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An ugly day, an ugly quarter It's one of those days as an ugly third quarter draws to a close. Stocks are sinking and currencies are being roiled as economic jitters sap the optimism of investors.
"We're seeing a hefty flight from risk on this final day of September," said Jennifer Lee of BMO Nesbitt Burns.
The Canadian dollar slipped below 96 cents U.S., and then bounced around. For a sense of the volatility, look at trading yesterday, when the currency was as high as 97.50 cents and as low as 96.13 cents.
"It is impossible to ignore the accelerating weakness in [the Canadian dollar] our base case remains that as long as risk aversion remains high, it is likely that [the Canadian dollar]will struggle," said chief currency strategist Camilla Sutton of Scotia Capital. The worst case scenario is likely the 2008 episode of risk aversion."
A softer currency, of course, can provide a bit of economic juice. David Watt, senior fixed income and currency strategist at RBC Dominion Securities, noted yesterday that the exchange rate acts as a "shock absorber." A shock to the system, particularly where global demand is concerned, will generally push commodity prices down and the U.S. greenback up.
"A weaker [Canadian dollar]would be the first line of defence of the Canadian economy from heightened global uncertainty," Mr. Watt said.
"In a perfect world, the currency adjusts to cushion the real economy. Other macro policy levers (fiscal and/or monetary) would be available as required and [Finance Minister Jim Flaherty]has pledged to be 'responsive, flexible and pragmatic.'"
In the stock markets, Tokyo's Nikkei closed down slightly, while Hong Kong's Hang Seng slipped 2.3 per cent. Stocks are being hammered in Europe and in North America, with the Dow Jones industrial average , the S&P 500 and Toronto's S&P/TSX composite all down.
Economy grows Canada's economy kicked off the third quarter with growth in July of 0.3 per cent, following a bad second quarter.
Manufacturing and mining were the main drivers, though other sectors also gained, The Globe and Mail's Jeremy Torobin reports. The factory sector grew 1.4 per cent, rebounding from three straight months of contraction, Statistics Canada said. Mining output also climbed, by 2.9 per cent, largely on rebounds for copper, lead and zinc mining after production troubles had slowed things down.
On the other side, construction contracted 0.3 per cent, and the home resale market slipped 1.1 per cent.
"Overall, a healthy gain – although recent indicators suggest some potential deceleration in the following months, which should leave [third-quarter]GDP at around 2 per cent annualized," said Emanuella Enenajor of CIBC World Markets.
Economist Krishen Rangasamy of National Bank of Canada said a technical recession - that would be marked by another contract in the third quarter, which ends today - appears "highly unlikely."
"Sectors of the economy that were hit hard in [the second quarter] because of temporary factors, like autos, are now bouncing back," he said.
"The good handoff from June and the strong start to [the third quarter] puts Canada on track for growth of roughly 2 per cent annualized in the third quarter. Our own concerns are mostly about [the fourth quarter] given the slump in business and consumer confidence and a slow moving U.S. economy, as well as next year when fiscal drag is expected to hit on both sides of the 49th parallel."
Minmetals bids for Anvil China's Minetals Resources Ltd. is taking another run at a resources company.
The Chinese concern is bidding $1.3-billion, or $8 a share in cash, for Anvil Mining Ltd. . This time, it's a friendly deal, The Globe and Mail's Brenda Bouw reports.
Several months ago, Minmentals was outbid by Barrick Gold Corp. after it launched a hostile offer for Equinox Minerals Ltd.
Anvil owns the Kinsevere project in the copper-rich Katanga province in the Democratic Republic of Congo, and this would mark the first foray into Africa by Minmetals.
What ails Europe To get a sense of what's wrong with Europe, look no further than the comments today from the president of the European Commission.
Jose Manuel Barroso told a German newspaper that a proposal from Germany and France - they want regular meetings of EU to effectively manage the economy - won't work and is an "illusion."
Whether Mr. Barosso is right or wrong isn't the issue here. Rather, his comments are yet another sign that the continent's leaders can't get their act together, and certainly aren't sending signs of unity to jittery markets.
There are several developments again today in the debt crisis that is hobbling the 17-member euro zone:
- Spain nationalized three banks.
- The inspectors from the European Union, the European Central Bank and the International Monetary Fund who are reviwing Greece's plans, a key step in getting more bailout money, had to reschedule a meeting today because civil servants were occupying a ministry building.
- Portugal's statistics agency revised last year's deficit to a higher 9.8 per cent of gross domestic product.
There had been a sense of relief in the monetary union after Germany's Bundestag voted to support a beefed-up rescue fund, which must be ratified by all 17 countries. That clearly didn't last long, though Austria approved it today.
"The biggest obstacle is Slovakia where they are due to vote on 25th October and where the government is struggling to muster support, against a fierce backdrop of opposition from certain elements in the opposition parties," said CMC Markets analyst Michael Hewson.
"While markets breathed a shallow sigh of relief that Europe's biggest economy is now on board for this particular change, everyone knows the problem has once again been pushed out into the future again. There is also the added problem that voters within the various European countries are now waking up to the fact that this could well be a problem without an end, and without any indication what the final bill is likely to be."
- Barroso slams French-German EU proposal
- Unthinkable for Slovaks to stall rescue fund: EU
- Fears remain enhanced EU fund still not big enough
Inflation climbs The European Central Bank is between a rock and a hard place, with growth slowing and the monetary union in crisis, though with inflation climbing.
Eurostat, the statistical agency, today estimated the euro zone's annual inflation rate at 3 per cent in September, up from 2.5 per cent in August. At the same time, the region's unemployment rate held steady at a high 10 per cent for August.
The disparity in the group is stunning. At the bottom end, Austria, the Netherlands and Luxembourg have jobless rates of between 3.7 per cent and 4.9 per cent. Latvia, Greece and Spain, on the other end of the spectrum, are now struggling with unemployment of between 16.2 per cent and 21.2 per cent.
Headlines of note
- Talks underway on Dow Jones, S&P deal
- U.S. regulators bowed to banks on bailout: watchdog
- Hunt is on for quality stocks with stable profitability
In Economy Lab When you put things in historical perspective, current conditions in the jobs market are at least as good as one might expect after two years of recovery, Stephen Gordon writes.
In International Business What began as a wave of global M&A in stock exchanges has settled on London, Jeremy Grant of The Financial Times reports.
In Globe Careers When it comes to teamwork, "good eggs are not as contagious as bad apples," The Globe and Mail's Wallace Immen finds.
From today's Report on Business