TSX heads for negative session as Italian, Spanish borrowing costs rise - InfoNews

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TSX heads for negative session as Italian, Spanish borrowing costs rise

June 14, 2012 - 8:22 AM

TORONTO - The Toronto stock market appeared heading for a lower open amid slight moves in oil and metal prices while Spain and Italy were in focus as both countries dealt with higher borrowing costs.

There was also caution ahead of Greek elections on Sunday. Greeks will determine whether the country sticks to its highly unpopular austerity program of tax hikes and spending cuts that a previous government accepted in order to receive billions of euros in bailouts that are keeping the country afloat. If political parties are elected that favour reneging on the program, the international bailout and Greece's membership in the euro currency union would be at risk.

The Canadian dollar was up 0.29 of a cent to 97.45 cents US.

U.S. futures were little changed with the Dow Jones industrial futures ahead eight points to 12,437, the Nasdaq futures gained 0.25 of a point to 2,523 and the S&P 500 futures added 0.75 of a point to 1,309.5.

Spain’s 10-year borrowing rate inched up to 6.71 per cent from 6.67 per cent. That is close to the seven per cent rate considered unsustainable. Greece, Portugal and Ireland were forced to seek financial rescue packages after rising to that level.

Ratings agency Moody’s downgraded Spain’s government debt three notches late Wednesday, placing it one level above junk status. Moody’s said the downgrade was due to the offer from eurozone leaders of up to €100 billion to Spain to prop up its failing banking sector, which the ratings agency believes will add considerably to the government’s debt burden.

This score means that even fewer investors will buy Spanish debt as organizations such as pension funds are prevented from investing in assets with such a low score.

The debt crisis contagion continued to spread to Italy. Its 10-year borrowing rate rose to 6.07 per cent from 6.02 per cent, and the interest rate on its one-year bonds also rose sharply.

And in a bond auction, Italy paid 5.3 per cent interest rates, up from 3.91 per cent last month, to sell €3 billion in three-year paper. The sale was fully subscribed.

Traders seemed disinclined to make big moves on commodity markets as well. The July crude contract on the New York Mercantile Exchange was unchanged at US$82.62 a barrel.

July copper was off a penny to US$3.33 a pound while August gold edged up $1 to US$1,620.40 an ounce.

Meanwhile, German Chancellor Angela Merkel acknowledged that Europe’s worsening debt crisis will dominate this weekend’s summit of the world’s 20 most important economies in Mexico. But she stuck to her conviction that the region’s crisis can only be solved by keeping a tight rein on government finances and introducing structural reforms.

European bourses were sharply lower with London's FTSE 100 index down 0.87 per cent, Frankfurt's DAX was up 0.85 per cent while the Paris CAC 40 slid 0.68 per cent.

Earlier in Asia, Japan’s Nikkei 225 index slipped 0.2 per cent, Australia’s S&P/ASX 200 dropped 0.5 per cent, Hong Kong’s Hang Seng shed 1.2 per cent and the Shanghai Composite Index fell 1 per cent. But South Korea’s Kospi gained 0.7 per cent.

In earnings news, travel and vacation company Transat A.T. Inc. (TSX:TRZ.B) posted a net loss of $13.2-million or 35 cents for its latest quarter. Overall revenue rose by $111 million to $1.2 billion due an acquisition in Transat’s North American arm, offset by lower selling prices and higher costs. Analysts had been expecting a smaller loss.

Elsewhere, Finnish cellphone maker Nokia Corp. will lay off 10,000 jobs globally and close plants by the end of 2013 in a further drive to save costs. Nokia is fighting fierce competition from Apple Inc.’s iPhone and other makers using Google Inc.’s popular Android software, including Samsung Electronics Co. and HTC of Taiwan.

Montreal-based CAE Inc. (TSX:CAE) has received a total of $65 million worth of orders for full flight simulators. Among the customers is the Aviation Industry Corporation of China, or AVIC. CAE will build a flight simulator to train crews for a new medium-sized transport aircraft that AVIC is building.

News from © The Canadian Press, 2012
The Canadian Press

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