TORONTO – The Toronto stock market was in for sharp losses Wednesday as commodity prices retreated amid worries about Italy’s uncertain future.
The Canadian dollar was sharply lower as traders sold off risk and bought up safety in the form of U.S. Treasurys. The loonie fell 1.12 cents to 98.07 cents US.
U.S. futures pointed to big losses at the open as the Dow Jones industrial futures tumbled 217 points to 11,906, the Nasdaq futures dropped 45 points to 2,349.5 while the S&P 500 futures fell 29 points to 1,244.2.
Markets had responded enthusiastically Tuesday after premier Silvio Berlusconi lost a confidence vote and his majority in parliament and said he would resign after his government’s new austerity budget is passed.
But pessimism returned to markets with a vengeance as the country’s ten-year yield jumped above the seven per cent level amid uncertainty about who will steer the country through its debt crisis.
Bond yields in the seven per cent range are considered to be unsustainable in the long run.
When Greece, Ireland and Portugal saw their ten-year borrowing rates rise above seven per cent, the markets concluded they had to be bailed out.
Higher rates would make it more difficult and expensive for Italy to roll over its debts. The country has over €300 billion to raise in 2012 alone and with debts of around €1.9 trillion, Italy’s debts are considered far too big for Europe to bail out..
The worry appears to be that even without Berlusconi at the helm, Italy faces a period of political deadlock.
The next government will likely face the same pressures as Berlusconi — to enact quick reforms to shore up Italy’s defences against Europe’s raging debt crisis.
“Regardless of who takes the helm of Italy’s new government, he/she will have an equally tough time pushing through needed austerity measures and economic and pension reforms to satisfy both investors and the EU/IMF,” observed BMO Capital Markets senior economist Sal Guatieri.
Markets have been intensely volatile for several weeks as the eurozone’s debt crisis weakens and markets become more skeptical that the region’s leaders have the political will to contain it.
The crisis threatens the region’s banks, its currency and there are worries it could derail what is a fragile economic recovery.
Slowing economic conditions would erode demand for oil and metals, which in turn pressures share prices of oil and mining companies on the TSX.
Commodity prices headed lower Wednesday with the December crude contact on the New York Mercantile Exchange down $1.18 to US$95.62 a barrel.
Metals also fell back as the December copper contract in New York lost four cents to US$3.49 a pound.
The December gold contract in New York was off 90 cents to US$1,798.30 an ounce.
European markets also chalked up losses as London’s FTSE 100 index lost 1.97 per cent, Frankfurt’s DAX fell 2.88 per cent and the Paris CAC 40 was down 2.13 per cent.
Earlier in Asia, sentiment had been boosted by the Berlusconi pledge to resign, with Japan’s Nikkei 225 index closing 1.2 per cent higher, South Korea’s Kospi added 0.2 per cent and Hong Kong’s Hang Seng jumped 1.7 per cent.
There was also some cheer from the news that China’s stubbornly-high inflation fell in October as rapid rises in food costs eased. The decline was seen positively by investors as it gives Beijing more room to stimulate China’s economy.
Mainland China’s Shanghai Composite Index gained 0.8 per cent and the smaller Shenzhen Composite Index rose 1.6 per cent.
There were also earnings reports from the resource, tech and mining sectors to go over.
Enbridge Inc. (TSX:ENB), a major oil pipeline operator and natural gas distributor, says quarterly profits were down to $4 million, or a penny per share, from $157 million or 21 cents per share a year earlier as it booked derivatives losses. Adjusted earnings, which filter out the mark-to-market values, increased to $241 million from $195 million.
ATS Automation Tooling Systems Inc. (TSX:ATA) reported a second quarter loss of $67.1 million as the company booked a big charge for its money-losing solar technology unit, which the company is winding down. That reversed a small profit of $1.9 million or one cent a share for the same period a year ago.
Silvercorp Metals Inc. (TSX:SVM), a Vancouver-based company which operates mines in China, has raised its quarterly dividend by 25 per cent to 2.5 cents. The move comes a day after the miner reported its latest quarterly profits jumped sharply on a 71 per cent increase in revenues.
Wi-LAN Inc. (TSX:WIN), which primarily collects licensing fees from companies that use technologies covered by its portfolio of patents, reported that its quarterly rose to US$7.3 million as it strengthened its revenues. The results were equal to six cents per share, compared to a loss of $6 million, or six cents per share a year earlier.