Market Commentary - May 9, 2008
TSX approaches all-time high as commodity producers surge
Canada's energy and materials producers rode a wave of surging commodity prices to lead the nation's S&P/TSX composite index 3.9 per cent higher over the week ended May 8, 2008, leaving the benchmark less than 20 points -- or a tenth of one per cent -- shy of the all-time high it established almost ten months ago.
The Energy and Materials sectors, which account for roughly half of the composite index, soared 10.4 per cent and 9 per cent, respectively, on the week as prices for crude oil, natural gas and gold climbed higher. Crude oil surpassed the US$124 a barrel mark for the first time ever, surging almost 10 per cent on the week, while natural gas rose 6.6 per cent.
Slumping financial stocks weighed heavily upon the benchmark, as the sector receded 3.5 per cent.
In the United States, stocks fell as oil's ascent into uncharted territory heightened concern that cash-strapped consumers will slow their spending and curtail economic growth. T he S&P 500 index slipped eight-tenths of a per cent over the week ended May 8, 2008.
News of further deterioration in the slumping U.S. housing market also dragged stocks lower. The U.S. National Association of Realtors this week reported its index of pending sales of pre-owned homes fell 1 per cent last month, suggesting the U.S. housing market has yet to turn the corner.
U.S. stocks recouped some losses Thursday, however, on news of last month's rebound in retail sales. Total U.S. retail sales rose 3.3 per cent in April from a month earlier, largely on the strength of better-than-expected sales at discounters Wal-Mart Stores Inc. and Costco Wholesale Corp..
In Europe, the Dow Jones Stoxx 600 index rose 1.9 per cent over the week ended May 8, 2008 despite new signs of softening growth across the continent. Figures released this week show German factory orders fell for the fourth consecutive month in March, slipping 0.6 per cent from February's levels, while retail sales fell 1.6 per cent in the 15-nation euro region in March from a year earlier -- the steepest year-over-year decline in at least 13 years.
Investors who may have been hoping for some monetary stimulus from Europe's central banks were disappointed this week as both the European Central Bank (ECB) and the Bank of England kept their benchmark lending rates unchanged. At the same time, ECB President Jean-Claude Trichet signaled the Bank has no intention of cutting rates in the foreseeable future. Trichet says the ECB expects inflation to remain unacceptably high for an extended period of time.
Asian markets posted mixed results this week. In Japan, the Nikkei 225 Stock Average advanced 1.3 per cent over the three trading days ended May 8, 2008. (Japanese markets were closed Monday and Tuesday.) Elsewhere, the Morgan Stanley Capital International AC Asia Pacific (excluding Japan) Index -- a gauge of 14 markets across the region – slipped 0.5 per cent over the course of the week.
Finally, ten-year U.S. Treasuries closed marginally lower this week. Yields, which move inversely to prices, rose 4 basis points to close at 3.81 per cent.
Richard Wong, Portfolio Manager, I.G. Investment Management, Ltd.
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