Index Daily Change
S&P/TSX composite index 1.68% Drop
Dow Jones industrial average 0.54% Drop
Standard & Poor’s 500 Index 0.66% Drop
Nasdaq Composite Index 0.91% Drop
Canada’s main stock index dropped to a 9-week low yesterday morning as fears that Greece’s debt crisis would spread to other Euro zone countries. This fear continued to rattle stock markets, driving investors to the safety of the U.S. dollar and hitting oil and other commodity prices hard. Protests in Greece against the government’s planned austerity plan turned violent, underscoring the difficulty faced by cash-strapped governments trying to force spending cuts. The index’s slide was led by the energy sector, down 3.1%, as the unfolding Greece crisis pushed the price of oil below $80 a barrel.
Oil prices fell sharply for a 2nd day dropping more than 3% to below $80 a barrel for the 1st time in 6 weeks, as investors fled riskier assets and bought the U.S. dollar on fears that Greece’s debt crisis could spread.
U.S. government data showed a bigger-than-expected 2.8 million barrel increase in domestic crude stocks, including a rise to record highs in Cushing, Oklahoma inventories. This added pressure on prices, taking 2-day losses to more than 7%, the biggest such decline in 3 months.
In Athens, striking public sector workers challenged Greece’s bailout-for-austerity deal, while policymakers warned of the dangers of contagion in other high-debt Euro zone nations.
Expectations for a global recovery are less certain today with all the Euro zone issues.
In the United States stocks dropped as more signs emerged that the fallout from the Greek debt crisis could spread to bigger European economies. The Euro hit a 14-month low as investors shunned the debt of weaker euro zone countries and jumped into safe-havens. Treasury prices and the dollar surged on fears Greece’s debt problems could hinder global growth.
On Wall Street, resource and industrial stocks, sensitive to the outlook of global economic growth, led the downward trend on the market. Trading volume was among the highest this year, and while losses on the major indexes were only moderate, the overall market tone was decidedly bearish.
Investors are very focused right now on how this is going to play out in Europe and how much damage is going to be done. European leaders warned the debt crisis could spread beyond Greece, and Moody’s Investors Service said Portugal could be next to have its debt downgraded. This stoked fears that a “contagion” effect could cause complicated international debt arrangements to topple like dominoes. Unfortunately, this can become a self fulfilling prophecy if investors are not careful.
German Chancellor Angela Merkel gave a stark warning of what was at stake. “There is no alternative to the aid to be agreed for Greece if we want to secure the financial stability of the Euro area,” she said. The cost to insure the debt of Germany and France hit their highest levels in more than a year, as weakness spread through credit markets on concern about widening fiscal challenges for peripheral European nations.
Long-term - investors continue to believe that stock market corrections are to be bought. Generally positive data on the U.S. private sector job market and the economy’s services sector cushioned the negative tone. The Institute for Supply Management (ISM) said the pace of growth in the U.S. services sector, which accounts for some 2/3rds of U.S. economic activity, was unchanged in April compared with March, while a separate report showed the U.S. private employment sector added 32,000 jobs in April.
U.S. stock index futures rose this morning as investors looked for buying opportunities after a sell-off that has driven the S&P 500 down 3% for the week (last week was not much better either). European stocks are also up by a marginal amount as the European Central Bank (ECB) will be under pressure today to show it can stop the Greek crisis from engulfing other Euro zone countries.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
