Canada’s stock market ended sharply lower in volatile day yesterday, after worse than expected global manufacturing data raised concerns about the pace of the global economic recovery, hurting oil prices and energy shares. Energy shares sank 3.3%. Data showed manufacturing growth slowed in the Euro zone and China, but there was some relief in the United States, where there was some evidence of some sluggish improvements.

Investors are nervous about global growth and all the head-winds.

The Toronto Stock Exchange’s S&P/TSX composite index ended 191.02 points, or 1.62%, lower at 11,571.97. The index swung between positive and negative for much of the day. Recently, stock markets have endured a bout of nervousness in the last hour of trading and the market seems to have given up the gains of the day and noise dive. It does not help that there are some new political tensions in the Middle East between Israel and Turkey.

The Bank of Canada raised its key interest rate; the 1st in the G7 industrialized economies to do so after the global recession, but said the European debt crisis made its next move highly unpredictable. The rate hike, to 0.5% from 0.25%, is a response to 2 quarters of extraordinarily strong growth in Canada. However, the bank cautioned investors against betting on an uninterrupted tightening campaign, due to the Euro zone fiscal problems and an uneven global recovery. “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments,” the central bank said.

The rate hike itself was widely expected. In a Reuters poll of 40 analysts, 32 had forecast a ¼ point rate hike. No surprise in the decision but the tone was slightly more dovish than the markets had anticipated. We have been stating all along that interest rates will remain lower for longer than people anticipate (look at Japan). We are not suggesting that rates will not increase but we are suggesting that in the medium to long-term (next 3 to 5 years) less than what investors anticipate (especially in the United States).

The Bank of Canada has broken ranks with the U.S. Federal Reserve in the past, but generally the two policy rates move in tandem. But the U.S. Federal Reserve continues to promise to hold its rate ultra low for an extended period, depending on economic conditions. The European Central Bank, which has cut rates to 1.0 percent, is far from considering its exit strategy as it takes extraordinary steps to ease the debt crisis and prevent it from snuffing out a recovery on the continent.

Canada’s economy fell into mild recession last year, but its banks emerged unscathed from the credit crisis and jobless rates did not soar as high as in the United States. Consumer spending and a hot housing market have fueled a faster than expected recovery since then. The economy grew at a surprising 6.1% annual clip in the 1st quarter, and by 4.9% in the 4th quarter of 2009. It said the global recovery is “increasingly uneven,” with emerging markets taking the lead while there is a “possibility of renewed weakness in Europe.” The debt crisis in Greece and some other European countries has so far had only a limited impact on Canada through lower commodity prices and tighter financing conditions. However, some countries will now have to cut spending quickly (don’t want to be the next PIGS country, Portugal, Italy, Greece or Spain) and that, combined with debt reduction by banks and households, could slow global growth. That could hurt Canada’s export-dependent economy.

In the United States stocks fell as energy shares slid after the latest failed attempt to halt the oil spill in the Gulf of Mexico and the U.S. government announced a criminal probe into the disaster. Investors punished shares of companies directly involved with the spill and losses accelerated into the close following the news of the investigation. There is so much uncertainty; investors are stepping to the sidelines. U.S.-listed shares of BP which owns the well, tumbled 15% and has now lost about $75.03 billion since the April 20th rig explosion, and the stock has the lowest price-to-earnings ratio of any of the major oil companies as a result of the fall The losses signaled growing frustration over the difficulty of sealing off the worst oil spill in U.S. history.

The Dow Jones industrial average declined by 1.11% to 10,024.02, the Standard & Poor’s 500 Index fell 1.72% and the Nasdaq Composite Index fell 1.54%.

This morning stocks declined in Europe (a little catch up from yesterday), led by energy companies. U.S. futures fluctuated before a report that may show the number of contracts to purchase previously owned homes rose in April for a 3rd consecutive month as buyers rushed to lock in a government tax credit. The index of pending-home purchases climbed 5% following a 5.3% gain a month earlier, according to the median forecast in a Bloomberg News survey of 40 economists. The National Association of Realtors report is due at 10 a.m. in Washington.

Regards,

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

SVP & Partner

Canada’s main stock index ended only slightly lower yesterday after a sharp fall early in the day as surging gold mining shares cushioned a drop in energy shares on worries that Europe’s banking problems could derail global economic recovery. Gold miners rose as bullion prices climbed on safe-haven buying, and by the end of the day energy and financial shares had trimmed early losses.

The index was able to find support at around its 200-day moving average of around 11,500, a technical level closely watched by strategists and market watchers. Energy shares and Canadian banks, even though they have limited exposure to European debt, were caught up in a global sell-off early in the day that helped send the TSX down 2%. Catalysts for the sell-off included the necessity for the Bank of Spain to rescue a local lender over the weekend and the military tension between North and South Korea.

The Toronto Stock Exchange’s S&P/TSX composite index finished the day down 0.03%, at 11,518.08.

In the United States stocks staged a furious late-day rally to push the S&P 500 into positive territory as the focus shifted from European debt woes to buying after shares hit 6-month lows. Major U.S. indexes had fallen more than 3% early in the day on growing questions about the stability of the European banking system after a small Spanish bank failed over the weekend. Equities have been under nearly constant selling pressure the last few weeks. The morning’s action reflected the market’s nervousness as the S&P 500 fell through the May 6th “flash crash” level to its lowest level since early November 2009, down 14.5% from its April 26th closing high of this year.

In short, the market stopped and thought that maybe investors have sold too much and that maybe they have priced in Europe too much. Investors are beginning to realize that there is not a silver bullet that can instantly fix this problem. Strategists linked the rebound in stocks to strengthening of the Euro. The single currency earlier fell to an 8 ½ year low against the yen and approached a 4 year low versus the U.S. dollar, while safe-haven U.S. Treasuries rallied.

The Dow Jones industrial average dropped 0.23%, but the Standard & Poor’s 500 Index gained 0.04% while the Nasdaq Composite Index fell 0.12%. European markets fell to their lowest level in nearly 9 months. The Chicago Board of Options Exchange (CBOE) Volatility Index or VIX fell 9.7% to 34.61 after reaching an earlier high of 43.74 or a gain of 14.1%. U.S. consumer confidence rose for the 3rd straight month in May to the highest in more than 2 years. But that was countered by a report showing single-family home prices dropping in the 1st quarter on renewed price pressure as federal aid faded away.

This morning things are looking a little better as corporate earnings are strong (BMO exceeding expectations) and bargain hunting although the ‘era’ of instability will continue for some time.

Regards,

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

SVP & Partner

Canada’s main stock market ended a 6 day losing streak on Friday, led higher by resources and bank shares, as some positive developments in Europe and recent price declines helped spur investor buying or bargain hunting. The resource-heavy index fought back from a 14-week low touched earlier on Friday, led by a 1.7% rise in the energy sector, while materials moved up by 0.7% and financials climbed 0.9%.

The Toronto Stock Exchange’s S&P/TSX composite index closed up 1.01%, at 11,521.35, earlier in the day, the index sank to 11,179.97, its lowest level since February 9th of this year. Despite Friday’s rally, the TSX was off 4% for the week as investor sentiment was beaten down by concerns that austerity measures in some Euro zone countries would hurt European and global growth.

But confidence in the market edged higher on Friday after the head of the European Central Bank said the Euro was not in danger, while German lawmakers backed a $1 trillion rescue plan for the Euro zone, alleviating some of the concerns over sovereign debt levels and prospects for economic recovery.

In Canada, data showed Canadian inflation was higher than expected in April, while retail sales in March soared from February.

The United States also snapped a 3 day losing streak on Friday as investors bought beaten-down shares including banks on bets the financial regulation bill won’t be as onerous as some had feared. Nonetheless, the benchmark S&P 500 index was down 10.6% from its April 23rd high in what is traditionally considered a correction as investors fled risky assets on fears the Euro zone’s debt crisis. Bank shares rose a day after the U.S. Senate approved a sweeping overhaul of regulation of Wall Street firms, capping months of wrangling over the biggest changes since the 1930s. The Senate bill must now be merged with a measure approved in December by the U.S. House of Representatives. Top Democratic lawmakers said they aim to get a bill approved by a House-Senate conference committee to President Barack Obama to sign by July 4th.

The Dow Jones industrial average gained 1.25%, the Standard & Poor’s 500 Index gained 1.50% and the Nasdaq Composite Index gained 1.14%. Trading was choppy throughout the day as May equity options and some options on stock indexes will stop trading at Friday’s close. For the week, the S&P ended down 4.2%, the Dow lost 4% and the Nasdaq was down 5%.

Investors were also tempted back into the market after a nearly 4% sell-off on Thursday, the biggest 1-day drop since April 2009, that left stocks at cheap valuations. Interest rates and inflation in the United States are close to zero and the S&P 500 multiples are low when the economic fundamentals in the U.S. are still pretty positive. It is geopolitical and sovereign debt issues that are holding investors back from buying.

Yesterday, the Canadian stock market was closed but in the United States they were open. In the United States stocks slid driving the Dow to its lowest level since February 10th as fresh signs of Europe’s banking problems emerged. Financial shares were among the day’s largest decliners, with the KBW Bank index falling 3.3%. Concerns about Europe’s banking system continued to weigh on markets, after the Bank of Spain took over a small savings bank, CajaSur, over the weekend, increasing anxiety among investors worried about debt problems spreading throughout financial markets.

What happens specifically to Greece does not matter a whole lot, but if you start spreading to larger countries like Spain, then it becomes an issue. The Dow Jones industrial average dropped 1.24%, the Standard & Poor’s 500 Index dropped 1.29% and the Nasdaq Composite Index dropped 0.69%.

Economic data showed sales of previously owned U.S. homes rose to a 5-month high in April as buyers rushed to close on contracts before a federal home buyer tax credit expired, although housing inventory also increased.

This morning stocks fell around the world. Commodity prices led the way on mounting tension on the Korean peninsula between North and South Korea and concern Spain’s ailing banks signal a widening European debt crisis. The MSCI World Index of 23 developed nations’ stocks fell as much as 1.9%. Futures on the Standard & Poor’s 500 Index retreated 2.3% and the MSCI Emerging Markets index declined 3.6%. Oil slid below $68 a barrel for the 1st time since February and the Canadian dollar fell to $0.92. The Euro also fell for a 2nd day against the U.S. dollar, losing 1.5%.

In addition, 4 Spanish banks said they will combine as regulators and push lenders to merge with stronger partners and after the International Monetary Fund (IMF) yesterday urged the nation to take more steps to overhaul its financial institutions. The North Korea Intellectuals Solidarity group said on its website that the country’s military was put on alert, and the U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26th torpedoing of a warship.

Increasing tensions on the Korean peninsula, coupled with deepening concern about sovereign debt risks in Europe, are affecting investors’ sentiment although, much of North Korea’s comments appear to be bluffing. I don’t think another disastrous event will happen but more uncertainty is not healthy (there just seems to be more cockroaches in the kitchen). We have got another round of taking off the risk trade going on around the world, and stock markets are doing it in pretty dramatic fashion. Said differently, stock markets are instantaneously assuming the worst, selling 1st and then asking questions and looking at valuations.

It will take courage to make money by investing in equities on a going forward basis but… at times of highest perceived risk the actual risk is actually lowest and at times of lowest perceived risk the actual risk is highest. It will take time to determine how things will actually unfold and how the sovereign debt and geopolitical uncertainty will be successfully resolved but over the long-term these issues will also be resolved (in order to maximize the greatest utility for all). Just be careful about the volatility because it will be volatile.

Regards,

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

SVP & Partner

Canada’s main stock market ended lower in a volatile day yesterday as gold miners dropped on sliding bullion prices and investors worried over Germany’s surprise crackdown on some speculative trading. Gold mining shares led the decline as bullion prices skidded below $1,200 an ounce.

The TSX index was also dragged lower as investors fretted that Germany’s ban on some riskier short-selling bets foreshadowed tighter financial regulation in other countries. Germany banned “naked” short sales of Euro-denominated government bonds, credit default swaps based on those bonds and shares of the country’s 10 leading financial institutions, in a move that appeared to catch its partners in the European Union off guard.

Gold has sold off because investors feel that Europe is less likely to see a mass exodus of money because of this ban on shorting and invest in gold (for example). The Toronto Stock Exchange’s S&P/TSX composite index finished the day down 0.84%. The index was briefly higher at the start of the day, but quickly dropped more than 2% to its lowest level since the market meltdown on May 6th. The index has dropped 4.3% in the past week.

Additional pressure came on news of an unexpected fall in April U.S. consumer prices, the first decline in a year. On the upside, financials shares climbed 0.2% the sector managed to limit losses ahead of earnings results next week and because the sector’s big banks are seen as comparatively safe.

In the United States stocks fell as Germany’s unilateral action to ban specific trades on some stocks and bonds sparked a fresh wave of uncertainty and risk aversion among anxious investors. Markets already fear the Euro zone’s credit woes could cut into economic growth, and Germany’s move late on Tuesday triggered selling of industrial shares, as they have heavy exposure to Europe.

It is becoming increasingly clear that these are still separate countries with their own political agendas. But not all the news was bad, as the broad S&P 500 bounced off technical support, setting a floor under its recent drop. The Dow Jones industrial average declined by 0.63%, the Standard & Poor’s 500 Index dropped by 0.51% and the Nasdaq Composite Index dropped by 0.82%. The S&P 500 briefly fell below its 200-day moving average, a key technical long-term momentum indicator. But its rebound off that level reinforced it as support going forward.

Stock indexes barely budged after the Federal Reserve gave an upbeat outlook of the U.S. economy in the minutes of the most recent meeting of its policy-setting committee. Data showed the U.S. Consumer Price Index fell for the first time in a year last month and the closely watched core inflation rate eked out its smallest annual gain since 1966, further supporting the Fed’s vow to keep interest rates low for some time.

The Federal Reserve raised its forecasts for economic growth and debated eventually selling mortgage debt, according to minutes of an April meeting that offered no hints of imminent changes in monetary policy. The Fed, in response to the worst financial crisis since the Great Depression, has bought more than $1.4 trillion in mortgage debt, an unusual step that has stoked fears of future inflation. Fed officials agreed at their April 27-28 meeting that such holdings could boost inflation expectations and would eventually have to be sold, but not anytime soon.

The report reflected the U.S. central bank’s thinking before a worsening of the European debt crisis, which has taken a toll on U.S. financial markets and prompted a reopening of a key emergency lending agreement with other central banks. Its quarterly “central tendency” forecasts showed considerably greater optimism among policy-makers, who predicted gross domestic product growth would come in around 3.2% to 3.7% this year. In January, officials thought the U.S. economy would grow between 2.8% and 3.5%.

This morning stocks slid for a 6th day and U.S. index futures declined as the Euro weakened against the dollar (we might see an advance on the Nasdaq as after the closing bell yesterday). Applied Materials, the world’s largest producer of chip making gear, posted a 2nd quarter profit as customers added capacity to take advantage of growing demand for consumer electronics, especially in emerging markets. Oil fell again to below $68.

The MSCI World Index of 23 developed nations’ stocks fell 0.5% for its longest losing streak in 4 months. The futures on the Standard & Poor’s 500 Index retreated 0.6%. The euro weakened against the dollar, trading near the lowest level in 4 years.

European finance officials meet in Brussels a day before the German parliament votes on the country’s share of a $1 trillion bailout to backstop the Euro in the wake of a worsening sovereign debt crisis. Stocks plunged yesterday as Chancellor Angela Merkel’s unilateral effort to control what she called “destructive” markets rattled investors. The German ban on some bearish bets against financial companies and government bonds wasn’t replicated in other European states.

In order for the Euro zone to start making some serious progress you need to see some serious austerity.

As Euro stocks declined yesterday and left the Euro benchmark gauge trading at less than 15 times its companies’ reported earnings, near the lowest level since December 2008. The recent slide has dragged the S&P 500 index 8.4% lower from its 2010 closing high on April 23rd and pushed the benchmark index into negative territory for the year. The Euro issues have diverted attention from a solid quarter of corporate results in the United States. In short, right now, obviously the good corporate news is not having much of an effect on the market. It is all about the technical aspect at this time, and the strengthening of the U.S. dollar, which has cut investors appetite for risk.

Regards,

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

SVP & Partner

Canada’s main stock index fell yesterday on persistent fears that austerity measures in Europe could stifle global growth, as Germany said it would restrict short-selling linked to Euro zone debt. Ongoing worries about Euro zone debt and the impact on economic growth kept some commodity prices lower, sending the energy and materials sectors down 0.7% and 0.5%, respectively.

Investor sentiment was also hit by worries about a U.S. financial regulation. In Washington, several Republicans will vote with Democrats to wrap up debate on the sweeping reform of financial regulations and move toward final passage. Separately, Germany said it will ban “naked” short-selling from midnight in shares of the country’s 10 most important financial institutions. In naked short-selling, a trader sells a financial instrument short, betting that it will fall, without first borrowing the instrument or ensuring that it can be borrowed, as would be done in conventional short-selling.

Germany’s ban on naked short-selling will also apply to credit default swaps on euro government bonds as well as euro government bonds. The move by German Chancellor Angela Merkel to ban speculation on European government bonds with the contracts sparked anxiety among investors about increasing government regulation. Merkel’s coalition is seeking to build momentum on market regulation as German lawmakers prepare to debate a bill authorizing a $1 trillion bailout to backstop the Euro. The surprise announcement, done outside the European Union, came after the rescue package failed to prevent a decline in the 16- nation common currency to a 4-year low and as banks became increasingly reluctant to lend to one another.

The Toronto Stock Exchange’s S&P/TSX composite index finished the day down 0.41%, earlier in the day the TSX climbed 1%. Oil prices fell ending at a 7-month low as Europe’s debt problems revived risk aversion among investors and pulled the euro and oil back from early gains. Oil prices settled at $69.41 a barrel, the lowest settlement since crude closed at $66.71 on September 29, 2009. Oil jumped in early trading to $72.52, then fell to a low of $68.91 on the day, off 20.9% from their 19-month high of $87.15 hit on May 3rd of this year.

Oil stockpiles have risen in the last 8 weeks to a record 37 million barrels, at the U.S. delivery point in Cushing, Oklahoma.

In the United States, stocks dropped and were driven lower as the strengthening of financial regulation from Wall Street to Frankfurt crushed bank stocks, adding to worries about the sustainability of the global economic recovery.

In short, it is a continuation of the uncertainty that’s been hurting the market. In the U.S. it is financial reform which is exacerbating an already uncertain environment in Europe.

The Dow Jones industrial average fell 1.08%, the Standard & Poor’s 500 Index fell 1.42% and the Nasdaq Composite Index fell 1.57%.

This morning stock index futures fell as markets are still rattled by Germany’s decision to ban naked short selling of certain financial instruments and comments from its chancellor that the Euro was in danger. As mentioned, Germany banned naked short sales, a move that appeared to surprise its partners in the European Union, who said they were not consulted. German Chancellor Angela Merkel said in a speech to parliament the Euro was in danger and urged speedy action to stop market “extortion” and said the EU needed a process for “orderly” insolvency of its members. European shares fell sharply as Germany’s move sparked concerns of tighter regulation.

Since the announcement of the rescue plan there seems to be less confidence as to how much it is going to cost and how it is going to get paid for. Instead, the 1st major announcement from European leaders is to say they are going to ban short selling of debt and equity, which sounds like panic. It also sounds like something that is being done unilaterally without discussion with other European nations.

Oil prices and the Canadian dollar have also declined in value. With sovereign debt in the forefront many investors are overlooking the fact that many companies are continuing to exceed investor expectations regarding earnings. Most recently both John Deere and HP have exceeded earnings expectations. Although Europe is a $12 trillion economy, investors fear that their issues could spread.

Regards,

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

SVP & Partner

Index Daily Change
S&P/TSX composite index 1.68% Drop
Dow Jones industrial average 0.05% Gain
Standard & Poor’s 500 Index 0.11% Gain
Nasdaq Composite Index 0.31% Gain

The Canadian stock market fell for a 3rd straight day yesterday as oil and metal prices tumbled on concerns about Euro zone debt and weaker growth in China. In short, there is concern that the global economies, in particular China, are slowing down and investors extrapolate that into lower commodity prices.

China’s key stock index tumbled 5.07% to its lowest close in a year. That fall was led by property stocks, as retail investors fled the China stock market after a month-long decline sparked by a severe government clampdown on surging property prices.

Investor sentiment was also hurt by concern that efforts to tackle the Euro zone debt crisis could hurt the global economic recovery. You have slow economies in Europe and the U.S.

In the United States stocks staged a comeback in late trading as bargain hunters snapped up beaten-down shares, setting aside concerns that efforts to tackle the Euro-zone debt crisis could hurt the global economy.

Things got a little oversold and things were getting a little overdone on the downside recently.

The Euro slid to a 4-year low at one point before rebounding, helping take indexes down more than 1% earlier in the day as investors fretted that the steps some Euro-zone nations are taking to cut their budgets will hinder economic growth.

Adding to apprehension over the still fragile recovery, a gauge of manufacturing in New York state showed growth advanced at a slower pace in May, while a Chinese leading economic indicator showed the country’s growth may have already peaked.

Last week stocks were also volatile as stock appreciated in value early in the week but gave up gains late in the week. Stocks rallied sharply on Monday after news that European Union finance ministers had agreed to a $1 trillion aid package for debt-laden Greece. But the optimism was short-lived, with stocks down 3 days within the week including several sharp sell-offs or more than 1% on the day. For the week, the Dow rose 2.3%, the S&P 500 added 2.2% and the Nasdaq climbed 3.6%. Weak earnings from retailers, Senate backing for limits on credit card fees and concerns over the sustainability of European public debt helped push stocks down late in the week. Bank and credit card companies’ shares declined after the Senate voted to limit fees charged on credit and debit card transactions. The limits added to fears that beefed-up financial reform legislation could hurt profits in the sector. Visa’s stock fell almost 10%.

This morning and the short-term are looking more stable. The MSCI World Index of 23 developed nations’ stocks climbed 0.4%. Futures on the Standard & Poor’s 500 Index added 0.5% and the price of oil is up $2. Stocks in Europe gained after the European Union transferred 14.5 billion Euros ($18 billion U.S.) to Greece, the 1st installment from an almost $1 trillion emergency loan package aimed at preventing sovereign defaults. In addition, U.S. builders will probably say that April had the most housing starts since 2008, economists said before a report today.

Regards,

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

SVP & Partner

Index Daily Change Weekly Change
S&P/TSX composite index 1.27% Drop 4.20% Drop
Dow Jones industrial average 1.33% Drop 5.70% Drop
Standard & Poor’s 500 Index 1.53% Drop 6.40% Drop
Nasdaq Composite Index 2.33% Drop 8.00% Drop

This blog might be a little long and maybe even a little boring…. It will start off a little bleak but will end with a surprise.

Canadian stock markets fell again on Friday as investors, fearing a growing Greek debt crisis and shaken by Thursday’s stock plunge, sold shares across all sectors and forced the S&P/TSX Composite index into negative territory for the year. With mystery still surrounding the reasons for Thursday’s 3.8% intraday drop, investors rushed to lighten equity holdings.

Thursday shook investor’s confidence and this was coupled with Greece and the whole European mess still unresolved as of Friday. There’s a lot of uncertainty and investors normally react to uncertainty by selling and taking money off the table. Resource stocks led the way as oil prices extended a week-long slide on concerns that Greece’s debt woes would infect other Euro zone countries and jeopardize the global economic recovery.

Mining stocks fell 1.9% despite a late rally in copper prices and strong gold prices, underscoring investor uneasiness with equities.

Euro zone contagion fears more than offset a report that showed a record number of Canadians found employment in April, data that was expected to put more pressure on the Bank of Canada to raise interest rates in June, ahead of other major industrialized countries. Despite losses, some analysts said the stock market has held up fairly well given recent weakness in resource prices and the European debt worries.

In the United States stocks turned negative for the year on Friday as fears of another credit crisis, stemming from Greece’s souring finances and lingering questions about what triggered the previous day’s dramatic plunge. The major stock indexes finished Friday’s volatile session from 1% to 2% lower.

The weekly declines for the Dow and the S&P 500 were the steepest since March 2009 when the market hit a 12-year low. The Nasdaq had its largest weekly drop since November 2008. Wall Street’s “fear gauge” the Chicago Board of Options Exchange (CBOE) volatility index or VIX jumped 25%, while the volume of shares traded was the 2nd highest this year. The volatility index ended at 40.95 after rising as high as 42.15 earlier in the day, its highest since April 2009. Over the past 2 weeks the Nasdaq has fallen more than 10%, the threshold which many traders define as a market correction. Stocks gained some ground after data showed U.S. non-farm payrolls grew at the fastest pace in 4 years in April as private sector employers ramped up hiring.

Governments around the world tried to calm markets after fears about Greece’s debt crisis spread further. The cost of protecting European bank debt against default reached levels not seen since the height of 2009’s economic crisis.

Thursday’s sell-off drove the Dow average down nearly 1,000 points, the biggest-ever intraday point drop. The fall may have been exacerbated by erroneous trades that showed some shares briefly fell to nearly zero in value. The Nasdaq and other exchanges said they would cancel erroneous trades. The U.S. Securities and Exchange Commission (SEC) held urgent discussions with other regulators to try to shed light on the causes of Thursday’s plunge. Trades that took place during the worst of Thursday’s drop will be canceled for more than 250 stocks, Nasdaq said, adding to a long list of “busted” transactions on NYSE and other exchanges and trading venues. The uncertainty around the cancellations could have heightened the day’s price swings as investors examined their holdings.

Euro zone leaders decided on Friday they have special measures ready before financial markets open on Monday to prevent financial turmoil in Greece spreading to other countries such as Spain and Portugal. The leaders of the 16 countries that use the single currency said that after talks with the European Central Bank (ECB) and the executive European Commission they were ready to take whatever steps were needed to protect the stability of the Euro area.

“We will defend the Euro whatever it takes. We have several instruments at our disposal and we will use them,” European Commission President Jose Manuel Barroso said after a Euro zone summit in Brussels. Financial markets have been beating Euro zone countries with high deficits or debts as well as low economic growth, threatening to force Portugal, Spain and Ireland into a position where, like Greece, they would need to seek financial aid.

Euro zone leaders, who have been accused of heightening market uncertainty with a lack of action, agreed in the face of rising market concern to accelerate budget cuts and ensure budget deficit targets are met this year. They agree to sharpen EU budget rules and have more effective sanctions for rule-breakers, and to pay close attention to debt levels and competitiveness. They agree they face an extraordinary situation after giving their political approval to an EU-IMF deal to release 110 billion Euros ($147 billion) to Greece over 3 years.

The Group of Seven (G7) finance ministers discussed the situation in a conference call after U.S. Federal Reserve officials expressed concern, and agreed to keep a close eye on the markets. U.S. President Barack Obama told German Chancellor Angela Merkel by telephone that he backed efforts to rescue Greece and said regulatory agencies were investigating an “unusual” sudden drop on U.S. markets on Thursday. “We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community,” Obama said.

Philadelphia Federal Reserve Bank President Charles Plosser said the crisis did not pose a huge risk to the United States, but this did not mean it could not evolve into one. “The challenges that Greece poses are at the moment primarily for Europe more broadly that can spill over in the form of a weaker market for exports,” he said. “The more direct danger is of course concerns about the financial markets and how they will behave.”

On Sunday, European Union finance ministers moved toward agreement on an unprecedented loan package worth at least $645 billion to prevent Greece’s fiscal woes from triggering a broader sovereign-debt crisis and shattering confidence in the Euro. Forced into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, the 16 Euro governments sketched out plans to make 440 billion Euros ($570 billion) available, with 60 billion Euros more from the EU’s budget, according to 3 officials at the talks in Brussels. An additional, unspecified sum may come from the International Monetary Fund (IMF), the officials said.

“We are going to defend the Euro,” Spanish Economy Minister Elena Salgado told reporters as she arrived to chair the meeting yesterday. “We think we have a duty for more stability for our currency. We will do whatever is necessary.” Europe’s failure to contain Greece’s fiscal crisis triggered a 4.1% drop in the Euro last week, the biggest weekly decline since the aftermath of Lehman Brothers Holdings collapse. It prompted the U.S. and Asia to urge broader steps to prevent a debt crisis from pitching the world back into a recession.

“In the night, when the markets are opening, we cannot afford a disappointment,” said Finance Minister Anders Borg of Sweden, one of 11 EU nations not in the euro. “We now see herd behavior in the markets that are really pack behavior, wolfpack behavior.”

With the euro facing the stiffest test since its debut in 1999, the weekend turned into a crisis-management exercise to restore faith in the currency and prevent a European debt crisis from cascading around the world. The purpose is to “decide on a mechanism that enables us to assure the stability of the Euro, stability in the zone and, beyond that, stability in financial markets,” French Finance Minister Christine Lagarde said.

The Euro is down 15% since late November. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8%. The political leadership of the $12 trillion economy also signed off this weekend on a 110 billion-Euro aid package for Greece negotiated by finance ministers last week. So far 9 governments have cleared the way for funds to be sent to Athens.

This morning, U.S. stock market futures soared and the S&P 500 could open 4% higher, after global leaders agreed to a $1 trillion emergency rescue package (in the game of poker they would call this ‘all in’, some would call it ‘shock and awe’ and others would suggest the long-term outlook is still bleak as it must still address the root cause of the issue) that caused the Euro and European stocks to surge this morning - - some by almost 10%. The package pledged 500 billion Euros ($670 billion) in loans and loan guarantees to Euro-zone countries, plus about 250 billion Euros from the International Monetary Fund (IMF). The package is on the same scale as the $700 billion bailout launched by the United States to stave off the credit crisis.

Also, the U.S. Federal Reserve reopened currency swap lines with several central banks in hopes of assuring markets of dollar liquidity, and the European Central Bank (ECB) said it would buy government debt to steady investor nerves (a complete reversal from Friday morning). A number of European central banks said they had already started.

The emergency action may allow investors to return their focus to the improving outlook for the global economy. About 70% of companies on the MSCI World Index that reported quarterly earnings since April 12th have beaten analysts’ forecasts, according to Bloomberg data. Employment in the U.S. increased in April by the most in 4 years (as mentioned) indicating the recovery is becoming self-sustaining (and governments can refocus on balancing budgets).

Today will be a good day for Europe and all equity markets – there will be a lift today.

Regards,

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

SVP & Partner

Index Daily Change
S&P/TSX composite index 0.28% Drop
Dow Jones industrial average 3.20% Drop
Standard & Poor’s 500 Index 3.24% Drop
Nasdaq Composite Index 3.44% Drop

Stocks tumbled the most in a year on concern Europe’s debt crisis will halt the global recovery. The sell-off briefly erased more than $1 trillion in market value as the Dow Jones Industrial Average fell almost 1,000 points, a 9.2% drop, its biggest intraday percentage loss since 1987, before paring the drop. The MSCI World Index of stocks in 23 developed nations dropped 2.8% and has dropped 6.4% in the past 3 days, its biggest retreat in the past 14 months.

Canada’s main stock index closed lower for a 4th straight day yesterday but cut a 3.8% intraday drop that was sparked by a drop in crude futures and worries the Greek debt crisis may widen to other Euro zone countries. The TSX energy sector declined by 1.41%, though losses were 4 times larger at one point, as U.S. crude prices fell below $77 a barrel on fears the debt crisis could threaten economic recovery and undercut demand for oil. Heavyweight financials were down by 1.26%, although strong profits at the country’s biggest insurers helped to reduce the steep drop. The gold and materials sector were big advancers as the price of gold rallied by more than $30.00 and broke $1,200.

Amid the selloff, the TSX fell 452 points, or 3.8%, to 11,422.73, its lowest level since February 25th. It was the steepest 1-day percentage fall since June 2009. Along with the Greek debt crisis, analysts also cited uncertain U.K. elections and a large, erroneous trade entered by a big Wall Street bank as possible reasons behind the day’s volatility (According to multiple sources, a trader entered a “b” for billion instead of an “m” for million in a trade possibly involving Procter & Gamble, a component in the Dow).

The Nasdaq issued the names of hundreds of stocks for which it is canceling trades following yesterday’s sudden stock market plunge. As you know, soon after 2:30 p.m., the Dow Jones Industrial Average fell nearly 1,000 points in its largest ever intraday points drop, which may have involved a trading error. U.S. stock indices plunged by an average 9% in the last 2 hours of trading before clawing back some of the losses.

Nasdaq said it would cancel trades with price deviations of more than 60% between 2:40 p.m. and 3 p.m. from their 2:40 p.m. levels, and the New York Stock Exchange said it would similarly cancel trades on its all-electronic platform that deviated over 60% from their last print at 2:40 p.m. between 2:40 p.m. and 3:00 p.m.

Nasdaq said its decision was made in conjunction with other exchanges and said it could not be appealed.

The TSX, which hit its highest level since September 2008 late last month, has closed lower for 4 straight days as investors try to sort out sentiment about Europe’s debt issues.

In the United States stocks declined by 9% in the last 2 hours of trading yesterday before clawing back some of the losses as a suspected trading glitch and fears of a new credit crunch in Europe threw markets into disarray and panic. The Dow suffered its biggest ever intraday point drop of 998.5 points. The market’s fall may have been exacerbated by erroneous trades that showed some shares briefly fell to nearly zero.

Indexes recovered some of their losses heading into the close to end down. The sell-off comes at a tense time for investors and Wall Street, with fraud charges against Goldman Sachs, fears of a wave of debt defaults in Europe and increasing talk from Capitol Hill for financial regulation.

Volume soared to twice its daily average for this year and was at its highest since October 2008 when financial markets seized up after the bankruptcy of Lehman Brothers. About 19.13 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. Last year’s estimated daily average was 9.65 billion. Decliners outnumbered advancers on the New York Stock Exchange by a ratio of more than 17 to 1.

The Chicago Board of Options Exchange (CBOE) Volatility Index, known as Wall Street’s fear gauge, closed up more than 30% at its highest level since May 2009 at 32.8 (at one time during the day it hit 40.7).

The sell-off was broad and deep with all 10 of the S&P 500 sectors falling from 2% to 4%. The financial sector index was the worst hit, dropping 4.1%.

Investors had been on edge throughout the trading day after the European Central Bank (ECB) did not discuss the outright purchase of European sovereign debt as some had hoped and thereby calm markets. The ECB gave verbal support to Greece’s savings plan instead, disappointing some investors. ECB President Jean-Claude Trichet held interest rates at a record low of 1% yesterday and said the bank didn’t discuss whether to purchase government bonds to stem the region’s debt crisis, defying market speculation that he would take such measures.

The ECB can fix the volatility by doing what the Fed did and instantly provide liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars. This kind of market sell-off is not even being discussed, Trichet said. There’s a perception that what’s going on in Europe will be dragging the region back into a recession. The question is how much of that is going to be contagious to the rest of the world?

Today’s release of U.S. non-farm payrolls for April by the U.S. Labor Department, one the most important reports on the economic calendar, will help as investors try to judge the strength of the U.S. recovery but may also keep investors on edge. Economists polled by Reuters expecting employers added 200,000 jobs last month after a 162,000 increase in March. Unemployment is seen holding steady at 9.7 percent. The report is due at 8:30 a.m. EDT.

This morning U.S. stock index futures rose, with shares set to rebound after a steep fall and ahead of a report expected to show the U.S. economy added more jobs last month (Canada added more than 100K).

The focus will be on stronger-than-expected-economic data, a strong earnings growth rate and the chance that 3 to 4 straight days of declines may have taken the market to an oversold position. At the open we’ll probably see bargain hunters overpowering the panic sellers. It is very clear that governments cannot spend more than they take in (in the form of taxes).

Regards,

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

SVP & Partner

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

Index Daily Change
S&P/TSX composite index 1.36% Drop
Dow Jones industrial average 2.02% Drop
Standard & Poor’s 500 Index 2.38% Drop
Nasdaq Composite Index 2.98% Drop

Canada’s main stock index closed sharply lower yesterday, weighed down by persistent worries about Greece’s aid package that sent investors to the safety of the U.S. dollar which negatively impacted oil prices. The index’s heavily weighted energy sector dropped 2.12% as the price of oil fell 4%, in its steepest loss in 3 months.

The Toronto Stock Exchange’s S&P/TSX composite index did recover a bit from a near 2% fall earlier in the day that had taken the index close to a 2-week low. All 10 sectors were down. Investors were skeptical that European Union officials will not be able to stop Greece’s sovereign debt crisis from spreading to other high-debt euro zone countries, while China’s recent monetary tightening also undermined investor sentiment.

Toronto’s sell-off echoed the wave of worry that gripped financial markets as investors fretted that the crisis in Europe could derail global economic recovery. One gauge of investor fear, the Chicago Board of Options Exchange (CBOE) Volatility Index, jumped more than 18% to 23.84, its highest closing level in almost 3 months.

In the United States stocks also declined on Wall Street, posting its worst daily loss in 3 months on the fear that even with a bailout for Greece, Europe’s debt crisis could spread to other weak Euro zone countries.

Big exporters to Europe including technology and industrial companies dropped including Hewlett-Packard and Caterpillar. Despite the S&P 500’s steep fall, the benchmark did not break major technical support levels except for a short-term bottom on the S&P 500, the intraday low hit last week.

Encouraging U.S. economic data on manufacturing and housing failed to provide a floor to the overall market. Reports showed new orders received by U.S. factories in March unexpectedly increased and pending home sales rose to a 5-month high. On the upside, better-than expected earnings from drug makers Merck & Co Inc. and Pfizer Inc. boosted those shares by 1.5% and 2% respectively. Wal-Mart Stores Inc. was the only other blue-chip to gain.

As mentioned a renewed concern mounted that a record EU/IMF bailout for Greece would not stop a debt crisis spreading in the single currency area. Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed as “complete madness” a market rumor that his country would soon ask for 280 billion Euros in aid from the Euro area. The Euro sank to a 1-year low of beneath $1.31 and the risk premium on Greek, Portuguese and Spanish bonds soared amid jitters about a possible Greek debt restructuring and worries over the fiscal health of other southern European countries.

In Athens, striking public workers challenged Greece’s 110 billion Euro ($146.5 billion) bailout-for-austerity deal, starting a 48-hour national strike that shut down ministries, tax offices, schools, hospitals and public services. There is no faith in what the EU and the IMF have proposed for Greece. In short, investors are betting on a Greek default, as Greece’s own citizens are not going to accept the terms of this rescue, and contagion is a real concern hurting the Euro. Said different, the Citizens of Greece would rather default then accept the terms of the bailout.

News that Greece has appointed debt restructuring specialists Lazard to provide “general financial advice” fueled speculation that some form of orderly rescheduling or payment moratorium may be likely, despite official denials. Finance Minister George Papaconstantinou told Reuters after news of the Lazard hire: “Any form of debt restructuring is out of the question.” Lazard recently advised countries like Argentina, Ecuador and Ivory Coast on sovereign debt restructurings.

The main Greek public sector union, ADEDY, rallied thousands of protesters outside parliament to reject planned wage and pension cuts and demand that the rich foot the bill. Police fired teargas at a small group of protesters who threw rocks and bottles. “We want an end to the freefall of our living standards,” said Spyros Papaspyros, the head of ADEDY, which represents about half a million workers in the Aegean nation of 11 million.

The cost of insuring Portuguese, Spanish and Irish debt against default jumped as contagion worries spread while investors sought a safe haven in U.S. Treasury bonds. Greek bond yield spreads over benchmark German Bunds spiked above 6.00% while Greek bank shares dropped by 10% on the worsening economic outlook. Some argue that the bailout was more a rescue for European banks holding Greek debt than one of ordinary Greek people.

This morning the fear continues as investors fret over which nation might be next as investors are unconvinced that the aid package would stop the crisis from spreading to other vulnerable Euro zone countries like Spain and Portugal. German Chancellor Angela Merkel and the head of the International Monetary Fund warned of financial contagion unless the crisis was stopped in Greece.

The problem is in the timing as it will take time to resolve debt concerns. There will not be an event that calms investors down.

The outlook is not ideal unless collectively all investors are assured that with time the Euro zone can get their act together. Until then expect headwinds from Europe but… corporate profits are strong and we will have further guidance on U.S. employment later today (which will hopefully limit the downside risk for equity investors).

Regards,

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

SVP & Partner