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Canadian dollar whipsawed as market mood swings ‘from greedy to fearful’ Add to ...

These are stories Report on Business is following Thursday, May 23, 2013.

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Markets troubled
Global financial markets are in turmoil today, spooked by a weak economic reading in China and left not knowing exactly what to think about the Federal Reserve’s stimulus plans.

“Yesterday markets seemed unstoppable, with the rally carrying all before it,” said market analyst Chris Beauchamp of IG in London.

“Ben Bernanke’s testimony seemed to fire the starting gun on yet another rally in risky assets, but not even 24 hours later the mood has switched from greedy to fearful.”

Mr. Beauchamp was referring to the wild swings in the markets, which began after the Federal Reserve chairman appeared to tell investors just what they wanted to hear, that a premature pullback from the central bank’s huge quantitative easing program could kill the recovery.

That bond-buying scheme has helped drive markets to fresh highs, and investors feared the Fed could start to taper off before the economy could withstand it.

But then later, in a question-and-answer session at his congressional hearing, and then with the release of the minutes of the last Fed meeting, the central bank effectively left markets guessing as to when it will begin to ease off the $85-billion-a-month asset-buying program known as QE3, as The Globe and Mail’s Kevin Carmichael reports.

That sent markets into a tizzy. And today, a manufacturing reading showing China’s factory sector in retreat sparked a fresh frenzy.

“Taken in isolation, the Ben Bernanke speech, the Fed minutes and the China data would probably only have a limited impact, but having come all at once investors are finding it hard to be particularly sanguine,” Mr. Beauchamp said.

“That said, even if this does turn into a sustained down move over a period of a week or two the fundamental narrative of central bank easing and improving economic data should reassert itself.”

As The Globe and Mail’s Eric Reguly reports, it began with Tokyo’s Nikkei plunging 7.3 per cent, and Hong Kong’s Hang Seng 2.5 per cent, then spread to Europe, where London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 2.4 per cent and 2.6 per cent.

The pessimism carried over into North America, with losses for the S&P 500, Dow Jones industrial average and Toronto's S&P/TSX composite.

“Obviously weak data from China overnight didn’t help sentiment in the short term, but markets sent a very clear message to central bankers last night that if the free bar closes, everyone’s going home,” said Matt Basi of CMC Markets in London.

Loonie whipsawed
It’s not just the stock market. Currencies and bonds, too, have been roiled over the past 24 hours.

For now, the Canadian dollar appears to have found its floor as the U.S. dollar rallied at first, and then sank, buffeting the loonie. At this point, it’s up from yesterday’s close, trying to climb back to the 97-cent level.

At one point overnight, the Canadian currency hit a 12-month low of 96.21 cents, just before the release of the China numbers.

It then picked up a bit and, as of this morning, was down about 1.2 per cent from yesterday’s peak.

The loonie, as the dollar coin is known in Canada, is now down some 3.5 per cent since its high on May 9 of 99.86 cents.

But along with the Australian and New Zealand dollars, it's among the stronger currencies today, "which is odd considering the disappointing China release," said senior economist Jennifer Lee of BMO Nesbitt Burns.

There’s a lot going on here, said Stephen Gallo, Bank of Montreal’s European chief of foreign exchange strategy, and it’s complex.

“Over all, our take is that this latest ‘twist’ in market psychology is related to the fact that we are undoubtedly still participating in a world full of QE tapering potential, whilst global economic fundamentals – in aggregate – appear to indicate that QE tapering may not occur as smoothly or be as timely as many would hope; this, we think, is the macro link between the latest Chinese data and the persistent weakness in Europe on the one hand and a retrenchment in global capital flows due to QE tapering on the other,” Mr. Gallo said.

TD profit shy of estimates
Toronto-Dominion Bank’s hot profit growth has cooled, suggesting the uncertain economy is taking its toll, The Globe and Mail’s Tim Kiladze reports.

TD today kicked off the latest round of Canadian bank earnings by posting a second-quarter profit of $1.72-billion or $1.78 a share, up from $1.69 a year earlier, though also $1.78. That fell shy of analysts’ estimates of $1.86 a share in the latest quarter.

Wholesale banking helped the overall picture, as did U.S. loan growth.

"We are pleased with our results for the quarter, given the backdrop of low interest rates and slower economic growth,” said chief executive officer Ed Clark.

Mobilicity tweaks deal
Mobilicity has tweaked certain terms of its $380-million acquisition plan with Telus Corp. just hours before the wireless upstart’s bond holders are due to vote on deal, The Globe and Mail's Rita Trichur reports.

The Vaughan, Ontario-based carrier, which is legally known as Data & Audio-Visual Enterprises Holdings Inc., announced the revisions just before midnight after consulting with stakeholders. The company did not outline the specifics of those changes in its release, but suggested the main terms of the agreement “remain unchanged.”

“There is no change to the purchase price or any other significant consideration in the acquisition agreement that impacts customers, employees etc.," said Joel Shaffer of Longview Communications, a spokesman for Mobilicity.

"Nor is there any change to both party’s confidence that they’ll get the deal done.”

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