Canadian stocks fluctuated on Thursday, erasing earlier gains, following a report that some clients of Deutsche Bank AG are concerned about doing business with the firm after the U .S. Justice Department requested $14-billion to settle an investigation into residential mortgage-backed securities.
The S&P/TSX Composite Index closed up 0.16 per cent, or 23.12 points, to 14,754.55 in Toronto, down from an earlier advance of as much as 0.6 per cent. The index has risen 4.6 per cent since the end of June and is headed for a third quarterly gain, its longest streak in two years. The S&P/TSX is up nearly 14 per cent this year, making it the the second-best performing developed market equity index in the world behind New Zealand.
Not coincidentally, Canadian stocks are now more expensive than their U.S. peers, with the S&P/TSX carrying a price-to-earnings ratio of 23.6 compared with 20.3 for the the S&P 500 Index. The current valuation of Canadian equities is near the highest levels in 14 years, according to data compiled by Bloomberg.
Financial shares are down 0.2 per cent after Bloomberg reported that a number of funds that clear derivatives trades with Deutsche Bank have withdrawn some excess cash and positions held at the firm. Meanwhile, U.S. lender Wells Fargo & Co. is now facing Justice Department sanctions over improperly repossessing cars owned by members of the military, according to two people with knowledge of the investigation. A penalty of as much as $20-million is expected. This comes after weeks of pummelling over the bank’s practice of opening fraudulent customer accounts.
Energy producers continued to rally following an agreement by OPEC members for their first output cut in eight years. Suncor Energy Inc. rose 2.3 per cent and Canadian Natural Resources Ltd. gained 2.4 per cent as the energy sector advanced 2.3 per cent.
Wall Street dropped on Thursday, weighed down by Apple as well as selling in Wells Fargo, Citigroup and other major banks as investors worried about the health of Deutsche Bank.
The S&P 500 financial index dropped 1.5 per cent after Bloomberg reported that some hedge funds have withdrawn excess cash and positions held at the German lender.
Concerns over the stability of Germany’s biggest bank have pushed its shares to record lows and its U.S.-listed stock on Thursday tumbled 6.7 per cent.
Wells Fargo & Co lost 2.1 per cent after U.S. lawmakers rebuked CEO John Stumpf over his handling of sales abuses.
Citigroup dropped 2.3 per cent and JPMorgan Chase fell 1.6 per cent.
Apple fell 1.6 per cent after Barclays cut its price target. The stock was the biggest drag on Wall Street.
The S&P healthcare index lost 1.8 per cent and also weighed heavily on the S&P 500 as shares of Merck and Johnson & Johnson declined.
“Equity valuations are stretched and priced for perfection,” said Mike Baele, managing director with the private client reserve group at U.S. Bank in Portland, Oregon. “I would not be surprised to see additional volatility.”
The CBOE Volatility Index, a gauge of near-term investor anxiety, jumped 14 per cent.
The Dow Jones industrial average was unofficially down 1.07 per cent to 18,143.45 points and the S&P 500 lost 0.93 per cent to 2,151.12.
The Nasdaq Composite dropped 0.93 per cent to 5,269.15.
European shares ended flat on Thursday as losses among drugmakers offset energy share gains following an OPEC deal to cut output, while Commerzbank slid after the German lender froze dividend payments.
The European oil and gas index soared 4.3 per cent, making its best day in seven months. Tullow Oil jumped 9.8 per cent, while heavyweights Royal Dutch Shell, Total and Eni were up 4.2-6.6 per cent.
The Organization of the Petroleum Exporting Countries (OPEC) agreed on Wednesday to cut output to 32.5-33.0 million barrels per day from around 33.5 million barrels, estimated by Reuters to be the output level in August.
Ronny Claeys, senior strategist at KBC Asset Management, said the OPEC agreement was good news for oil companies, which could now outperform over the next six months.
But some investors questioned the effectiveness of the deal and crude prices pulled back on Thursday after posting a strong rally in the previous session on the back of the deal.
“The market reaction to the OPEC deal was overdone. Crude prices are stuck in a range and with OPEC representing less than 40 per cent of global output, crude prices can rise but not that much,” said Marco Vailati, head of research and investment at Cassa Lombarda in Milan.
The pan-European STOXX 600 ended flat after rising as much as 1.1 per cent earlier in the session, dragged back down by weakness in drugmakers and travel stocks.
Mr. Vailati said he expected European equities to continue see-sawing.
“Europe companies are expensive and earnings growth is sluggish but on the other hand there is support from the central bank, which is flooding the market with liquidity,” he said.
Commerzbank fell 3.1 per cent, the heaviest faller on the DAX after the German lender said it would cut more than a fifth of its workforce and suspended its dividend.
But Markus Huber, trader at City of London Markets, said the harsh measures could help restore investor confidence.
“Although this step is painful, it is necessary in order for things to finally turn around for Commerzbank. Also, this combined with laying off close to 10,000 people seems to go a long way to convincing investors that Commerzbank is ... committed to turning things around,” he said.
Oil rose to a one-month high after OPEC agreed to reduce production for the first time in eight years, surprising traders who had expected members to maintain output.
Futures climbed 1.7 per cent in New York after surging 5.3 per cent on Wednesday. The Organization of Petroleum Exporting Countries agreed to cut production to a range of 32.5 million to 33 million barrels a day, Iran’s Oil Minister Bijan Namdar Zanganeh said after talks in Algiers. The decision marks the end of the two-year pump-at-will policy that was advocated by Saudi Arabia. U.S. data showed American crude supplies declined last week.
“They showed that they will act before prices drop below $40,” said Ed Morse, head of commodities research at Citigroup Inc. in New York. “The Saudis have tweaked their earlier position to let markets decide the price of oil. Now they will make seasonal adjustments to maximize revenue.”
West Texas Intermediate for November delivery rose 78 cents to settle at $47.83 a barrel on the New York Mercantile Exchange.
With files from Bloomberg NewsReport Typo/Error
- Canadian Natural Resources Ltd$43.99-0.65(-1.46%)
- Crude Oil Front Month Futures$49.97+0.20(+0.40%)
- S&P/TSX Composite15,237.75+111.95(+0.74%)
- Suncor Energy Inc$43.03+0.06(+0.14%)
- Dow Jones Industrials19,549.62+297.84(+1.55%)
- S&P 500 INDEX2,241.35+29.12(+1.32%)
- NASDAQ NMS COMPOSITE INDEX5,393.76+60.76(+1.14%)
- Barrick Gold Corp$20.92+0.37(+1.80%)
- Deutsche Bank AG$18.67+0.38(+2.08%)
- Merck & Co Inc$60.06-0.22(-0.36%)
- Johnson & Johnson$111.10-0.96(-0.86%)
- JPMorgan Chase & Co$84.07+0.38(+0.45%)
- Citigroup Inc$59.06+1.14(+1.97%)
- Apple Inc$111.03+1.08(+0.98%)
- Updated December 6 7:13 PM EST. Delayed by at least 15 minutes.