The Toronto stock market tumbled Wednesday as German moves to support the euro by cracking down on speculators failed to reassure investors that the European Union can contain a government debt crisis.
The German move rattled markets, in part because it suggests that policy-makers are grasping at straws to stem flagging confidence about the ability of European governments to pay off their heavy debt amid slow growth.
The S&P/TSX composite index lost 210.9 points to 11,553.6, after Germany’s regulator announced it was banning so-called naked short selling of eurozone government bonds, as well as shares in 10 key German financial institutions until March 31, 2011.
In a typical short sale, a trader sells borrowed shares in hopes of buying them cheaper later and profiting on the difference. A “naked” short is when traders sell shares without borrowing them first. The euro initially responded badly to the German move, dropping to a four-year low of US$1.2146 before recovering to trade at $1.2338.
There were also big swings in other currencies and commodities as investors digested the action by the eurozone’s biggest economy.
The Canadian dollar was down 1.09 cents to 95.34 cents US after earlier falling as much as 1.36 cents US.
The TSX Venture Exchange moved 51.21 points lower to 1,489.25.
The June crude contract on the New York Mercantile Exchange was 15 cents higher to US$69.07 a barrel after earlier falling to $67.90. Oil has plunged more than 20 per cent since climbing to its most recent high of $87.15 a barrel on May 3 on demand concerns and the rising greenback.
The TSX energy sector fell 1.08 per cent as Suncor Energy (TSX:SU) fell 45 cents to C$30.86 and Canadian Natural Resources fell $1.04 to $34.35.
The TSX global gold index fell 4.35 per cent as the June bullion contract on the Nymex was down $17.30 to US$1,197.30 an ounce. Gold had run up to an intraday record high of just under $1,250 on Friday. Barrick Gold Corp. (TSX:ABX) faded $1.60 to $44.51 while Kinross Gold Corp. (TSX:K) lost 94 cents to C$17.88.
The July copper contract in New York was also off early lows, down six cents to US$2.97 after earlier dropping eight cents. The base metals sector was down 3.86 per cent as Teck Resources (TSX:TCK.B) dropped $1.67 to C$31.85 and First Quantum (TSX:FM) was off $3.26 to $62.39.
Outside commodities, the industrial sector was the biggest decliner as Canadian Pacific Railway (TSX:CP) shed $1.43 to $56.17.
An aid package worth US$1 trillion package to help European governments deal with unsustainably high debt is viewed as insufficient. And traders also worry that the huge spending cuts needed to get that aid will drag down growth across the continent.
“And that’s the underlying worry, that Greece is only part of the issue,” said John Stephenson, portfolio manager at First Asset Funds Inc.
“People think all the dithering out of Germany in particular is really weakening the supposed resolve of this whole package and so there’s just concern it’s going to spread and they’re going to be stuck in piecemeal, last-minute bailouts of these countries and things will slowly spiral down.”
The move from Germany to support the euro also brought back memories a widely considered unsuccessful attempt by the U.S. and British authorities to prop up stock markets at the end of 2008 in the wake of the collapse of Lehman Brothers and the ensuing crisis that gripped the banking sector.
New York markets also fell with the Dow Jones industrial average was down 111.5 points to 10,399.5.
The Nasdaq composite index lost 29.81 points to 2,287.45 while the S&P 500 index shed 11.7 points to 1,109.1.
In economic news, Statistics Canada reported that wholesale sales increased for the fourth time in five months in March, rising 1.4 per cent to $44.4 billion. The agency said that the major contributors to the increase were the machinery, equipment and supplies, and building materials and supplies subsectors.
A federal Crown corporation says the Canadian housing sector is set for further growth this year. Canada Mortgage and Housing Corp. said housing starts are expected to be between 166,900 and 199,600 units this year, about 18,000 to 50,000 housing units more than the 149,081 started in 2009. That will moderate to 179,600 units in 2011.
U.S. consumer prices declined in April for the first time in 13 months while core inflation rose over the past year at the slowest pace in 44 years. The U.S. Labour Department reported that consumer prices edged down 0.1 per cent last month, reflecting a big fall in energy prices. Core inflation, which excludes volatile food and energy, was flat in April.
In earnings news, Canaccord Financial Inc. (TSX:CF) reported a profit of $7.5 million for its fourth quarter and an annual profit of $38.5 million. It was a big improvement on comparable periods a year earlier, when Canaccord’s fourth-quarter net income was just $3.6 million and fiscal 2009 recorded a $47.6-million annual loss. Its shares were off 28 cents to $9.16.
Deere and Co. reported its second-quarter profit jumped 16 per cent to US$547.5 million, up from net income of $472.3 million a year earlier. Deere’s revenue grew six per cent to US$7.1 billion. The company is raising its outlook for the second time this year and its shares climbed 49 cents to US$57.65.
Elsewhere, proxy shareholders of Goldcorp (TSX:G) have overwhelmingly voted down a resolution to suspend mining activities at the company’s Marlin mine in Guatemala so new consultations can be held with indigenous people concerned it’s affecting their health. Its shares were down $2.36 to $43.73.
In Asia, shares also dropped in the wake of the German decision.
Japan’s benchmark Nikkei 225 stock average dropped 0.5 per cent.
Benchmarks in Singapore, India and Indonesia all fell more than one per cent and Hong Kong’s Hang Seng index lost 1.8 per cent.
London’s FTSE 100 index fell 2.39 per cent, Frankfurt’s DAX was down 2.42 per cent and the Paris CAC 40 index lost 2.58 per cent.
