CTV News | How Spain’s downgrade hit stocks, Canadian dollar, oil

How Spain’s downgrade hit stocks, Canadian dollar, oil

Michael Babad

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Stories Report on Business is following today:

Spain downgrade knocks markets

A downgrade of Spain’s debt by Fitch Ratings knocked stocks, oil and the Canadian dollar today, helped along by disappointing data from the United States on consumer spending. Markets have ebbed and flowed with every development in Europe’s mounting debt crisis amid investor jitters over sovereign credit defaults and the impact European austerity measures could have on economic growth. A $1-trillion rescue package of the euro zone by the EU, the International Monetary Fund and the European Central Bank has done little to calm investors’ nerves, though markets rallied yesterday.

The Dow Jones industrial average , the S&P 500 and the S&P/TSX composite all slipped.

Fitch cut Spain from a triple-A rating to AA+ and give it a “stable” outlook, warning of slower economic growth.


Fitch downgrades Spain’s debt

Greece could set off bigger debt bomb

Market Blog by David Berman: Stocks struggle into the weekend

Canadian dollar forecast to return to parity

It was about 5 cents ago that the Canadian dollar was at parity with its U.S. counterpart, and currency watchers expect it will be there again over the next few months, depending on the ebbs and flows of the euro crisis.

There is a “significant divergence” between the near- and medium-term outlook for the Canadian dollar, Scotia Capital currency strategist Camilla Sutton said today, noting that the shorter term the loonie is vulnerable to the types of turmoil the markets have seen as Europe’s debt crisis mounted, spooking investors and driving them into what are deemed safe assets. She said, though, that in the medium term she believes the loonie will be back at parity.

Mark Chandler, fixed-income strategist at RBC Dominion Securities in Toronto, agreed, adding that he expects “flare-ups” over the summer related to developments in the global banking sector, but that the loonie should get back to parity again within a few months.

“Then ultimately it may become a story of a recovery in the U.S. dollar, so Canada’s foray with parity may yet again be short-lived,” Mr. Chandler said, adding RBC expects the loonie to be in the mid-90-cent range this time next year.

In a separate report today, Scotia Capital economists Derek Holt and Karen Cordes Woods noted that not only is the loonie outperforming other currencies, so are Canadian stocks and sovereign bonds.

“In local currency terms, Canadian equities have also outperformed,” they say. “On a month-to-date basis during the period of heightened risk aversion, the TSX is down 3.8 per cent Most other global exchanges have suffered a worse plight. The DJIA and S&P500 are both down about 7 per cent, the Nikkei 225 is off 12 per cent, each of the FTSE 100, CAC 40, and Hang Seng are off about 6-7 per cent. Only the German DAX has fared better than the Toronto TSX via a comparatively mild 2.8-per-cent drop … In [U.S. dollar] terms, Canadian stocks are on roughly even terms to U.S. stocks, and stronger yet against many other global exchanges.”

On the issue of government debt, the economists point out that yields on Canadian 10-year bonds “have benefited from a safe haven bid not terribly out of line with other key 10-year benchmarks in local currency terms.”

This is the backdrop for a key week in Canadian markets, as Statistics Canada reports Monday on how Canada’s economy performed in March and the first quarter. And expectations are high.

“Monday starts with a bang via expectations for about 6-per-cent annualized month-over-month growth in GDP during March over February to close off [a first quarter] that likely had Canadian economic growth doubling that of the United States as a clear sign of economic outperformance.,” the Scotia Capital economists said.

The Bank of Canada’s interest rate decision follows on the heels of the GDP report as the central bank meets Tuesday. Markets are still betting heavily – though not as heavily as before the recent turmoil in global markets – that Governor Mark Carney and his colleagues will raise their benchmark overnight rate for the first time since before the financial crisis and recession.

“My, my, aren’t we fickle?” BMO Nesbitt Burns deputy chief economist Douglas Porter said this morning. “One good rollicking day in the equity market, and now the markets are suddenly pricing in roughly a 70-per-cent chance of a Bank of Canada rate hike next week (up from less than 40 per cent at one point on Tuesday).”

Related: Volatility returns, with a vengeance

This could be Canada’s decade, CIBC says

There’s a theme emerging today. In another report, CIBC World Markets said today that this could be Canada’s decade to shine among the western industrialized economies, given its resource base and better fiscal standing.

“Canada’s current federal deficit of 3 per cent of GDP (or 5 per cent including the provinces) pales next to double-digit deficit-to-GDP ratios for national governments in the U.S. and the U.K.,” economists Avery Shenfeld and Peter Buchanan said in a report. “The result is that if each country aimed to stabilize its debt-to-GDP ratio at 45 per cent, Canada would require a retrenchment of less than 3 per cent of GDP, while others would need fiscal cuts several times larger.”

Canada will still see a “huge fiscal drag” next year amid a swing from stimulus to restraint, which the bank estimates could represent a drag of 2 per cent of GDP. But that pain will be far less severe than elsewhere.

“Investors have been climbing the proverbial wall of worry due to euro zone debt woes,” Mr. Shenfeld and Mr. Buchanan write. “Geopolitical tensions in Asia have also amplified volatility. While all this, not surprisingly, has overshadowed longer-term fundamentals, Canada’s resource endowments, resilient financial system and favourable demographics relative to other G7 nations make it an economic contender looking out of the next 5-10 years.

“Another notable positive is in the healthier state of public and corporate sector balance sheets. These factors are no iron-clad recipe for national success in the near term, but do mean Canada is better positioned than many of its competitors to deal with the challenges of the upcoming teen years. And where economic growth goes, corporate earnings, dividends and other rewards for investors are likely to follow.”

Dutch central bank warns of bubble

The Dutch central bank warns today of the risk of bubbles in financial markets given record low interest rates around the world. De Nederlandsche Bank also warns of the threat of a double-dip recession in a semi-annual report.

“Central banks have lowered interest rates firmly during the crisis,” the DNB report said. “… The current interest level and loose liquidity impose risks. The danger remains that loose monetary policy will create the foundation for a new bubble in financial assets.”

It also issued a stark warning in a statement accompanying the report: “The nature of the risks for financial stability has changed rapidly over the past few months. Since the spring of this year, concerns about European governments’ debt levels have generated increasing unrest in the financial markets. A further slide in confidence poses one of the main threats to financial stability, while a double-dip scenario, in which economic conditions deteriorate again, is still a risk. In the banking sector this could cause another increase in credit risk. If this coincides with greater pressure on the market for commercial real estate or the housing market, the banking sector could face considerable potential losses.”

Porter cuts IPO price

Porter Aviation Holdings Inc. has cut the price of its initial public offering to $5.50 a share from as much as $7 because investors balked at the valuation the upstart airline was seeking. The Toronto-based airline decided on the new valuation with its bankers today, and will try to do the deal by Tuesday, Globe and Mail writers Boyd Erman and Andrew Willis report. Read the story

Lineups for international iPad launch

For today at least, the iPad is more popular than the Mona Lisa. From Tokyo to Paris and Sydney, the global launch of the new tablet computer from Apple Inc. drew long lineups and heightened anticipation. The launch had been delayed because Apple couldn’t meet demand amid estimates from one analyst that global sales will top 8 million by the end of the year.

“I wanted to touch it as soon as possible,” Takechiyo Yamanaka, a 19-year-old who was first in line at the Apple store in Tokyo, told the Reuters news agency.

It also on sale this morning in Canada, priced between $550 and $879.

In the basement of the Louvre in Paris, Bloomberg News reported, the lineup for the iPad at the Apple store, in the Courrousel du shopping centre in the museum complex, far surpassed that of the lineup to view the Mona Lisa. Read the story

Related: Computer tablet wars are coming

Shell in $4.7-billion shale deal

Royal Dutch Shell today struck a $4.7-billion (U.S.) deal for a privately held player in the hot Marcellus shale gas play in the northeastern United States. The cash deal for East Resources Inc. will boost the energy giant’s daily production of North American gas by some 7.5 per cent. Energy companies have been scrambling for shale gas assets in North America, and today’s deal highlights the growing interest. Shell has also joined forces with EnCana Corp. to develop projects in the Haynesville Shale play in Louisiana.

Japan fights deflation

Japan continues to struggle with a bout of deflation, and its unemployment rate is rising. Official measures today showed core consumer prices, which exclude volatile items, fell 1.5 per cent in April from a year earlier. That marked the 14th month in a row of falling prices. Japan’s unemployment rate, meanwhile, rose to 5.1 per cent, and the number of people without work now stands at 3.56 million.

Soda pop in high demand in U.S.

A prominent U.S. analyst is warning about the possibility of that the United States could run short of soda pop this Memorial Day weekend because of demand sparked by discounts launched by Wal-Mart Stores Inc. Bill Pecoriello of Consumer Edge Research said cans are “flying off the shelves,” according to the Reuters news agency, and some Wal-Mart outlets have sold out of cases of 24. Wal-Mart lowered the price of 24-packs to $5 (U.S.). Americans could, of course, always take a cue from Canada, where we kick off the summer with 24-packs of beer.

From today’s Report on Business

Alberta woos energy producers

Banks fail to impress with results

Foreclosure wave deemed unlikely

Obama denies BP contamination could be his Katrina

Read Kevin Carmichael’s G8/G20 Global View blog

And in ROB Magazine: A qualified man is hard to find, Linamar’s drive to $10-billion, and more

via ctv.ca

Posted via web from Toronto Real Estate News, Blog


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