Stock markets were rattled last week by the ongoing Greek debt crisis and the threat it poses to European economic stability, a trend likely to continue this week as the country seeks to bail itself out of a massive deficit.
The crisis was one of the main movers behind a tepid performance on the Toronto stock market last week as commodity prices were pushed lower by a rising American dollar.
The main TSX index finishing the week down 65.84 points at 11,947.98
Currency traders flew to the safety of the U.S. greenback late last week, worried that the Greek crisis would undermine the stability of Europe’s monetary union and the euro itself — putting the brakes, temporarily at least, to the Canadian dollar’s march towards parity.
With few economic reports expected that could give North American markets any direction this week, there will be a keen focus on whether any solution is coming for Greece’s troubles.
The country’s prime minister, George Papandreou, made it clear the country would seek help from the International Monetary Fund if it doesn’t receive a financial aid mechanism from fellow European countries this week.
But the European Union is dead set against involving the IMF, as calling in emergency help from an outside organization is seen an embarrassment.
“This is bargaining supreme going on right now — this is what is unsettling the markets,” said Andrew Pyle, investment adviser with ScotiaMcLeod in Peterborough, Ont.
He noted that some observers think the issue is a non-event, that “Europe will not sit idly by and let the IMF come in and basically say, ’You guys can’t do this job.”’
“Well, a lot of people think this could be the thing that breaks Europe apart.”
And the problem goes far beyond Greece, Pyle observed.
“When people buy U.S. dollars, whenever there is a bad Greek headline, it’s not because of Greece. It’s because of what that can potentially do to the euro, what it can do to the rest of Europe, such as Spain, Portugal, Hungary, the U.K.,” he said.
“And then if that filters down through the financial markets, what ultimately does that do to growth? And that’s where it always comes back to.”
The loonie briefly poked above the 99 cent level on economic data showing higher than expected inflation for January and a much better than expected reading on retail sales for January, raising hopes that the economy is making a strong exit from recession.
It is widely expected the currency will hit parity with the U.S. dollar for the first time since 2008 sooner rather than later — even as early as this week.
That’s because investors still expect the Bank of Canada to raise interest rates, likely this summer. If anything, Friday’s inflation and retail reports created hopes the bank could move earlier — and raise rates faster than expected.
Some major economic and corporate events this week:
— On Monday, European Central Bank president Jean-Claude Trichet will be at the EU Parliament to talk about Greece and a possible eurozone bailout.
— On Tuesday, Statistics Canada reports leading economic indicators for February, the U.S. National Association of Realtors releases existing home sales data for February and the Federal Housing Finance Agency releases the January home price index.
— On Wednesday, the U.S. Commerce Department releases durable goods for February and new home sales for February and Japan releases trade balance data.
— On Thursday, the U.S. Labour Department releases weekly jobless claims and Freddie Mac, the mortgage company, releases weekly mortgage rates.
— On Friday, the U.S. Commerce Department releases fourth-quarter gross domestic product.