October 7, 2014 Newsetter

Dear Friends,

Tangents:

Carolann is out of the office today, I will be writing the newsletter of her behalf.

PHOTOS OF THE DAY

A Lilac-breasted roller sits on a branch in the Naboisho Conservancy in Kenya. Goran Tomasevic/Reuters

A patron looks at Heinrich Campendonk’s ‘Harlequin and Columbine’ at the ‘From Van Gogh to Kandinsky: Impressionism to Expressionism’ exhibit at the Museum of Fine Arts in Montreal, Canada. The exhibit runs from Oct. 11 to Jan. 25. Ryan Remiorz/The Canadian 

Market Closes for October 7^th, 2014    

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     Oct. 7 (Bloomberg) — Canadian stocks fell to a four month low as the International Monetary Fund cut its outlook for global growth and lower oil prices dragged down energy shares.

     Canadian National Railway Co. and Canadian Pacific Railway Ltd. sank more than 3 percent after a train carrying petroleum derailed in Saskatchewan. Pacific Rubiales Energy Corp. and Athabasca Oil Corp. retreated at least 4.8 percent as crude in New York traded at a 17-month low. Lundin Mining Corp. lost 2.1 percent after agreeing to buy a controlling stake in the Candelaria copper mining complex in Chile from Freeport-McMoRan Inc. for at least $1.8 billion.

     The Standard & Poor’s/TSX Composite Index fell 166.67 points, or 1.1 percent, to 14,576.45 at 4 p.m. in Toronto, the lowest close since May 20. While the equity gauge is still up 7 percent this year, it has posted losses for the past five weeks. Trading volume was 17 percent higher than the 30-day average.

     The world economy will grow 3.8 percent next year, compared with a July forecast for 4 percent, the IMF said. Financial markets in advanced economies may be overheating after a sustained period of near-zero interest rates, raising the risk of a correction in 2014.

     Canadian building permits plunged 27 percent in August from a record, led by lower intentions for medical buildings in Quebec and multiple-unit housing in Ontario.

     Canadian National sank 3.2 percent to C$75.26, the biggest decline since December, and Canadian Pacific slumped 3.1 percent to C$231.56. A Canadian National train carrying petroleum products and toxic material derailed near the village of Clair in Saskatchewan. Six of the 26 cars in the train were carrying dangerous goods, including petroleum distillate, which caught fire, Jim Feeny, a company spokesman, said by phone.

     Industrial stocks plunged 2.3 percent as a group, the most in the S&P/TSX.

     Pacific Rubiales tumbled 5.1 percent to C$17 and Athabasca Oil slumped 4.8 percent to C$4.98 as oil producers retreated 1.5 percent as a group. Nine of 10 industries in the S&P/TSX retreated.

     West Texas Intermediate for November delivery fell 1.7 percent to $88.85 a barrel on the New York Mercantile Exchange.

 US

 By Oliver Renick and Lu Wang

     Oct. 7 (Bloomberg) — Stocks tumbled and bonds rallied, sending yields to the lowest since May 2013, as the International Monetary Fund cut its global outlook and German industrial production plunged. Oil slid to a 17-month low.

     The Standard & Poor’s 500 Index fell 1.5 percent to 1,935.10 at 4 p.m. in New York, the lowest level since Aug. 12. The Dow Jones Industrial Average lost 1.6 percent, the most since July. The yield on 30-year Treasuries retreated 8 basis points to 3.05 percent as investors sought safety. Oil tumbled 1.7 percent to the lowest since April 2013, while gold futures climbed 0.4 percent. Volatility rose, with the VIX jumping to the highest since March.

     The IMF cut its outlook for global growth in 2015 and warned about the risks of rising geopolitical tensions and a financial-market correction as stocks reach “frothy” levels. German industrial production dropped 4 percent in August in the biggest decline since 2009. The Federal Reserve releases minutes of its last meeting tomorrow, when Alcoa Inc. unofficially starts the U.S. earnings season.

     “People get worried when they hear the IMF talk about growth prospects around the world falling,” Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management LLC, said in a phone interview. “The economic data from Europe is not good, some of the steam is getting let out of the economy. We don’t have earnings data to drive us yet this week and let’s face it, that’s the meat and potatoes of the market.”

     The S&P 500 fell through its average price for the past 100 days in morning trading. Losses accelerated in the afternoon as futures contracts expiring in December slipped below 1,940, a level where two previous declines had ended earlier today.

     The world economy will grow 3.8 percent next year, compared with a July forecast for 4 percent, after a 3.3 percent expansion this year, the Washington-based IMF said. U.S. growth is helping lead a worldwide acceleration that’s weaker than the fund predicted 2 1/2 months ago as the outlooks for the euro area, Brazil, Russia and Japan deteriorate.

     The IMF predicted the U.S. economy will grow 2.2 percent this year, compared with a 1.7 percent projection in July.

     According to the IMF’s report, a sustained period of policy interest rates near zero in advanced economies has raised the risk that some financial markets may be overheating.

     “Downside risks related to an equity price correction in 2014 have also risen, consistent with the notion that some valuations could be frothy,” the IMF said without naming specific markets.

     The report comes three months after the Fed said prices were stretched in some small-cap and biotechnology stocks. Since then, the Nasdaq Biotechnology Index has rallied almost 6 percent while the Russell 2000 Index last week entered a correction, falling more than 10 percent from a record in March. The Russell 2000 lost 1.6 percent today, the most since July 31.

     “We don’t share the view of a frothy market,” Frederic Dickson, who helps oversee $45 billion as the chief investment strategist of D.A. Davidson & Co., said by phone from Baltimore. “Where there has been froth in the market, it’s been with some high-flying, small-cap, illiquid stocks that have taken a beating in the last three months.”

     With a valuation of almost 18 times earnings, the S&P 500 is at the same multiple as in October 2007, the beginning of the last bear market. Compared with the dot-com bubble, the S&P 500’s valuation is about 60 percent below the level from 1999.

     Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said today at the Fortune’s Most Powerful Women Summit that stocks are now “in a zone of reasonableness.”

     The S&P 500 rose to a record on Sept. 18. The gauge has not fallen four straight days this year, and has not slid more than 10 percent in three years. The index has retreated 3.8 percent since its all-time high as the Fed remains on track to end bond purchases this month, trimming its gain for the year to 4.7 percent. The Dow is up 0.9 percent for the year.

     The Federal Open Market Committee will release minutes from its Sept. 16-17 meeting tomorrow. Investors have been concerned the central bank may increase interest rates sooner than anticipated as the U.S. economy gains strength.

     Forecasts for the Fed to raise rates in mid-2015 are “reasonable” as policy makers wait for unemployment to fall further and inflation to rise, New York Fed President William C. Dudley said today in a speech in Troy, New York.

     Investors will also turn to corporate profits for clues on the strength of the U.S. economy. Profit at companies in the S&P 500 rose 4.9 percent in the July-September period, according to the average estimate of analysts in a Bloomberg survey.

     AGCO Corp. sank 11 percent to lead industrial shares lower today. The world’s third-largest maker of agricultural equipment cut its forecast because of lower sales in all regions and the stronger dollar. The Dow Jones Transportation Average retreated 2.5 percent to an almost two-month low.

     The Chicago Board Options Exchange Volatility Index rose 11 percent to 17.20 today, the highest level since March 14. The gauge known as the VIX jumped 36 percent in September, the most since July.

     “It’s definitely a risk-off day with ugly European data and growth concerns and I think we’re seeing some of that negative sentiment just getting ahead of itself here,” Mark Kepner, an equity trader at Chatham, New Jersey-based Themis Trading LLC, said by phone.

     The Stoxx Europe 600 Index dropped 1.5 percent to the lowest level since Aug. 15, after advancing in the past two days. Travel and leisure companies declined the most, after a Madrid nursing assistant became the first person outside Africa to be diagnosed with Ebola.

     Rio Tinto Plc added 0.8 percent, paring an earlier rally of 6.2 percent, as Glencore Plc abandoned a bid for the company after a July offer to create the world’s largest miner was rebuffed. Rio Tinto said today it has had no further contact over a potential deal. Glencore fell 2.5 percent and Anglo American Plc gained 2 percent.

     “A combination of not-perfect economic data and some geopolitical risk has put doubt in some investors’ minds and that brings some volatility,” Dan Curtin, the Boston-based global investment specialist at JP Morgan Private Bank, said in a phone interview. “The dollar surge, Hong Kong protests, Ebola scare and weakening oil prices, somewhere circled together in those things is the root of this recent pullback.

     Treasuries rose as the U.S. sale of $27 billion of three- year notes drew the strongest demand since February amid concern global economic growth may be slowing. The notes yielded 0.994 percent at the auction, compared with a forecast of 1.004 percent in a Bloomberg News survey of six of the Federal Reserve’s 22 primary dealers.

     The U.S. will sell $21 billion in 10-year notes tomorrow and $13 billion in 30-year debt the next day.

     The benchmark 10-year yield dropped 8 basis points to 2.34 percent, the lowest level since August.

     West Texas Intermediate oil fell to $88.85 a barrel before a government report that may show U.S. inventories increased last week. Brent crude lost 0.7 percent to $92.11, the lowest since June 2012.

     U.S. crude inventories expanded by 2 million barrels in the week ended Oct. 3, a Bloomberg News survey showed before Energy Information Administration data tomorrow. The EIA cut its 2014 and 2015 crude price forecasts today because of rising output and reduced demand.

     Gold rose for a second day as the dollar’s decline boosted the metal’s appeal as an alternative investment. Futures added 0.4 percent to $1,212.4 an ounce, after rallying 1.2 percent yesterday.

     The Bloomberg Dollar Spot Index fell 0.2 percent, after dropping 0.9 percent yesterday. The gauge has rallied for seven weeks and closed at a four-year high on Oct. 3 as investors speculated on the timing of an interest-rate increase by the Fed.

     The yen strengthened against most of its 16 major peers on speculation officials are growing uncomfortable with the pace of its depreciation. Bank of Japan Governor Haruhiko Kuroda said the central bank will closely monitor the exchange rate and Prime Minister Shinzo Abe said its weakness is hurting small companies and households.

Have a wonderful evening everyone.

Be magnificent!

“Health is the greatest gift,

contentment the greatest wealth,

faithfulness the best relationship”

Buddha

As ever,

Karen

“Put your heart, mind, and soul into even your smallest acts. This is the secret of success.” Swami Sivananda 

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