The Greek government passed a new round of austerity measures in order to stave off bankruptcy as violence erupted for a second day in Athens. Moody’s downgraded Spain’s sovereign credit rating by two notches and, two days later, cut the ratings of the country’s largest banks. The ratings agency warned that France could be next if EU plans to shore up banks and resolve the debt crisis put too much strain on the country’s finances. As the two largest countries in the eurozone, France and Germany will bear much of the weight of the rescue plans.

China’s economic growth eased to 9.1% in the third quarter, down from 9.5% and 9.7% in previous quarters, marking the country’s slowest pace in more than two years. In the U.S., factory output rose for a third straight month in September, rising 0.4% following a 0.3% gain in August, showing the economy is growing slowly. Canada’s wholesale trade advanced, but at a pace weaker than expected, up 0.2% in August after a 0.9% gain in July. Household wealth in Canada ranks 8th in the world, according to a Credit Suisse report. Canada’s wealth per capita has risen 3% since 2007, while in the U.S. it remains 8% below 2007 levels. The IMF is upbeat on the outlook for Africa, predicting growth of 6% in 2012.

Markets

Stocks volatile as euro debt worries flare

After plunging on Monday and recovering on Tuesday, stocks climbed again as EU officials discussed a US$1.3-trillion bailout fund to tackle the sovereign debt crisis. Despite oil price volatility, investment in Canada’s oilsands is projected to reach an all-time high of $18.5-billion by 2013. Quarterly earnings reports show a mixed picture of how the tech sector is weathering the slowdown. Intel revenues exceeded Wall Street’s expectations, but IBM reported weaker-than-expected results. For Microsoft, weak consumer sales were offset by strong corporate demand as businesses upgraded their aging PC fleets. Apple reported a rare miss after sales of the iPhone fell well short of forecasts; however, the new iPhone 4S began selling after the quarter-end.

EBay earnings grew by 14% year-over-year with strong revenue growth in both its PayPal and Marketplace businesses. Toronto-based Kobo launched the $199 Vox, a new Android tablet designed to rival Amazon’s Kindle Fire, announced last month. The solar industry is set for contraction and mergers after a 70% jump in production was met with increased demand of only 20%. The end of the Canadian Wheat Board’s monopoly has triggered a race between two exchanges to develop futures contracts, in the latest sign of how the agribusiness sector will be revolutionized.

Our Recommendation

Fundamentals still take back-seat to macro concerns

Equities. Steve Uzielli, Portfolio Manager, Portfolio Advisory Group (PAG) wrote: “In the very short term, for more tactical trading-oriented investors, stocks are approaching the upper end of a narrow trading band established since the beginning of August and we are more inclined to be sellers into further strength.”

• Fixed income. Anthony Mentor, Associate, PAG, highlights the following recommendations: “Term Call – given the recent decline in yields, we no longer see value in the mid-to-long end of the curve and recommend investors stay short at this time. Sector Call – underweight Canada, overweight Municipals, Provincials and Corporates. Currency Call – we recommend Canadian investors remain in Canadian dollars for their fixed income holdings. Alternative Strategies – new call – marketweight high yield, marketweight Emerging Markets Debt, underweight inflation protected debt.”

• Portfolio strategy. Scotia Capital Portfolio Strategist Vincent Delisle says: “a recovery in risk-appetite could lift valuations as the U.S. economy averts recession and Europe adopts a credible debt relief plan.”

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