Composite Index 0.71% Drop 0.30% Gain
The Canadian stock index ended lower for a 2nd straight day on Friday, dropping below the 12,000 milestone as weak commodity prices hit heavily weighted oil & metal producers. The energy sector dropped 1.3% as oil prices dropped nearly 2% on an appreciating U.S. dollar. Commodities dropped on renewed worries about Greece’s debt problems pushed the U.S. dollar higher against the Euro on “safe-haven” buying. Most commodities are priced for delivery in U.S. dollars and as the U.S. dollar appreciates it costs foreign investors more money to buy commodities in U.S. dollars.
The Canadian equity market is looking pretty attractive, the global economy continues to improve led by China and the U.S. continues to show further improvement. On Friday, stronger than forecast inflation data increased expectations the Bank of Canada will raise interest rates sooner rather than later this year.
In the United States the Dow industrials snapped an 8-day winning streak on Friday, as renewed worries about Greece sparked a climb in the U.S. dollar and weighed on U.S. stocks. The Euro currency fell to more than a 2-week low against the greenback on renewed worries about Greece’s debt problems. Investors fear reluctance from the European Union’s largest economy, Germany, will hinder efforts to alleviate Greece’s problems. Greece will always be a key market driver until it is rectified.
Stock markets were rattled last week by the ongoing Greek debt crisis and the threat it poses to European economic stability, a trend likely to continue this week as the country seeks to bail itself out of a massive deficit. The Greece debt “crisis” was one of the main catalysts behind the tepid performance on the Canadian stock market last week as commodity prices were pushed lower by a rising American dollar.
With few economic reports expected that could give stock markets any direction this week, there will be a keen focus on whether any solution is coming for Greece’s troubles. The country’s Prime Minister, George Papandreou, made it clear the country would seek help from the International Monetary Fund (IMF) if it does not receive a financial aid mechanism from fellow European countries this week. However, the European Union is dead set against involving the IMF, as calling in emergency help from an outside organization is seen an embarrassment.
The Canadian loonie briefly hit 99 cent level on economic data showing higher than expected inflation for January and a much better than expected reading on retail sales for January, raising hopes that the economy is making a strong exit from recession. It is widely expected the currency will hit parity with the U.S. dollar for the 1st time since 2008 sooner rather than later.
As expected, anxiety over Greece’s ability to pay its massive debts has weighed on investors in recent months. Other countries that use the Euro currency are reluctant to come to Greece’s aid and a solution has been out of reach. On Sunday, Germany’s chancellor confirmed that a bailout will not be discussed at this week’s European summit. Further weighing on markets was an unexpected decision by India’s central bank to raise interest rates. The Reserve Bank of India hiked key lending rates late Friday by a quarter-percentage point in an attempt to cool high inflation amid a faster-than-expected economic rebound. The move unnerved investors concerned growth and asset prices could sink once governments start winding down their stimulus measures. Furthermore, developed economies face “acute” challenges in tackling high public debt, and unwinding existing stimulus measures will not come close to bringing deficits back to prudent levels, said John Lipsky, first deputy managing director of the International Monetary Fund. All G7 countries, except Canada and Germany, will have debt-to-GDP ratios close to or exceeding 100 percent by 2014, Lipsky said.
Stocks are looking to drop between 0.50% and 1.00% this morning with commodity stocks leading the declines as sovereign risk concerns elevate risk.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
