Midday Market Comments

U.S.

 

At midday, U.S. equities are marginally higher but trading in a very volatile fashion.  Strength is to be found in Energy (up 2.0%) despite lower post-inventory crude oil prices.  However, weakness in the Financial subsector (down 0.6%) is dragging the S&P 500 lower.

 

The Financial subsector seems to be following Lehman Brothers (LEH US) and Washington Mutual (WM US), as both companies continue to fall.  Washington Mutual is down over 20% this morning on news that potential suitors have apparently walked away because of pending accounting rule changes that will force an acquirer to mark acquired assets to market.   Lehman is extending its massive losses from yesterday by another 3.3%.

 

We are anticipating an eventual bounce in resource stocks and recommend resource ETFs.  ETFs are a great way to play themes and sectors as they reduce company specific risk

Canada

 

At midday, equities in Canada are higher with all 10 subsectors of the S&P/TSX currently posting positive returns.  The Energy subsector is up 1.2% despite lower crude oil prices following a surprise decision by OPEC to cut production.  Worthy of mention is Canadian Natural Resources (CNQ) which rallied 2.6%.  

 

The Materials sector is also posting a positive return despite lower prices of gold and base metals as investors bought beaten up commodity stocks at bargain prices.   Barrick Gold (ABX) rallied 4.2%.

 

Teck Cominco (TCKb) stated that all conditions for the Fording deal are expected to be satisfied by September 30 and the deal is targeted to close October 30.  Taxable unit holders should sell FDG into the market prior to close to avoid the big tax bill.

 

Boralex Power Income Fund (BPT.UN) announced today that it will temporarily cease operations of its Senneterre wood-residue thermal plant, starting September 21 up to November 15. Boralex Power cites on-going difficulties in securing wood residue because of recent sawmill closures in Quebec, including the Tembec mill, which represented approximately 25% of its supply. Boralex Power Income Fund is rated 3-SU by Scotia Capital with a price target of $6.00.  BPT is currently trading 4.7% lower.

 

International

 

In Asia, equities declined led by commodity and shipping companies after metals prices continued to decline on concern slowing global growth will curb demand for resources.  Among the biggest decliners were BHP Billiton Ltd., the world's largest mining company, down 3.5% after the Lehman Brothers' European unit cut its holding in BHP Billiton to below 3% according to the SEC.  Both the Nikkei and Hang Seng closed lower.

 

Equities in Europe trade lower after the European Commission cut its forecast for growth and investors grew more concerned over further bank losses.   Credit Agricole SA fell 3% and UBS AG declined 2.2% as Lehman Brothers Holdings Inc reported a US$3.9 billion loss in 2008 Q3.  All major European indices are currently posting a negative return.

 

Currencies & Commodities

 

For the week ending September 5, the U.S. Department of Energy reported a draw of 5.9 mmbbl in crude oil bringing inventory levels to 298.0 mmbbl - the draw was larger than Street expectations, which called for a draw of 4.2 mmbbl. Distillate fuel oil levels currently stand at 130.5 mmbbl after a draw of 1.2 mmbbl for the week, Street suggested a draw of 2.2 mmbbl. The U.S. DOE reported a draw of 6.5 mmbbl in motor gasoline, inventory levels currently stand at 187.9 mmbbl, Street expectations suggested a draw of 4.6 mmbbl.  Crude oil for October delivery is currently trading about a dollar lower at $102.38 per barrel.