Midday Market Comments

U.S.

 

At midday, U.S. equities are flat for the day having recovered from earlier losses with strength found in Energy (up 2.2%) and Materials (up 2.0%) subsectors of the S&P 500 in-line with higher energy and metals prices.  The Financial subsector (down 0.7%) continues to weigh down on the S&P 500 for another day.

 

It's a relatively quiet day in the U.S. as investors speculate and await news (likely to come over the weekend) regarding the possibility of a buyout of Lehman Brothers (LEH US) by any of the possible suitors: Bank of America, JC Flowers & Co., or China Investment Co. (a SWF). There are indications that similar to the Bear Stearns situation, a large bank will be the buyer, with some assistance from the US central banking system.

 

Auto manufacturers rallied with General Motors (GM US) and Ford (F US) both advancing 7.2% and 5.1% respectively after reports indicated that GM is looking for low-cost loans from U.S. Congress.  General Electric (GE US) declined 4.9% on concerns about the company's commercial real estate portfolio, which is part of their commercial finance portfolio. Real estate represented about 8% of the company's operating income in 2007.

 

Canada

 

At midday, equities in Canada are higher with strength in Materials and Energy subsectors of the S&P/TSX in sympathy with higher energy prices and a weaker U.S. dollar that is making commodity prices higher. 

 

The Materials subsector advanced 5% on higher prices of gold and base metals.  Shares of top gold companies are up with Barrick Gold (ABX) and Goldcorp (G) advancing 4.2% and 6% respectively.

 

In the Energy sector, Husky Energy (HSE) rose 1.6%.  Husky recently won development rights to explore for gas off the coat of Labrador.   Suncor Energy (SU) also rallied, adding 3.5%.

 

The Financial subsector slipped 1.5% as worries persisted over Lehman Brothers and the health of the U.S. financial system after Lehman reported a big quarterly loss and failed to attract investors to shoe up its capital position.  All major Canadian banks declined, led by Toronto Dominion Bank (TD), lower by 2.1%.

 

The Technology subsector is the biggest drag on the S&P/TSX, down 1.3% with index-heavyweight Research in Motion (RIM) down 3.8% on no specific news as investors took profits and sold the stock on strength.

 

Automation Tooling Systems Inc (ATA), maker of automated manufacturing and assembly systems -- surged over 10% after signing a deal to sell its precision components group in Q3.  

 

Motorists across Canada were hit by sharply higher gasoline prices at the pump this morning, with the price of gas rising by an average of 13 cents a litre to more than $1.36 a litre. 

 

International

 

In Asia, equities rallied led by commodity producers and financials in sympathy with higher metals prices and the possibility of a buyout of Lehman Brothers. Worthy of note are BHP Billiton Ltd, which advanced 4.4% in-line with higher prices of copper and zinc.  Mitsubishi UFJ Financial Group. rallied 4.3% after Bank of America and other possible buyers expressed interest in Lehman Brothers.  The Nikkei closed higher by 0.9% while the Hang Seng declined 0.2%.

 

Currencies & Commodities

 

Gold advanced 1.7 % after a nine day decline, as the U.S. dollar fell against the euro increasing demand for gold as an alternative investment.   

 

Oil and gasoline prices rose 0.5% and 3.3% respectively after oil drilling and refining facilities were forced to shut down in the Texas Gulf Coasts as Hurricane Ike approached.  The hurricane is expected to make landfall late tonight or early Saturday morning.  The market seems to be completely focusing on the hurricane and anticipates supply disruptions.