Canada’s main stock index rebounded late on Friday and eked out a small gain as banks and financial services companies offset oil and gas shares, which fell with oil prices on concern that the global economic recovery is faltering. The Toronto Stock Exchange’s S&P/TSX composite index ended the day up 11.89 points, or 0.1%, at 11,722.07, clawing back from a decline of nearly 1% earlier in the day. The small gain was widespread as 9 out of the 10 main sectors were higher. The energy sector fell sharply as the price of oil dropped to a 6-week low below $74 a barrel. On the week the index was up 1.68% largely due to Potash Corp.
Takeover target Potash Corp. of Saskatchewan continued to gain on Friday on hopes that a sweeter offer will emerge. Potash is soliciting alternative bidders willing to pay more than BHP Billiton, the world’s largest mining company, in its $39 billion hostile offer. There will be interest from China and from Brazil as this will turn into a battle to control a resource-rich asset.
Canadian consumer prices (CPI or inflation) rose in July as a new sales tax took effect, data on Friday showed. Underlying inflation remained tame fueling doubts about how fast the Bank of Canada will raise interest rates as the recovery seems to be losing steam. In short, we might not see additional rate increases later in the year. With CPI coming in lower than expected and worries about slowing growth the Bank of Canada may hold on raising rates longer than people had anticipated.
In the United States stocks slipped on Friday and the S&P 500 and Dow fell for a 2nd straight week on persistent concerns the recovery has tapered off. Even so, major indexes came off Friday’s lows as some investors focused in on positive outlooks in the tech sector and used the week’s Merger & Acquisition (M&A) news as an excuse for late-day buying. In short, earnings season has been pretty strong and there is M&A activity which is encouraging, however, the economic data has been very, very poor. In turn, investors are not making a big bet either way in the short-term. Thursday’s gloomy jobs and regional manufacturing data remained in the forefront as investors debated how much the recovery could slow.
The Dow Jones industrial average dropped 0.56%, to 10,213.62, the Standard & Poor’s 500 Index dipped 3.94 points, or 0.37%, to 1,071.69 and the Nasdaq Composite Index added 0.81 points, or 0.04%, to 2,179.76. For the week, the S&P 500 was down 0.7%, the Dow slipped 0.9%, while the Nasdaq gained 0.3%. It was the 2nd week of declines for the S&P and the Dow.
Investors will likely find few reasons to send stock markets higher this week as U.S. economic growth data at the end of last week will likely serve as a reminder of how conditions in the world’s biggest economy are deteriorating. Investors will get their best take on the U.S. economy on Friday when the government makes its first revision to 2nd quarter Gross Domestic Product (GDP) growth. There are high hopes from a slew of earnings coming from the big Canadian banks. They will deliver some solid profits but it could be a stretch for the banks to improve or even meet the results from the previous 2 quarters.
The trading week will likely start relatively strong but investors will remain cautious. However, fundamentals are strong even if the global economic recovery slows.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
