Midday Market Update

Canada

At midday, equities in Canada are marginally lower having come off their session highs with weakness in the Materials (down 2.6%), Technology (down 2.1%) and Energy (down 1.5%) subsectors outpacing strength in the Financial subsector (up 2.7%) of the S&P/TSX as resource shares fall and drag the index into negative territory.

The TSX originally rallied on positive news out of the U.S. regarding the bailout of U.S. mortgage giants Fannie Mae and Freddie Mac. The Financial subsector of the S&P/TSX reacted favorably and is still providing some degree of strength as all major Canadian banks trade higher, led by the Canadian Imperial Bank of Commerce (CM) and Bank of Montreal (BMO) which are higher by 4.4% and 3.7% respectively.

The Energy subsector is lower by 1.5% despite in sympathy with lower prices of crude oil as investor’s await OPEC’s decision this week on output policy. Worthy of mention is Canadian Natural Resources (CNQ) down 2.9%. In some M&A activity, Italy’s Eni SpA (ENI) announced it will buy Canada’s First Calgary Petroleum Ltd (FCP) in a cash deal worth $923 million, to increase its oil and gas reserves. FCP is trading 2.2% lower. Sherritt International (S) fell 3.3% after Hurricane Ike ripped through Cuba, but according to a statement from Sherritt -- it did not affect any of its metal, coal or oil operations there.

U.S

At midday, U.S. equities are higher but have come off their session highs while trading in a very volatile fashion as the Technology subsector of the S&P 500 slips into negative territory . Strength is to be found in the Consumer Discretionary and Financial subsectors of the S&P 500 which are up 2.8% and 2.1% respectively. Airlines plummeted over 20% after United Airlines (UAUA US) was halted amid rumors that the airline filed for bankruptcy protection. CNBC is now reporting that the bankruptcy reports are untrue with a 4-year-old story somehow being reported as current. United Airlines is still halted at time of writing.

Fannie Mae (FNM US) fell 85% and Freddie Mac (FRE US) plunged 81% after the Treasury's plan eliminated their dividends and left common stockholders last in line for any claims. On Sunday, the U.S. Treasury announced a dramatic rescue of the two ailing companies. Lehman Brothers (LEH US) is down over 17% after South Korea's financial regulator urged state-owned Korea Development Bank to be cautious over any investment in the troubled investment firm. Washington Mutual (WM US) plunged over almost 17% after firing longtime CEO Kerry Killinger and entering into a Memorandum of Understanding with the Office of Thrift Supervision concerning aspects of the bank’s operations.

The KBW Bank Index is higher by over 3% and is a broad measure of financial equities in the U.S. The Portfolio Advisory Group are sellers of U.S. financial institutions on strength.

International

In Asia, equities rallied the most in seven months as investor confidence in the U.S. credit market improved as a result of the Fannie Mae and Freddie Mac takeover. The region’s two main indices, the Nikkei and Hang Seng closed higher by 3.4% and 4.3% respectively. Japan’s biggest bank by assets - Mizuho and Australia’s largest investment bank Macquarie Group Ltd closed higher by over 12%.

Equities are rallying in Europe, led by financial and construction companies as confidence in the U.S. mortgage market improved. European bank UBS AG, jumped 11% and Deutsche Bank AG, Germany’s largest lender is trading over 7% higher. All major European indices are materially higher with returns in excess of 2%.

Currencies & Commodities

Crude oil is trading lower today as Hurricane Ike sweeps across Cuba and heads for the Gulf of Mexico where major oil producers have already evacuated workers in preparation for the hurricane. About 80% of the region’s oil output is already shut from Hurricane Gustav. Crude oil for October delivery is trading 0.4% lower at 105.79 per barrel. Natural Gas is higher by 0.8%.

CMX metals prices are higher this afternoon, with Gold up 1.3%, copper up 1.3%. TradeTech reports that the spot price of uranium is unchanged this week at US$64.50/lb U3O8. The group noted that buyers, including producers and financial entities, are making “off-market” inquiries.