Midday Market Comments

Canada

 

At midday, equities in Canada are materially lower with weakness in the Financial subsector of the S&P/TSX which accounts for about a quarter of the index's total weight, rattled by the bankruptcy of Lehman Brothers and persistent worries over the health of the U.S. financial system. 

 

We recommends patience, as today's losses may not be the only losses this week as the market takes time to digest and understand the magnitude and extent of the weekend's events.  Equities will likely continue to fall this week.  You do not need to be a buyer today if you are sitting on cash and waiting for a pullback.

 

All major Canadian banks are posting negative returns, led by Canadian Imperial Bank of Commerce (CM), down 4.3%.  The bank announced that its mark to market exposure to Lehman Brothers net of collateral is immaterial at $25 million.  Despite this, the bank continues to sell off.

 

The Energy subsector dropped 3.8% in-line with lower energy prices.  Canadian Natural Resources (CNQ) slid 5.5% while EnCana (ECA) fell 2.9%.

 

Teranet Income Fund (TF-UN) advised its unitholders not to take any action regarding the formal takeover bid from Borealis Infrastructure Management Inc.  The company commented that investors should wait while the fund seeks alternatives. Teranet is trading lower by 1.4%.

 

Teck Cominco Ltd. has secured European antitrust approval to buy Fording Canadian Coal Trust. The European Commission, the European Union's antitrust regulator in Brussels, announced the approval in a statement today. Teck has scheduled a shareholder vote on the acquisition for Sept. 30 and anticipates finalizing the deal by the end of October, according to Greg Waller, head of investor relations at Teck Cominco.

 

U.S.

 

At midday, U.S. equities are materially lower with all ten subsectors of the S&P 500 posting negative returns led by Financial and Energy subsectors. This is a historic moment for the U.S. financial services sector, after Lehman Brothers (LEH US) filled for bankruptcy protection and Merrill Lynch (MER US) agreed to be acquired by Bank of America (BAC US).   Lehman has been suspended from trading on NYSE and continues to trade on electronic trading systems at 20 cents a share.  Merrill Lynch is up 17.3%, and Bank of America fell 16.2%. 

 

American International Group (AIG US) is in further trouble as the company was expected to deliver a plan to sell assets to raise capital and avoid a downgrade by rating agencies. AIG rejected an offer from private equity firms. AIG plunged earlier by 70%.   Headlines at 12:30 -- saying that AIG has reached deals with the New York state insurance officials authorizing it to access $20 billion of capital in its subsidiaries to free up liquidity effectively making a bridge loan to itself for that amount.   AIG is rallying, now down 51%.

 

International

 

In Europe, equities fell led by banking shares after the bankruptcy of Lehman Brothers over the weekend.  Worthy of mention are Barclays Plc which pulled out of talks to buy Lehman Brothers and slid 13%, it's biggest loss in 20 years.    Britain's biggest mortgage lender HBOS Plc, dropped a record 27% while Royal Bank of Scotland fell 13%.  All major European indices are currently posting losses in excess of 3%.   

 

Equities in Asia are on a holiday today with markets in Hong Kong, Japan and Taiwan closed. 

 

Currencies & Commodities

 

Gold advanced $20 and is trading at $785.1 per ounce after Lehman Brother's bankruptcy sent investors scrambling for a safe heaven.  Crude oil fell to $97.33 per barrel, near it's lowest level in six months, as refiners in the Gulf of Mexico escaped damage from Hurricane Ike and investors eased fears over supply-disruptions.  The U.S. dollar dropped the most in a decade against the yen after investors sold assets financed by loans in Japan.  The Swiss franc also showed strength and rose against every other major currency. 

 

TradeTech reports that the spot price of uranium dropped $1.50 this week to US$63.00/lb U3O8. The group noted that demand is highly discretionary and spot supply is more than adequate to satisfy spot requirements. In addition, new spot supply continues to emerge.