Index Daily Change
S&P/TSX composite index 0.65% Gain
Dow Jones industrial average 0.95% Gain
Standard & Poor’s 500 Index 0.72% Gain
Nasdaq Composite Index 0.83% Gain

The Canadian stock market finished higher for a 2nd straight day yesterday, led by a rally in financial and mining shares that lifted the index back over the 12,000 mark. The materials sector was up 2.3% after Quadra Mining’s C$1.54 billion bid to buy FNX Mining spurred excitement about the potential for new Mergers & Acquisitions. Canadian copper miner Quadra said it planned to buy FNX Mining in an all stock deal, creating a mid-sized base metals company with assets in Canada, the United States and Chile.

Strong gains from the heavily weighted financial sector also helped, Canada’s banks delivered strong quarterly results recently, raising hopes that they had put the worst of the financial crisis behind them. Another driver for the stock market was data that showed Canada’s composite leading indicator rose 0.8% in February, posting its 9th straight gain due to strong household demand and a recovery in manufacturing. The technology sector also gained 1.5%, helped higher by BlackBerry maker Research In Motion (RIM). Energy shares were also slightly higher with oil prices ticking up to near $82 a barrel as improving U.S. housing data and a boost in U.S. stock prices offset a stronger U.S. dollar, which has kept oil from rising further.

In the United States stocks rallied led by the technology, industrial and materials sectors, driving the Dow and the S&P 500 to 18-month highs. Signs of improved demand in the semiconductor industry and a broker’s positive commentary on Caterpillar lifted blue chips, while technology bellwethers Apple and Cisco hit 52-week highs, indicating increased optimism among investors. Caterpillar led the Dow industrials higher after Wells Fargo raised price targets on the company’s stock on expectations for strong longer-term growth.

The Dow is up for a 10th day of gains out of the past 11 days. The Nasdaq Composite Index ended at its highest level since August 18, 2008, or about a month before Lehman Brothers collapsed during the credit crisis.

Existing home sales fell to an annual rate of 5.02 million units in February, the National Association of Realtors said. The decline was less than forecast, but highlighted the fragility of a housing recovery. Sales of previously owned homes fell for a 3rd straight month in February and the supply of unsold houses on the market surged, showing the housing market was struggling to find its feet. Existing home sales dipped 0.6% month-over-month. The data showed weakness at a crucial time for the housing market with the Federal Reserve due to wind up its program to buy mortgage-related securities which could result in higher mortgage rates.

Also Germany signaled for the 1st time yesterday that it may accept European financial aid for Greece as a last resort, but only if the International Monetary Fund (IMF) is involved and Euro zone partners accept tougher budget discipline rules. A source in Chancellor Angela Merkel’s conservative bloc quoted her as telling lawmakers Germany would only agree to a rescue model combining bilateral and IMF assistance. There would be no decision at this week’s summit but a special EU summit would be called to decide if an emergency arose.

European Central Bank President Jean-Claude Trichet and Eurogroup chairman Jean-Claude Juncker have said involving the Washington-based lender (a.k.a. the IMF) would send a damaging message that the Euro zone was incapable of handling its own problems. Some senior French policymakers have said it would be a severe political setback for European integration. The crisis over Greece’s debt, expected to hit 120% of GDP this year, and its budget deficit, which reached 12.9% of GDP last year, has shaken confidence in the Euro single currency and significantly increased the interest rate Greece must pay to secure financing (thereby, exacerbating the budget deficit problem via bigger interest payments).

The current majority German government led by Chancellor Merkel faces massive public opposition to any bailout ahead of a regional election in May in which their majority is at stake. Greek Finance Minister George Papaconstantinou said he expected a positive outcome and was encouraged by comments from EU institutions on ways to support Greece’s efforts to cut its giant deficit and public debt.

This morning stocks and commodities are looking down on sovereign debt concerns and a ratings downgrade for Portugal (a member of the Eurozone). With each pacing day it looks like Greece will require outside help which ultimately, going to be perceived as a set-back and in turn, impact their long-term growth.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner