Trading on emotion "The market realizes there is actually a country risk, Since Lehman's collapse the banks were in focus, now it is the credibility of countries.”
Housing starts expected to build on recovery data Today, Canada Mortgage and Housing Corp. reports its April housing-start figures
• TSX -150.00 to 11,692 Markets continued to sell off Friday as fears of a widening government debt crisis in Europe overshadowed strong job numbers. However markets surged around the world this morning after the European Union launched a loan plan at 3am in Brussels worth almost $1-trillion (U.S.) to reverse the losing war against the sovereign bonds of debt-choked countries that had threatened to sink the euro zone.
• DOW -139.80 to 10,380
• Dollar +.77c to 95.80cUS
• Oil -$2.00 to $75.11US per barrel."If the world is a risky place and growth is in question, that hits commodities and that hits Canada hard," said Patricia Croft, chief economist, RBC Global Management.
• Gold +$13.10 to $1,210.00 USD per ounce
•
Trading on emotion
Janet Whitman, Financial Post, with files from Bloomberg Published: Saturday, May 08, 2010
Gobsmacked traders and investors stared at their computer screens in disbelief on Thursday as stocks nosedived, wiping out a trillion dollars in market value in 10 stomach-churning minutes.
As panic spread that stocks were veering off a cliff, the market snapped back just as quickly, recouping most of its losses. Jittery investors haven't been so quick to recover.
On Friday -- a day after what is believed to be a technical glitch helped take the Dow Jones Industrial Average down a record 998.50 points -- stocks zigzagged in volatile trading as market participants tried to make sense of the turmoil.
The panicky reaction could be a sign of the summer to come as stressed investors trade on gut reactions instead of using their heads.
"We are chained to this problem of going up with greed and down with fear and the market either thrills or haunts us," said Somnath Basu, professor of finance at California Lutheran University in Thousand Oaks.
"None of it's driven by reasonable thinking. People forget and go chase returns and then when the markets start crashing they get scared and start getting out. They're not thinking that stocks should be held for 20 or 30 years."
Prof. Basu, an expert in "behavioural economics," said he anticipates a series of mini stock-market bubbles and crashes leading to bigger bubbles and crashes as people let their emotions rule their investment decisions.
Before their tumble this week, stocks were up around 70% from the lows they reached at the height of the financial crisis in 2008.
"Is that driven by fundamentals or irrational exuberance?" asked Prof. Basu. "Many economic indicators are not showing the same thing. We don't know what's going to happen when the US$2-trillion in stimulus and bailout money stops working. Maybe the stock-market gain was premature, because people were tired of being in the dumps."
At this stage, it's still unclear how a technical glitch might have sparked a sell-off that led to one of the craziest 10 minutes in stock-trading history.
Barack Obama, the U.S. president, said U.S. regulatory authorities are probing the wild swing in stocks that appears to have been exacerbated as investors shrugged off surprisingly strong gains in employment in Canada. The TSX index dropped 4.24% for the week, its worst performance since July last year.
"It might be an opportunity to look at some companies that got knocked lower, but people are more afraid to invest when they see this kind of thing going on," said Peter Cohan, an economic analyst and professor of management at Babson College in Wellesley, Mass.
"The smart thing to do is buy here by a torrent of computerized selling in a market that was already on edge over concerns that Greece's debt woes could drag down the rest of Europe and slow global economic growth.
"In my view, there was no emotion in it at all," said Mr. Cohan of Babson. "High-frequency trading and flash trading accounted for 60% of the volume. We don't know yet what triggered all of that buying and selling. The majority of the volatility had nothing to do with human emotion at all. It had to do with what was programmed in the computers."
Regardless of the cause, investors do seem to be gripped once again by fear and emotion at a level not seen since the height of the financial crisis.
The dramatic sell-off sent the market's so-called fear gauge -- formerly known as the Chicago Board Options Exchange volatility index, or VIX -- to its biggest surge in three years.
The index surged again yesterday, reaching a high for the year and a record 86% increase for the week amid concerns European leaders won't be able to control Greece's debt crisis.
"The market realizes there is actually a country risk," said Achim Matzke, head of global index and technical research at Commerzbank AG in Frankfurt. "Since Lehman's collapse the banks were in focus, now it is the credibility of countries." Read more: http://www.nationalpost.com/story.html?id=3003011#ixzz0nWWeHztC
Housing starts expected to build on recovery data
; 'Housing starts have risen 80% from their cyclical lows'
Derek Abma, Financial Post
If record job gains from April weren't enough to convince you the Canadian economy is on solid ground, a few more measures are coming down the pipe over the next week that could support the case.
"In Canada, we're in the home stretch of reports on what was evidently a very strong first quarter, and the early news on Q2," CIBC World Markets chief economist Avery Shenfeld said in a research note on Friday, which followed Statistics Canada's report that 108,700 additional people found work last month-- about four times what was expected.
Today, Canada Mortgage and Housing Corp. reports its April housing-start figures. Economists anticipate an annualized rate of 205,000, up from a revised figure of 200,900 in March. The last figure marked a small decline from the previous month, on a seasonally adjusted basis, but things have come a long way since the market bottomed out at 112,000 in April 2009.
"To date, housing starts have risen a massive 80% from their cyclical lows, retracing over half of the peak-to-trough drop," Millan Mulraine, senior strategist with TD Securities, said in a report released on Friday.
Mr. Mulraine, who's forecasting a start level of 210,000 for April, attributes some of the current strength to homebuyers looking to avoid the new harmonized sales taxes taking effect in Ontario and British Columbia in July. He also noted that April was warmer than usual, helping along construction efforts.
Another big report comes Wednesday in the form of merchandise trade data for March. Economists anticipate a Canadian surplus -- the amount exported minus what's imported -- of $1.6-billion, up from $1.4-billion in February. If right, it would mark the fourth straight surplus.
CIBC World Markets economist Krishen Rangasamy credited improved economic conditions globally as probably helping Canada maintain it trading-surplus streak in March, including greater demand for vehicles in the United States.
"The merchandise trade report for March will likely add to earlier data that presages (Canadian economic) growth of around 5.7% (annualized) for the first quarter," Mr. Rangasamy said. "But the party won't last forever for exporters, given the lagged effects of a strong Canadian dollar and the expected slowdown in the U.S. economy later in the year."
Speaking of the auto industry, Statistics Canada on Friday will release data on domestic new-vehicle sales for March. A 4% monthly decline is expected following an 8.1% jump in February.
The federal agency will also release March figures for manufacturing sales that day. A one% rise in the value of factory transactions is expected by economists after the slim 0.1% gain in February.
"Canadian manufacturing-sector activity has been on a breathtaking run lately, with sales rising for six consecutive months on the back of strong domestic and foreign demand," Mr. Mulraine said.
Mr. Mulraine is in line the consensus of economists in his March manufacturing forecast, citing transportation equipment as well as products made of petroleum and coal as helping to fuel the gains.
Besides these reports, a number of Canadian companies, such as George Weston and Jazz Air, will release quarterly earnings. As well, the United States will see data on March wholesale trade toomorrow, its own March trade data on Wednesday and April retail sales on Friday.
Read more: http://www.financialpost.com/story.html?id=3007517#ixzz0nWZkq2Sr
Monday, May 10, 2010
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