December 28, 2011 Newsletter
Dear Friends,
“Patience is the companion of wisdom.”
— Saint Augustine
Photo of the Day:
Residents of Davos, Switzerland are pictured skiing on December 28, 2011. (Reuters)
Market Commentary
Canada
By Matt Walcoff
Dec. 28 (Bloomberg) — Canadian stocks fell for the first time in five days, led by precious-metals producers, as gold futures extended the longest losing streak since October 2009. Barrick Gold Corp., the world’s largest gold producer, decreased 3.6 percent as the metal retreated for a fifth day. Suncor Energy Inc., Canada’s biggest oil and gas producer, lost 2.5 percent as crude futures slipped for the first time in seven days. Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, slid 3.6 percent after India said it may re-introduce fertilizer price controls.
The Standard & Poor’s/TSX Composite Index fell 198.26 points, or 1.7 percent, to 11,728.41. “As a hiding place, it served its purpose,” Bob Decker, a money manager at Aurion Capital in Toronto, said of gold in a telephone interview. The firm oversees about C$5.5 billion ($5.4 billion). “As people look to the new year with a little more optimism with regard to the U.S. economy, maybe they’re taking profits in their winning trades.” The S&P/TSX rallied 3.4 percent in the previous four sessions as stronger U.S. economic data boosted energy and bank shares. Canada’s benchmark stock index has slumped 13 percent this year and is set to trail the S&P 500 for the first year since 2003. Canadian markets were closed Dec. 26 and yesterday for the Christmas and Boxing Day holidays.
Gold imports by India, the world’s largest consumer, may decrease as much as 50 percent this month from last year due to a weaker rupee, the Bombay Bullion Association said yesterday. China restricted spot and futures gold trading to the Shanghai Gold Exchange and the Shanghai Futures Exchange as part of efforts to crack down on illegal buying and selling of commodities, the People’s Bank of China said yesterday. Gold dropped to the lowest settlement price since July and silver to the lowest since January. The S&P/TSX Gold Index tumbled to the lowest close since July 2010. Barrick lost 3.6 percent to C$45.26. Goldcorp Inc., the world’s second-largest producer of the metal by market value, retreated 4.7 percent to C$43.56. Silver Wheaton Corp., Canada’s fifth-biggest precious-metals company by market value, sank 6.1 percent to C$28.37. NovaGold Resources Inc., which is developing gold and precious-metals mines, plunged 9.2 percent to C$8.14. Energy stocks fell as oil futures dropped after settling at a six-week high yesterday. Suncor lost 2.5 percent to C$28.56.
Canadian Natural Resources Ltd., the country’s second-largest energy company by market value, slipped 2.5 percent to C$36.84. Oil-sands developer BlackPearl Resources Inc. decreased 4.6 percent to C$4.16.
Base-metals and coal producers fell a day after an index of U.S. home prices decreased more than most economists in a Bloomberg survey had forecast and the Federal Reserve Bank of Dallas’s gauge of regional manufacturing declined. Japanese industrial production retreated 2.6 percent in November from the previous month, three times the median estimate in a Bloomberg forecast, the country’s trade ministry said yesterday. Teck Resources Ltd., Canada’s largest company in the industry, lost 3.1 percent to C$35.17. First Quantum Minerals Ltd., Canada’s second-biggest publicly traded copper producer, decreased 4.4 percent to C$18.71. SouthGobi Resources Ltd., which mines coal in Mongolia, slumped 7.2 percent to C$5.91, the lowest since December 2008. Potash Corp. retreated 3.6 percent to C$41.90 after Srikant Jena, India’s junior fertilizer minister, said in an interview the country is seeking ways to reduce prices. Agrium Inc., a fertilizer producer and farm retailer, fell 2.7 percent to C$68.50, ending a six-day streak of gains. Neo Material Technologies Inc., which makes rare-earths and zirconium products, tumbled 7.6 percent to C$7.15 after China indicated it will leave quotas for rare earths virtually unchanged in 2012. Rare Element Resources Ltd., which owns a project in Wyoming, sank 16 percent to C$3.30, the lowest since August 2010. The S&P/TSX Financials Index dropped as all of its banks declined. Royal Bank of Canada, the country’s largest lender by assets, lost 0.9 percent to C$50.85. Canadian Imperial Bank of Commerce, the fifth-biggest lender in the country, slipped 1 percent to C$72.67. Manulife Financial Corp., North America’s fourth-largest insurer, decreased 1.4 percent to C$10.45.
US
By Michael P. Regan and Rita Nazareth
Dec. 28 (Bloomberg) — The euro slid to a 10-year low versus the yen and stocks fell, halting a five-day rally in the Standard & Poor’s 500 Index, as Italian bonds erased earlier gains and a surge in the European Central Bank’s balance sheet to a record highlighted risks from the region’s debt crisis. The euro lost as much as 1.1 percent to 100.73 yen and decreased 1 percent to an 11-month low of $1.2937. The S&P 500 dropped 1.3 percent to 1,249.64 at 4 p.m. in New York and the Dow Jones Industrial Average lost 139.94 points, or 1.1 percent, to 12,151.41. Ten-year Italian bond yields rose less than one basis point to 6.999 percent after losing as much as 25 basis points. Oil snapped a six-day advance and gold capped the longest slump in two years. U.S. Treasuries rallied. The ECB’s balance sheet soared to a record 2.73 trillion euros ($3.55 trillion) after it lent financial institutions more money last week in an attempt to keep credit flowing to the economy during the debt crisis. Early gains in stocks and U.S. index futures came after Italy’s borrowing costs plunged at an auction of 9 billion euros of six-month bills, while investors turned their attention to the nation’s auction of longer-term bonds tomorrow. “If the euro zone banks are too afraid to lend, that does not bode well for future growth in the region,” Brian Jacobsen, who helps oversee about $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview. “The banks are not borrowing from the ECB in order to spur lending. It’s to shore up their own balance sheets. That could lead to a credit contraction in the euro zone.”
The euro weakened against all 16 of its major peers except for the British pound and Danish krone. The pound decreased against all 16 peers, while the dollar strengthened against 13 of 16. The S&P 500 retreated after rising for a fifth straight day yesterday, matching its longest streak of gains of the year. Commodity and energy producers and financial companies led losses in all 10 of the main industry groups in the benchmark index today. Caterpillar Inc., Chevron Corp. and 3M Co. fell more than 1 percent to lead declines in all 30 stocks in the Dow. Treasury 10-year yields slipped eight basis points to 1.92 percent, while the 10-year German bund yield was three basis points lower at 1.89 percent.
Oil in New York dropped 2 percent to $99.36 a barrel, the first decline in seven sessions. Crude climbed as high as $101.71 earlier amid concern Iran will block the Strait of Hormuz, through which passes about 15.5 million barrels of oil a day, a sixth of global consumption. The U.S. won’t tolerate a disruption to shipping in the strait, Navy spokeswoman Rebecca Rebarich said in an e-mail. Gulf Arab countries are prepared to make up for any loss of Iranian oil from the world market, the Associated Press reported, citing an unidentified Saudi Arabian oil official. Gold for February delivery declined 2 percent to settle at $1,564.10 an ounce, a fifth straight drop. Cotton trimmed gains after jumping the exchange limit 4 cents, or 4.6 percent, to 91.91 cents in New York as sales dropped by farmers in India, the world’s second-largest grower.
Germany’s DAX Index lost 2 percent to lead declines among major European markets. The FTSE 100 Index slipped 0.1 percent today in the U.K., where financial markets were shut the previous two days for holidays. The Stoxx Europe 600 Index fell 0.7 percent today and has dropped 13 percent this year, compared with an 18 percent slump in the MSCI Asia-Pacific Index and a loss of 0.6 percent in the S&P 500, which has fluctuated above and below its 2010 closing level since the end of October.
Today’s decline brought the S&P 500 back below its average price over the past 200 days after it climbed above the trend line in the previous two sessions. The Dow is up 5 percent in 2011. Two-year Italian yields slipped seven basis points to 5.00 percent today. Italy sold 179-day bills today at a rate of 3.251 percent, down from 6.504 percent at the last auction on Nov. 25. Demand was 1.7 times the amount offered, compared with 1.47 times last month. Italy will seek to sell bonds maturing in 2014, 2018, 2021 and 2022 tomorrow. The nation’s 10-year bond yields climbed to 7 percent yesterday, the level that foreshadowed bailouts for Greece, Ireland and Portugal. A report tomorrow may show Italian business confidence dipped to the lowest in almost two years.
Have a wonderful evening everyone.
As Always,
Kyle for Carolann.