December 29th, 2011 Newsletter
Dear Friends,
“Fast is fine, but accuracy is everything.”
— Xenophon
Photo of the Day:
A priest walks inside a snow church in the Bavarian village of Mitterfirmiansreut, December 28, 2011. (Reuters/Peter Josek)
Market Commentary
Canada
By Matt Walcoff
Dec. 29 (Bloomberg) — Canadian stocks rose, trimming the year’s decline, as gold stocks gained after the U.S. Dollar Index erased the day’s gains and financial and energy companies advanced on data indicating a strengthening U.S. economy.
Barrick Gold Corp., the world’s largest gold producer, rallied 1.8 percent after the Financial Times said European Parliament members proposed a “road map” to the issuance of common euro-region bonds. Royal Bank of Canada, the country’s biggest lender by assets, increased 1.2 percent as an index of U.S. business activity fell less than economists forecast. Suncor Energy Inc., Canada’s largest oil and gas producer, climbed 2 percent as crude futures rose. The Standard & Poor’s/TSX Composite Index gained 113.29 points, or 1 percent, to 11,841.70. “Data has been relatively good when you compare to what people’s expectation was and what’s going on in Europe,” Sadiq Adatia, chief investment officer at Sun Life Global Investments in Toronto, said in a telephone interview. The unit of Sun Life Financial Inc. oversees about C$3.3 billion ($3.2 billion) for clients. “The U.S. seems to be a better story. Canada’s biggest trading partner is the U.S. If the U.S. does start to get some traction, that should benefit Canada.” The S&P/TSX has tumbled 12 percent this year, led by energy and raw-materials producers, as the European debt crisis led to reductions in global economic-growth forecasts. The groups make up 47 percent of Canadian stocks by market value.
The S&P/TSX Gold Index rebounded after closing at the lowest since July 2010 yesterday. The U.S. dollar fell and precious-metals shares gained after the Financial Times said members of the main European Parliament parties have proposed allowing so-called euro bonds as part of a new European Union treaty. The London-based newspaper cited a draft of the proposal and an interview with Guy Verhofstadt, the leader of the parliament’s Liberal group. Barrick rose 1.8 percent to C$46.07. Goldcorp Inc., the world’s second-biggest company in the industry by market value, advanced 2 percent to C$44.42. B2Gold Corp., which mines in Nicaragua, surged 8.8 percent to C$3.08.
The S&P/TSX Financials Index gained after the Institute for Supply Management-Chicago Inc. said its business barometer retreated to 62.5 from 62.6 in November. Economists had forecast a reading of 61, according to the median estimate in a Bloomberg survey. Readings above 50 signal growth.
U.S. pending home sales increased 7.3 percent in November, nearly five times as much as the median economist forecast in a Bloomberg survey, the National Association of Realtors said today in Washington. Royal Bank advanced 1.2 percent to C$51.47. Toronto- Dominion Bank, its largest domestic rival, climbed 0.7 percent to C$75.25. Manulife Financial Corp., North America’s fourth- largest insurer, rose 2.2 percent to C$10.68. Energy stocks gained with oil after the release of the U.S. economic data. Suncor advanced 2 percent to C$29.12. Canadian Natural Resources Ltd., the country’s second-largest energy company by market value, increased 1.7 percent to C$37.48. Oil- sands developer MEG Energy Corp. rallied 3.1 percent to C$41.08. Ivanhoe Energy Inc., which produces oil in China and Ecuador, jumped 16 percent to C$1.19. Shares of the Vancouver- based company have surged 57 percent since falling to a post- March 2009 low on Dec. 19, the first day after its removal from the S&P/TSX took effect. Robert Friedland, a co-founder of the company, said Dec. 14 that he resigned as chief executive officer.
US
By Michael P. Regan and Rita Nazareth
Dec. 29 (Bloomberg) — U.S. stocks rose, restoring the yearly gain for the Standard & Poor’s 500 Index, as data signaled the U.S. economy is weathering Europe’s debt crisis. The euro erased an earlier loss and European shares advanced. The S&P 500 climbed 0.8 percent to 1,259.85 at 2:51 p.m. in New York, leaving it up 0.2 percent for the year. The euro was little changed at $1.2942, after losing as much as 0.6 percent, and trimmed a 0.8 percent slide against the yen to 0.3 percent.
Italy’s 10-year bond yield was up less than three basis points at 7.03 percent after climbing 13 basis points earlier. Ten-year U.S. Treasury rates lost three basis points to 1.89 percent. U.S. equities extended gains as an index of pending U.S. home sales rose more than economists forecast, while other reports showed stronger-than-projected growth in American business activity and a drop in jobless claims over the past month to a three-year low. European stocks fell earlier, while the euro touched a decade low against the yen and a 15-month low versus the dollar, after Italy raised less than its maximum target at a debt auction. “There has been a much better tone in the U.S.,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “We’re optimistic that corporate earnings can continue to be strong and that will be a driver of the market.”
Financial stocks in the S&P 500 rose 1.2 percent as a group today to lead an advance in all 10 of the main industries as Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. rallied at least 1.8 percent. The group of 80 banks, insurers and investment firms has tumbled 18 percent this year for the worst performance among the 10 industries. PulteGroup Inc. and M/I Homes Inc. rose more than 5 percent to lead gains in all 12 companies in an S&P gauge of homebuilders. The National Association of Realtors’ index of pending home sales increased 7.3 percent to the highest level since April 2010. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg News survey. The four-week moving average for jobless claims, a less volatile measure than the weekly figures, dropped to 375,000 last week, the lowest level since June 2008, Labor Department figures showed. Applications rose for the first time in a month in the week ended Dec. 24, climbing by a more-than-forecast 15,000 to 381,000.
Other data showed business activity in the U.S. expanded more than forecast in December, prompting companies to boost employment. The Institute for Supply Management-Chicago Inc.’s business barometer was 62.5. Readings above 50 signal growth. Economists forecast the gauge would fall to 61, according to the median of estimates in a survey. Yields on two-year and 30-year Treasuries were also little changed, trading at 0.27 percent and 2.90 percent respectively. U.S. Treasuries are up 9.6 percent in 2011, headed for their best year since 2008, according to Bank of America Merrill Lynch indexes. The ten-year yield reached a record low of 1.67 percent on Sept. 23. The S&P GSCI Index of commodities was little changed as natural gas, cocoa and gold fell at least 1 percent to help lead losses among 12 of 24 commodities. Gold for immediate delivery pared losses after falling as much as 2.1 percent to $1,522.65 an ounce, the lowest price since July. Gold, which is poised to complete its 11th consecutive annual gain, the longest winning streak in at least nine decades, is on the brink of a bear market. Gold for immediate delivery has declined 19 percent from a record close of $1,900.23 on Sept. 5, or 1 percentage point away from a bear- market plunge of 20 percent.
“We’re still constructive on gold, as a hedge, a store value,” Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC in Philadelphia, told Bloomberg Television. “If investors continue to gravitate toward it as a currency in lieu of other fiat currencies that are in the process of being debased by many central governments around the world.” Oil in New York swung between gains and losses above $99 a barrel after falling 2 percent yesterday. A U.S. government report showed an unexpected increase in inventories as demand declined. The euro weakened against 12 of 16 major peers, losing at least 0.4 percent versus the Australian dollar, Norwegian krone and South African rand.
The shared European currency is the worst performer among 10 developed-nation currencies this year, declining 1.8 percent, according to Bloomberg Correlation-Weighted Currency Indexes. The euro today touched its lowest level since 2002 against the index. The dollar has advanced 1.8 percent and the yen has gained 4.9 percent. Leaders in the European parliament have proposed including a “road map” for common euro-region bonds in a new European treaty on fiscal discipline, the Financial Times reported, citing amendments submitted to the treaty’s drafters. The amendments, which would not create common bonds immediately, would focus on creating conditions where Germany may support the plan, the newspaper reported on its website. The Stoxx Europe 600 Index increased 0.9 percent today as real-estate firms, utilities and chemical companies led gains. The Stoxx 600 has dropped 12 percent this year, compared with an 18 percent slump in the MSCI Asia Pacific Index. The S&P 500 has drifted above and below its 2010 closing level since the end of October. The MSCI Emerging Markets Index was little changed after falling for three straight day. Russia’s Micex rose 0.4 percent. Indian stocks dropped for a third day, with the Sensex sliding 1.2 percent.