Markets dive on credit crisis concerns
A wave of profit-taking sideswiped stock markets this morning, prompted by more worries about the credit crisis and the U.S. economy.
"The equity markets are not performing well because the credit markets are not performing well," said Gareth Watson, associate director and Canadian equity adviser at Scotia McLeod.
"And I hate to oversimplify things, but really when we look back on this, whether it be five, 10, or 15 years from now, that really is going to be the focus, that when 75 per cent of the world's financings on this planet are done through the debt markets, if that market isn't operating efficiently, it makes it hard to do anything in the equity markets."
Toronto's S&P/TSX composite index retreated 235.37 points to 13,638.52 – just a day after scrambling back above its level at the start of the year for the first time since early January – as the financial sector declined 1.2 per cent.
Royal Bank (TSX: RY) was down 30 cents to $49.82 after first-quarter profit fell 17 per cent from a year ago to $1.25 billion, as provisions for U.S. credit losses swelled and RBC Capital markets took a big writedown. Provisions for bad debts at Canada's largest bank grew by 80 per cent to $293 million.
Bank of Montreal shares were off $1.31 to $51.04 amid deepening troubles in asset-backed commercial paper it manages. DBRS has downgraded two structured-finance vehicles run by the bank from its top rating to "junk."
The TSX Venture Exchange dipped 27.54 points to 2,781.96.
The Canadian dollar was down 0.42 of a cent to 101.99 cents US as Statistics Canada reported the current account balance fell into deficit in the fourth quarter for the first time since 1999.
The broadest measure of Canada's transactions with the rest of the world deteriorated by $1.8 billion from the third quarter to negative $513 million. The country's surplus on trade of goods shrank while the travel deficit hit a record.
In New York, the Dow Jones industrials fell 198.4 points to 12,383.78 after a 112-point slide Thursday.
U.S. insurance giant American International Group posted a loss of US$5.29 billion in the fourth quarter as a portfolio of risky credit contracts lost $11.12 billion in value. AIG also incurred more than $3 billion in investment losses and cited "significant, rapid declines" in investments tied to home loans. Its shares lost 7.4 per cent to US$46.47.
Also unnerving investors was an estimate by UBS analysts that financial firms worldwide will take debt-market writedowns totalling US$600 billion http://savingpaydayloans.com. Writedowns have totalled US$160 billion since the credit crunch took hold last summer.
The Nasdaq composite index dropped 40.48 points to 2,291.09 as Dell booked a six per cent decline in quarterly profit, missing analysts' expectations, and warned of reduced customer spending.
The S&P 500 index declined 23.67 points to 1,344.01.
Worries about the depth of an American economic slowdown deepened after the February Chicago Purchasing Managers Index, a snapshot of manufacturing in the U.S. Midwest, came in at 44.5 – firmly in contraction and lower than the consensus estimate that stood at 49.5.
And the U.S. Commerce Department reported consumer spending rose 0.4 per cent in January, more than economists had been expecting. However, all of that gain came from a surge in inflation. Taking away the effect of higher prices, spending showed no gain in January or December.
On the TSX, the energy sector fell 2.2 per cent as crude prices slipped after running up more than $4 a barrel this week.
The April crude contract on the New York Mercantile Exchange slipped five cents to US$102.54 a barrel and Canadian Natural Resources (TSX: CNQ) fell $2.60 to C$72.60 and EnCana Corp. (TSX: ECA) gave back 92 cents to $75.30.
The base-metals sector was also a drag on the TSX, down three per cent with HudBay Minerals (TSX: HBM) off 69 cents to $18.96 and Teck Cominco Ltd. (TSX: TCK.B) moving $1.70 lower to $39.49.
The gold sector was off 1.67 per cent amid higher bullion prices. The April gold contract in New York rose $5.80 to US$973.30 an ounce. Barrick Gold Corp. (TSX: ABX) moved down $1.05 to C$50.95.
In other earnings news, diversified holding company Onex Corp. (TSX: OCX) slipped 20 cents to $33.80 after CEO Gerald Schwartz said the firm is looking at the distressed credit market as a major opportunity. His comment came as Onex reported annual revenues rose 26 per cent to $23.4 billion.
Overseas, London's FTSE 100 lost 82.6 points to 5,883.1, Frankfurt's DAX 30 was down 139.87 points to 6,722.65 and the Paris CAC 40 declined 76.47 points to 4,788.76.
Tokyo's Nikkei 225 average fell 2.3 per cent to 13,603.
In Hong Kong, the blue-chip Hang Seng fell 1.1 per cent to 24,331.7.