Index Daily Change
S&P/TSX composite index 0.29% Gain
Dow Jones industrial average 0.43% Gain
Standard & Poor’s 500 Index 0.79% Gain
Nasdaq Composite Index 1.12% Gain
The Canadian stock market hit an 18-month high yesterday before relinquishing some gains, as rising oil prices and firm U.S. economic data bolstered hopes for a sustained recovery (if not an outright expansion). Investors welcomed new reports that showed the U.S. services sector grew above expectations in March and pending homes sales accelerated more than anticipated in February. The reports reinforced optimism stirred by Friday’s news that U.S. nonfarm payrolls had risen at the fastest pace in 3 years, the strongest signal yet that the U.S. economic recovery is gaining a solid footing.
The brightening economic outlook helped push oil to an 18-month high, rising above $86 a barrel and sent the TSX’s heavily weighted energy sector up 1.85%. The positive sentiment and higher oil price helped lift the Canadian dollar to a 20-month high against the greenback and its highest point since it was at parity in July 2008.
Although, things are positive there is a realization that not everything is perfect at the moment. The global economy still has to deal with Greece and Portugal and other potential sovereign debt issues. The financial sector was one of the weak spots, dropping 0.7%, and may have been hurt by a report that the world’s large economies were close to agreeing on a global tax on banks. The Financial Times reported that British Prime Minister Gordon Brown played down expectations of a deal at the Group of 20 meeting in Toronto in June but that he wanted an accord struck at the G20 summit in Seoul in November, along with capital rules to reinforce banks against a future crisis.
In the United States stocks rose, pushing the Dow up near the 11,000 level, as signs of a turnaround in the U.S. labor market bolstered hopes the economy is strengthening and the profit outlook is brightening. Shares of natural resources companies led the gains on expectations that an improving economy would drive up demand. On the 1st trading day after government data showed the economy added the largest number of jobs in 3 years, investors got separate reports showing that services grew above expectations in March and pending home sales rose more than expected in February (as mentioned). The Dow Jones industrial average and the benchmark Standard & Poor’s 500 Index both finished at fresh 18-month closing highs. The Nasdaq ended at a 19-month closing high.
Analyst said rising bond yields and resurgent crude oil prices might give the market some headwinds. The yield on the benchmark U.S. 10-year Treasury note rose and touched 4% earlier, a level not seen since June 2009, when it hit 4.01%, according to Reuters data. Apple provided the top boost to the Nasdaq after saying it sold more than 300,000 iPads on the 1st day, and there were more than 1 million downloads from its online store.
The Institute for Supply Management (ISM) said its services index jumped to 55.4 in March, its strongest reading since May 2006, and well above February’s reading of 53.0. The National Association of Realtors monthly index of pending sales of existing U.S. homes shot up 8.2% in February, when a flat reading was expected. Nonfarm payrolls gained 162,000 jobs in March, Friday’s report showed. That was below consensus, and many of the jobs were temporary, but more private-sector hiring was seen as further evidence the economy is on the mend.
This morning Greece is back in the headlines. Speculation is afloat that the financially strapped country wants to change the aid package to not include the International Monetary Fund (IMF). Greece hopes that this change will allow it to borrow only from the EU countries and bypass the IMF’s tough payment terms. Greece bonds have come under pressure and EUR/USD has been sold down steadily throughout the night. Expect Germany to provide huge resistance to such a change given it pushed for IMF involvement from the beginning. Early this morning, Greek officials are already denying it asked for changes in the aid package and EUR/USD has stabilized above the 1.3400 level.
The Reserve Bank of Australia hiked its benchmark rate by 25 basis points to 4.25% last night. In the accompanying statement, the RBA said it believes growth is near trend and that inflation is expected come in close to target in the coming year. The RBA cited that it is appropriate for interest rates to be closer to average and that today’s move is a further step in that process, thus keeping its tightening process.
The Canadian dollar hit par overnight with the U.S. greenback but fell off a little this morning. Oil prices are also higher. North American stock futures point to a flat open with a bit of a downward bias as investors are starting to grow a little concerned over current valuations based on the recent run-up in stock prices.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
