The Toronto stock market looked set for a sharply lower open on Tuesday as Italy and other eurozone countries faced higher borrowing rates to finance their high debt levels.
A flight to safety in the form of U.S. Treasuries pushed the Canadian dollar down 0.66 of a cent to 97.68 cents US.
U.S. futures also signalled a negative start to trading with the Dow Jones industrial futures down 115 points to 11,945, the Nasdaq futures fell 22 points to 2,321 while the S&P 500 futures dropped 13.1 points to 1,239.3.
Italy was at the forefront of worry with bond markets skeptical that the country can get a grip on its huge debt.
The yield on the country’s ten-year bond was up another 0.43 of a percentage point Tuesday to 7.01%. It was that sort of rate that eventually forced Greece, Ireland and Portugal to seek multibillion bailouts.
The problem this time is that Italy is the eurozone’s third-biggest economy and widely thought to be too big to save.
Spain’s equivalent rate is getting uncomfortably high too, rising a further 0.18 percentage point to 6.26%. And France, the eurozone’s second biggest economy has seen its 10-year yield rise another 0.17 percentage point to 3.59%.
Stock markets have stalled in recent weeks even as North American economic data have been generally positive and companies are just completing a very successful third quarter earnings season.
The worry is that Europe’s debt crisis will plunge the region back into recession and derail a fragile economic recovery.
That is particularly bad news for commodity prices and in turn share prices for energy and mining companies on the resource-heavy TSX.
Commodity prices were also hit by the higher U.S. dollar.
A stronger greenback usually helps depress prices for oil and metals, which are denominated in dollars, as it makes commodities more expensive for holders of other currencies.
The December crude contract on the New York Mercantile Exchange was down 32 cents to US$97.82 a barrel.
The December copper contract on the Nymex fell two cents to US$3.46.
Bullion also weakened as the December contract shed 89 cents to US$1,770.40 an ounce.
European markets lost ground amid mixed economic news.
Germany’s Federal Statistical Office said that the country’s economy grew by a solid 0.5% during the third quarter. Europe’s largest economy was 2.6% larger in the July to September quarter compared with a year earlier.
But new data measuring investor sentiment showed that businesses remain wary as Europe’s sprawling debt crisis weighs on growth prospects.
The ZEW investor sentiment index for November fell for the ninth month in a row to minus 55.2 points from minus 48.3 points in October.
London’s FTSE 100 index lost 1.07%, Frankfurt’s DAX fell 1.96% and the Paris CAC 40 gave back 2.07%.
Earlier in the day, Asian stock markets were mostly lower. Japan’s Nikkei 225 index lost 0.7%, South Korea’s Kospi index dropped 0.9% and Hong Kong’s Hang Seng fell 0.8%. Benchmarks in Australia, Taiwan and Singapore also retreated.
Only mainland China’s Shanghai Composite Index closed marginally higher.
In earnings news, Wal-Mart reported that the third-quarter profits slipped 2.9% to US$3.33 billion and offered a conservative fourth-quarter outlook. But the world’s largest retailer announced its first quarterly gain in its U.S. namesake business, reversing a more than two year sales slump. Wal-Mart shares slumped about 1.7% in pre-market trading.
Sears Canada Inc. (TSX:SCC) posted a net loss of $46.6 million in the three months ended Oct. 30, down from a profit of $20.8 million a year ago. Same-store sales fell 7.8% over the same period last year. Sears Canada’s revenue was off 7.1% to $1.11 billion from $1.2 billion.
Staples Inc. said its profit climbed 13% to US$326.4 million in the third quarter. But overall revenue came in short of expectations and the biggest office supply company in the U.S. cut its adjusted earnings forecast for the full year as its international performance weakened a bit. Its shares slid 4.5% in pre-market trading.
In other corporate news, Bombardier Aerospace (TSX:BBD.B) has signed a letter of intent to sell 10 more of its CS300 jetliners. A Turkish airline, Atlasjet Havacilik A.S., plans to purchase 10 of the planes and hold an option for five more. The initial contract is valued at US$776 million and would increase to $1.18 billion if the option for the five planes is exercised.