July 21, 2011 Newsletter

Dear Friends,

 “Life is really simple, but we insist on making it complicated.”

– Confucius

Photo of the Day:

Acrobats from the Shenyang Acrobatic Troupe (Circus of China) perform during a rehearsal of Sky Mirage II in Sao Paulo, Brazil. – The Globe and Mail.

Market Commentary:

 Canada

 Canada’s dollar appreciated to the strongest in more than three years versus the greenback after statements this week from the Bank of Canada led investors to raise bets interest rates will increase this year.

 The loonie, as the currency is commonly called, weakened against the euro for a second day on reports of progress in addressing the Greek debt crisis. Crude oil, Canada’s largest source of export revenue rose for a third day.

“It’s getting harder and harder for the Bank of Canada to justify the low interest rates as inflation starts to creep up higher,” said Aaron Fennell, a futures specialist at Bank of Nova Scotia’s Scotia McLeod unit, by phone from Toronto. “At some point, they’re going to have to start raising rates and they may have to raise rates quite a bit before we’re said and done to get to a more normal interest rate. Long-term, you have to be bullish the Canadian dollar.”

 The currency rose as much as 0.5 percent to 94.23 cents per U.S. dollar, the strongest level since Nov. 9 2007, and traded at 94.47 cents at 3:04 p.m. in Toronto. It ended yesterday at 94.74 cents. One Canadian dollar buys $1.0585.

Crude oil futures gained 1.2 percent to $99.31 a barrel in New York.

 European Discussions

 European leaders met in Brussels seeking solutions for their 21-month sovereign debt crisis.

French President Nicolas Sarkozy reiterated support for the euro after the summit closed, saying it’s an “irreplaceable” achievement of Europe. He said a bailout fund will operate in secondary markets. Greece will receive additional aid of 109 billion Euros ($157 billion), according to the European Union.

Spooked by a bond market selloff last week, leaders empowered their 440-billion euro rescue fund to buy debt across stressed euro nations after eight hours of talks in Brussels. The fund can also aid troubled banks and offer credit-lines to repel speculators. Leaders pledged a 160 billion euro aid package for Greece, eased the terms of its existing loans and cajoled bondholders into footing part of the bill.

“All eyes are on euro and what’s going on over there and their discussions,” C.J. Gavsie, managing director for foreign exchange trading at Bank of Montreal, said by phone from Toronto.

 Bonds Fall

 Canadian government bonds fell, pushing the yield on benchmark 10-year bonds five basis points higher to 3 percent. The price of the 3.25 percent security due in June 2021 fell 46 cents to C$102.15.

Consumer prices advanced 3.6 percent in June from a year earlier, after a 3.7 percent gain in May, Statistics Canada may report tomorrow in Ottawa, according to the median forecast of 24 economists in a Bloomberg News survey.

The Bank of Canada on July 19 kept its benchmark policy rate at 1 percent and said borrowing costs will rise, omitting the word “eventually,” which had appeared in previous statements. The bank also raised its forecast for inflation.

 “To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be withdrawn,” Bank of Canada Governor Mark Carney said in remarks at a press conference yesterday.

The loonie has weakened 1.2 percent this year versus the currencies of nine other developed nations, according to Bloomberg Correlation-Weighted Currency Indexes.

 The S&P/TSX Capped Energy led gains among the benchmarks, adding 1.5% as oil jumped 73 cents, or 0.7%, to settle at $99.13 a barrel. Shares of Suncor Energy Inc.  gained 2.5%. The S&P/TSX Capped Financial Index rose 1.1% as shares of the Bank of Montreal added 1.2%.

 Industrial metals stocks tempered the gains, falling after HSBC’s China manufacturing Purchasing Managers’ Index fell to a 28-month low in July. China makes up a large portion of Canadian commodity exports. 

 The S&P/TSX Capped Metals and Mining Index lost 0.1% as copper futures lost 5 cents, or 1.2%, to settle at $4.38 a pound.

 (Reuters/Marketwatch)

  US

 U.S. stocks rallied, extending a weekly gain for the Standard & Poor’s 500 Index, as European officials announced a plan that will give additional aid to Greece and Morgan Stanley’s results beat estimates.

 Morgan Stanley jumped 11 percent after the world’s largest brokerage posted a smaller-than-estimated loss as trading revenue rose from the first quarter. Motorola Mobility Holdings Inc. soared 12 percent after Carl Icahn urged the handset maker to explore alternatives for its patents. Medco Health Solutions Inc. advanced 14 percent after Express Scripts Inc. agreed to buy the pharmacy-benefits manager for $29.1 billion.

 The S&P 500 added 1.4 percent to 1,343.80 at 4 p.m. in New York, extending its gain this week to 2.1 percent. The Dow Jones Industrial Average climbed 152.50 points, or 1.2 percent, to 12,724.41.

 “It’s a sigh of relief,” said Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, which manages $3.3 billion. “Progress on Europe’s debt situation is allowing the market to remain at these levels. All of the other satellite countries are looking to see how the EU settles the debt situation in Greece because it has ramifications for the European banks. It’s the framework for a package and the markets have reacted positively.”

Greece will receive additional aid of 109 billion euros ($157 billion), according to the European Union. Italian Prime Minister Silvio Berlusconi said the total value of a second Greek bailout is 160 billion euros. French President Nicolas Sarkozy said that measures agreed by euro-region leaders today to aid Greece will not be replicated to help other countries.

 Euro, Stocks

 The euro and equities strengthened as European Union said Greece will receive aid worth 160 billion euros ($230 billion) and leaders agreed to increase the power of their regional rescue fund to allow it to act on a precautionary basis, finance the recapitalization of banks and buy bonds in the secondary market.

The S&P 500 extended gains as the New York Times reported that President Barack Obama and House Speaker John Boehner were close to a “major budget deal,” boosting optimism the world’s biggest economy will avoid defaulting on its debt. Spokesmen for Obama and Boehner denied the report.

 The S&P 500 had its biggest rally since March on July 19 as Obama endorsed a bipartisan deficit-reduction plan from the so- called Gang of Six senators. The index declined 2.8 percent from a three-year high in April through yesterday amid speculation the sovereign debt crisis in Europe is spreading and concern U.S. lawmakers will fail to reach a deal on raising the debt limit before the Aug. 2 deadline, pushing the government closer to default.

S&P reiterated today that there is a 50 percent chance it will lower the U.S. credit rating within three months as lawmakers struggle to reach agreement.

 Earnings Season

 Earnings results have boosted U.S. stocks this week. Of the 100 S&P 500 companies that have reported earnings since July 11, 86 percent have exceeded analyst estimates, according to Bloomberg data.

Stock futures maintained gains after a report said more Americans than forecast filed claims for unemployment benefits last week. Applications for jobless benefits increased 10,000 last week to 418,000, Labor Department figures showed. Economists forecast 410,000 claims, according to the median estimate in a Bloomberg News survey.

 The Conference Board’s index of U.S. leading economic indicators rose 0.3 percent in June, topping the 0.2 percent median forecast in a Bloomberg News survey of economists, and a Federal Reserve gauge of manufacturing in the Philadelphia region showed stronger-than-forecast growth.

 (Bloomberg)

Have a wonderful evening everyone!

As Always,

 Kyle, for Carolann.