Evidence mounts of slowing recovery

Canada felt the effect of slowing growth in the U.S. and Europe as export demand from its key trading partners softened. Canada’s trade deficit widened to $1.1-billion in June, from $695-million a month earlier, as exports to the U.S. declined 1% and exports to Europe fell 20%. In the U.S., exports fell 1.3% while imports grew 3%, resulting in the largest trade deficit since October 2008. U.S. markets followed a downward trajectory in August, dogged by negative economic reports, and slowing growth in China fuelled concerns that the global recovery would be derailed.

• Consumer confidence lags in west
  

Except in Australia and Canada where consumer confidence hovered around 70%, an opinion poll revealed consumer confidence in developed countries lags behind developing nations – 85% of consumers in India, 77% in China and 65% in Brazil see their country’s economic situation as good, compared to only 18% in the U.S., 13% in the U.K. and 5% in Spain.

• Canadians save less

In the current environment, U.S. consumers remain cautious and would rather save than spend. U.S. personal savings rose to 6.4% in June versus less than 3% in Canada through the first quarter of 2010. Canadians are now saving significantly less than Americans for the first time since the early 1970s.

• Europe battles back

Global ratings agencies affirmed France’s top-notch triple-A credit rating as President Sarkozy set out tough austerity measures. The French economy grew by 0.6% in the second quarter, stronger than most economists had expected. Despite the fastest economic growth in 20 years, Germany’s deficit doubled in the first half of 2010, as the government assumed €900-million of bad debt for a state-owned bank.

• Mergers and acquisitions

BHP, the world’s largest mining company, is still trying to woo Potash Corp. shareholders after its hostile takeover bid of US$39-billion was rebuffed. Meanwhile, China, which buys 7% of Potash’s output, may be looking for ways to derail a takeover on fears that BHP may jeopardize supplies. Intel will buy security software maker McAfee for $7.7-billion, as security becomes vital to Internet-connected devices.

• Teachers make slick investment

Ontario Teachers Pension Fund (OTPF) bet on a comeback by Transocean, the oil rig contractor involved in the Gulf disaster. Taking advantage of share prices that collapsed 40% after the April 20th accident, OTPF now owns a 1.7% equity stake.

• IPOs – something old, something new

Internet-based phone service Skype filed for its initial public offering, expecting to raise $100-million. Video website Hulu, owned by three U.S. broadcast networks, plans an IPO that may value the company at more than $2-billion. GM filed for a potential $20-billion public offering that will ask investors to look past declining market share and an ailing European division.

• Smartphone wars continue

The highly anticipated launch of the Torch, Research In Motion’s answer to the iPhone, was overshadowed as Saudi Arabia announced a ban on the BlackBerry, and India and Indonesia threatened to do the same, causing RIM stock to tumble $2.7-billion in two days. Google’s Android phone overtook the BlackBerry as America’s top selling smartphone, with 33% market share versus RIM at 28% and Apple at 22%.

• Record drought affects global wheat market
  

Russia’s summer drought will lower economic growth by nearly 1%, as a heat wave destroyed one-fifth of crops. Global wheat prices soared as Russia announced a four-month ban on wheat exports. Profit rose 47% at John Deere, as U.S. farmers benefited from high crop prices and rushed to buy tractors before emission standards, and prices, rise next year.

• Markets appear range bound

Markets appear to have found a range to trade in over the last year. If we look at the iShares S&P/TSX 60 Index Fund (XIU) which measures the top 60 stocks (by market capitalization) performance on the TSX, we can see that XIU established support at around $16.30. In the past year XIU has traded as low as $16.32 three times. Conversely, XIU has traded as high as $18.08 and it appears that may be the level of resistance. From a technical perspective the rise from March of 2009 to September 2009 appears to have flattened out over the last year and the S&P/TSX 60 measured by XIU looks to have entered a trading range.