MARKETS ON EDGE
Modest early rebound in stocks sputters by midday as likelihood of default on IMF debts increases
After a global sell-off erased year-to-date gains on major North American stock indexes, bargain hunters eased back into markets early Tuesday spurred by a last-minute push that could stave off a Greek debt default.
But by midday, the modest rebound in New York was sputtering on jitters over Greece and worries about the solvency of U.S. territory Puerto Rico, even as fresh data provided more evidence of a rebound in U.S. consumer confidence.
After a nine-quarter winning streak, the S&P 500 and Dow Jones are now on track to post monthly and quarterly losses. At the close Tuesday, Toronto’s S&P/TSX index was ahead by 63 points to 14,553 largely on a rebound in crude prices, although the index is down 0.54 per cent so far this year after Monday’s 317-point tumble.
Asian markets were flat or modestly higher as China moved to head off a collapse in its volatile bourses dominated by retail investors while European stocks were down across the board.
“All in all, many had already factored in the likelihood of Greece defaulting, but there is no guarantee the stability will last,” said Kyosuke Suzuki, director of forex at Société Générale in Tokyo.
Financial markets are on edge as Greece appears all but certain to miss a $2.2billion (U.S.) payment to the International Monetary Fund (IMF) due Tuesday, putting the country nearer to a fiscal col- lapse and raising the chances it could eventually leave the European Union.
Analysts, though, downplayed the likelihood of a Greek default contagion, noting the country’s small contribution to the global economy and the diminished exposure of private-sector foreign funds after five years of financial turmoil.
Greece on Tuesday asked for a new bailout amid a diplomatic effort to seal an agreement before the country’s current deal expires and it defaults on the IMF payment. Eurozone finance ministers were to discuss the Greek request Tuesday night in advance of a referendum vote Sunday on the latest austerity proposal.
In Canada, a continuing contraction in economic output on sharply lowered commodity prices raised the possibility of a recession (generally defined as occurring after two consecutive quarters of negative growth) and increased the odds of further monetary easing.
In a report published Tuesday, Statistics Canada said real gross domestic product edged down 0.1 per cent in April, the fourth-consecutive monthly decline, with a decrease in the output of goodsproducing industries outweighing an increase in the service sector. Most economists had forecast a 0.1-per-cent gain.
Resources dragged overall GDP down by 0.2 percentage points, offsetting what would have been a modest 0.1 per cent rise in all other categories, said Bank of Montreal chief economist Doug Porter.