Political turmoil in Italy shakes investor confidence
Canada’s main stock index closed in the red, hurt by losses in the financial sector as political turmoil in Italy was felt across global markets.
“What’s happening is political instability in Italy, which is running through the rest of the world and scaring investors,” said Francis Thivierge, senior portfolio manager for CIBC Asset Management.
The potential for a new Italian election in the next few months is being interpreted by investors as a referendum on the euro. The worry is that Italy could move closer to abandoning the currency if populist parties win the election.
The tension has caused global bond yields to rally and equities to stumble as investors look for flights to safety, but there is still much that is unknown about what could happen going forward for Italy’s finances, Thivierge said.
“At this point I feel this is more risk aversion than hard evidence of what’s to come, because there are a lot of assumptions that go into what happens with the next round of elections.”
The S&P/TSX composite index closed down 93.53 points to 15922.61 as base metals weighed along with financials.
Gold stocks helped limit losses on the TSX as investors looked for safer options, while Canadian energy stocks were likely boosted by the news that the federal government was buying Kinder Morgan Inc.’s Trans Mountain project as a backstop to ensure it gets built.
In New York, the Dow Jones industrial average ended down 391.64 points at 24361.45. The S&P 500 index ended down 31.47 points at 2689.86 and the Nasdaq composite index was down 37.26 points at 7396.59 after U.S. markets were closed for Memorial Day Monday.
The Canadian dollar averaged 76.80 cents US, down 0.12 of a US cent. The dip in the loonie was likely more a result of the U.S. dollar rising in a flight to safety, said Thivierge, as most global currencies also fell against the dollar.
The July crude contract closed down $1.15 at $66.73 US per barrel and the July natural gas contract ended down six cents at $2.90 US per mm BTU.
The June gold contract ended down $4.70 at $1,299.00 US an ounce and the July copper contract was down two cents at $3.06 US a pound.
Scotiabank Q2 profit exceeds expectations
TORONTO — The Bank of Nova Scotia’s second-quarter earnings beat expectations, fuelled by operations in Latin America and at home despite a slowdown in the Canadian housing market.
Canada’s third-largest lender on Tuesday reported a nearly four cent jump in net income attributable to common shareholders. Its international division delivered 14 per cent earnings growth and its Canadian banking division saw a five per cent year-over-year increase.
Scotiabank was the fourth of Canada’s biggest banks to report earnings for the three-month period ended April 30 that beat expectations against a backdrop of slowing real estate activity and tighter lending guidelines for uninsured mortgages as of Jan. 1.
However, residential mortgage balances at Scotiabank during the period grew by six per cent, compared with last year, to $203.8 billion, while the value of new mortgages issued during the period fell to $8.9 billion from $9 billion a year earlier and $10.3 billion in the previous quarter.
Scotiabank chief financial officer Sean McGuckin said the bank is still expecting five per cent growth for its 2018 financial year.
“With all the other growth levers we have in the bank, in international banking and in commercial lending, we can overcome any slowdown or moderation in our mortgage growth,” he told reporters on Tuesday.