June 1st 2011, Newsletter
Dear Friends,
It’s The Glorious First of June: So named because on June 1, 1794, the Channel Fleet under Lord Howe gained a decisive victory over the French under Admiral Villaret de Joyeuse. Off Ushant, six French ships were captured and one sunk, but the convoy of corn ships, which they were escorting, got through Brest.
June is probably named after the Roman gens or clan name Junius, related to juvenis, meaning young. However, some sources take the name from Juno. In Roman mythology, Juno is the “venerable ox-eyed” wife and sister of Jupiter, and Queen of Heaven. She is identified with the Greek Hera, who was the special protectress of marriage and of women and was represented as a war-goddess.
photos of the day
June 1, 2011
In this late Tuesday, May 31, 2011 photo, opera singers walk to the stage for a rehearsal of Verdi’s opera, ‘Aida’ near by the historical site at Masada, Israel.
Oded Balilty/AP
Space Shuttle Endeavour (STS-134) makes its final landing at the Shuttle Landing Facility (SLF) at Kennedy Space Center in Cape Canaveral, Florida. Endeavour touched down at its Florida home base capping a 16-day mission to deliver a premier science experiment to the International Space Station on NASA’s next-to-last shuttle flight.
Bill Ingalls/NASA
Market Commentary:
Canada
By Matt Walcoff
June 1 (Bloomberg) — Canadian stocks fell the most in nine months, led by financial and energy companies, after private reports showed growth in U.S. employment and manufacturing slowed last month.
Canadian Imperial Bank of Commerce, the country’s fifth- largest lender by assets, dropped 3.5 percent after an analyst at Royal Bank of Canada cut his rating on the shares. Canadian Natural Resources Ltd., the country’s second-largest energy company by market value, lost 4 percent as oil futures retreated. BlackBerry maker Research In Motion Ltd. declined 5.1 percent after UBS AG named it a “least-preferred” stock.
The Standard & Poor’s/TSX Composite Index decreased 275 points, or 2 percent, to 13,527.88 after the Institute for Supply Management’s index of U.S. manufacturing dropped to its lowest level since September 2009. The May figure trailed 82 of 83 economists’ forecasts in a Bloomberg survey.
“This is a further confirmation of a slowing down of the economy,” said Sebastian van Berkom, a money manager at Van Berkom & Associates in Montreal, which oversees C$1.6 billion ($1.6 billion). “The statistics are coming down below estimates, therefore the market reacts negatively.”
The index yesterday completed its third-straight monthly loss, the longest streak since February 2009. Indexes of S&P/TSX energy and materials stocks slumped 4.5 percent and 5.9 percent, respectively, in May as crude futures sank 9.9 percent and silver plunged 21 percent while the U.S. dollar climbed for the first time since November. Energy and raw-materials companies make up 49 percent of Canadian stocks by market value, according to Bloomberg data.
ADP Employer Services said today that U.S. employers added 38,000 jobs last month, missing the median estimate 175,000 in a Bloomberg survey of economists.
Also today, Moody’s Investors Service cut its credit rating on Greek bonds to Caa1 from B1, and JPMorgan Chase & Co. reduced its forecast for U.S. second-quarter economic growth to an annualized rate of 2 percent from 2.5 percent.
An index of S&P/TSX financial stocks declined the most since August. Toronto-Dominion Bank, Canada’s second-largest lender by assets, fell 3.2 percent, the most in a year, to C$80.81. Royal Bank, its bigger rival, decreased 2.9 percent to C$54.98. Manulife Financial Corp., North America’s fourth- largest insurer, slid 4.8 percent to C$16.44.
CIBC retreated 3.5 percent to C$77.54 after Andre-Philippe Hardy, an analyst at Royal Bank, cut his rating to “sector perform” from “outperform.” The lender has the most to lose among Canadian banks from a slowdown in domestic consumer lending, Hardy wrote in a note to clients.
The S&P/TSX Energy Index fell for the first time in six days as crude oil dropped the most in three weeks and natural gas futures declined.
Encana Corp., Canada’s largest nautral gas producer, lost 2.6 percent to C$32.15. Cenovus Energy Inc., the country’s fifth-biggest energy company, declined for the first time in eight days, decreasing 4.4 percent to C$34.21. Canadian Natural retreated 4 percent to C$40.48.
Corridor Resources Inc., which explores for oil and gas in eastern Canada, plunged 25 percent to an 18-month low of C$3.18 after saying Apache Corp. has pulled out of a shale-gas joint venture in New Brunswick.
Oilfield services company Trinidad Drilling Ltd. fell 6 percent, the most in nine months, to C$10.29 after reporting profit and sales that missed analyst estimates.
Base-metal and coal producers dropped as copper declined.
Teck Resources Ltd., Canada’s largest company in the industry, lost 3.7 percent to C$48.94. Northern Dynasty Minerals Ltd., Anglo American Plc’s partner in the Pebble project in Alaska, decreased 5.9 percent to C$11.55.
Reitmans (Canada) Ltd., which owns the country’s biggest chain of women’s clothing stores, tumbled 7.2 percent, the most in 25 months, to C$16.47 after reporting first-quarter profit of 1 Canadian cent a share, excluding certain items. Two analysts had estimated earnings of 23 Canadian cents a share and 24 Canadian cents a share, respectively.
RIM, Canada’s largest technology company, slumped 5.1 percent to C$39.23 after closing at a four-year low yesterday.
In a note to clients, Amitabh Passi, an analyst at UBS, said increasing competition in the smartphone market may reduce profit margins.
Intact Financial Corp., Canada’s biggest property and casualty insurer, soared 9.7 percent to more than a four-year high of C$54.62 after agreeing to buy Axa SA’s Canadian unit for
C$2.6 billion. The purchase will increase Intact’s premiums by C$2 billion to more than C$6.5 billion, the company said in a statement.
Sino-Forest Corp., a forestry company with operations in China, dropped 5.5 percent to C$18.21 after a purchasing managers’ index for the country showed manufacturing grew at the slowest pace in nine months in May.
US
By Stephen Kirkland and Rita Nazareth
June 1 (Bloomberg) — Stocks sank, dragging the Standard & Poor’s 500 Index to its worst loss since August, and Treasuries rallied as slower growth in jobs and manufacturing fueled concern the economy is faltering. The Dollar Index erased losses, and commodities fell.
The S&P 500 plunged 2.3 percent, the Stoxx Europe 600 Index slid 1 percent and Brazil’s Bovespa retreated 1.9 percent as of 4:15 p.m. in New York. Ten-year Treasury note yields dropped below 3 percent for the first time since December and the Dollar Index rose 0.3 percent after sinking 0.4 percent earlier. The Swiss franc snapped a two-day drop against the euro. The S&P GSCI Index of commodities tumbled 1.5 percent.
U.S. equities halted their longest streak of gains in a month after companies added 38,000 workers to payrolls in May, according to figures from ADP Employer Services, less than one- quarter of the median growth forecast by economists. Stocks extended losses after the Institute for Supply Management’s factory index showed U.S. manufacturing expanded at the slowest pace since September 2009.
“It’s going to be pretty rocky,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “The bond market is in full-on pessimistic mode. We still think that this ultimately will be only a soft spot. The question is how long? It will be risk-off until this soft spot is confirmed.”
Financial firms, industrial companies and raw-material producers fell at least 3 percent to lead declines in all 10 industry groups in the S&P 500. Caterpillar Inc., Alcoa Inc. and Bank of America Corp. fell 4.3 percent or more for the biggest losses in the Dow Jones Industrial Average. The Russell 2000 Index of small U.S. companies slumped 3.2 percent, the most since August, while the Dow Jones Transportation Average retreated 3.4 percent.
The ISM’s factory index fell to 53.5 in May from 60.4 the prior month. Economists projected the gauge would drop to 57.1, according to the median forecast in a Bloomberg News survey.
Estimates of the 83 economists polled ranged from 53 to 60.
The S&P 500 has fallen 3.6 percent from an almost three- year high at the end of April, and Treasuries have rallied, as economic data trailed economists’ estimates and investors prepared for the Federal Reserve to complete its $600 billion bond-purchase program by the end of this month. Citigroup Inc.’s U.S. Economic Surprise Index, which tracks the rate at which data is beating or missing estimates, turned negative in May and has since fallen to the lowest level since January 2009.
Labor Department data on June 3 will probably show a projected 180,000 gain in payrolls following a 244,000 April increase, according to a Bloomberg survey.
The recent lower-than-forecast economic data has caused some investors to speculate that the Fed will plan a third round of so-called quantitative easing after its latest program of bond purchases, known on Wall Street as “QE2,” is completed this month.
“We do not want to see QE3,” Brian Belski, Oppenheimer & Co.’s New York-based chief investment strategist, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “QE3 is a short-term event, which will cause the market to go higher because investors over the last 10 years have become so reliant on cheap money and low interest rates. We think that only prolongs the inevitable when the Fed has to eventually sell these securities that they have been buying.”
The dollar beat stocks, bonds and commodities for the best performance in May. The Dollar Index climbed 2.3 percent in the month, while the MSCI All-Country World Index of equities fell 2.5 percent, the S&P GSCI Index of commodities sank almost 7 percent in the month and bonds of all types returned 1.1 percent on average.
Crude oil slid 2.4 percent, the most in three weeks, to $100.29 a barrel in New York. All but four of the 24 commodities tracked by the S&P GSCI Index retreated. Silver, coffee, sugar and wheat lost at least 2.9 percent for the biggest declines.
The Stoxx 600 retreated for the second day this week. Banca Monte dei Paschi SpA sank 7.6 percent, as the Italian lender’s controlling shareholder sold 450 million shares on behalf of Fondazione Monte dei Paschi di Siena, a term sheet for the deal showed.
The difference in yield between Greek 10-year bonds and benchmark German bunds increased 15 basis points to 13.17 percent. Greece’s next aid package may include incentives for bondholders to keep lending without triggering a downgrade that would roil Europe’s banking system, two people with knowledge of the talks said. So-called negative incentives are also under consideration, such as cutting off old Greek bonds from eligibility for use as collateral with the European Central Bank, the people said.
The franc strengthened against all 16 of its major counterparts, gaining 1.7 percent versus the euro, after retail sales rose in April at the fastest rate for two years, boosting speculation the Swiss National Bank will increase borrowing costs. Britain’s pound weakened against 10 of its 16 major peers after a manufacturing index fell to a 20-month low and U.K. mortgage approvals dropped to the least in four months.
The MSCI Emerging Markets Index fell 0.3 percent, breaking a four-day winning streak. Taiwan’s Taiex Index climbed 0.6 percent. The Bombay Stock Exchange Sensitive Index rose 0.6 percent after Morgan Stanley predicted it will rebound 19 percent this year. Thailand’s SET Index slid 0.8 percent before the central bank raised its benchmark one-day bond repurchase rate for the fourth time this year.
Have a wonderful evening everyone.
Be magnificent!
The main purpose of life is to live rightly, think rightly, act rightly.
The soul must languish when we give all our thought to the body.
-Mahatma Gandhi, 1869-1948
As ever,
Carolann
LAST WORDS:
I wish I had drunk more champagne.
-John Maynard Keynes, 1883-1946
Carolann Steinhoff, B.Sc., CFP, CIM, FCSI
Senior Vice-President &
Senior Investment Advisor
Queensbury Securities Inc.,
St. Andrew’s Square
Suite 340A, 730 View St.,
Victoria, B.C. V8W 3Y7