Shares take hit on eurozone woes
Renewed fears of a European debt crisis, which have been quietly simmering for the last few weeks, started to boil over on Monday as the backlash against austerity measures agreed to by eurozone countries in December intensified, spreading to France and the Netherlands.
In Toronto, the benchmark S&P/TSX composite index fell 158.33 points, or 1.30%, to 11,988.95. All 10 of the sub-indexes declined, led by materials, down 2.94%, and technology, which lost 2.55%.
The price of crude oil rose US0.06¢ to US$103.11 a barrel on Monday, and gold fell US$10.20 to $US1,631.90 an ounce.
The Canadian dollar dipped in morning trading but by afternoon had erased its losses, and closed the day with a gain of 16 basis points to US$1.0091.
“Political wrangling over budget cuts in the Netherlands unsettled markets Monday, as investors worried about that nation’s ability to retain a triple-a credit rating. But a shrinking pool of safe-haven countries is music to the Canadian dollar’s ears, as it generally outperformed, despite weak commodity prices,” said BMO Capital Markets economist Sal Guatieri.
“After France and Austria were downgraded earlier this year by S&P, Canada is among a select group of about a dozen countries that are deemed triple-a by all three major rating agencies.”
Markets around the world dipped sharply on Monday as the bad news piled up, including a bigger-than-expected contraction in eurozone services and manufacturing data, and a forecast that China’s production has contracted for a sixth month.
“The preliminary reading for the euroarea PMIS fell sharply in April, suggesting the region remained in recession in Q2,” said Benjamin Reitzes, an economist with BMO Capital Markets. “Somewhat worryingly, much of the manufacturing weakness was in Germany, which has been the region’s pillar of strength through the debt turmoil. . . . If the German manufacturing index doesn’t rebound, the euro area could be in for a deeper recession than expected.”
Also on Monday, French President Nicolas Sarkozy lost the first round of the presidential elections to Francois Hollande, and the Dutch prime minister offered to resign amid a revolt against austerity measures.
“Politics will undoubtedly provide the pepper in this week’s financial melting pot,” said Bill Blain, co-head of the special situations group at Newedge Group Ltd. in London, told Bloomberg.
The Dow Jones industrial average lost 102.09 points, or 0.78%, closing at 12,927.17 on Monday, while the Nasdaq composite fell 30.00 points, or one%, to 2,970.45.
Canada’s junior Venture exchange slipped 26.92 points, or 1.93%, to 1,371.03.