Greece plunges global markets into turmoil

The chase by Marty Cej:

Asian and European stocks are tumbling, the cost of insuring against default on European bonds is surging and commodities are slumping after Greek Prime Minister George Papandreou said thanks for the bailout money but I think I’m gonna ask the people of Greece what they think about the deal first. In what BMO Capital Market’s economists are calling one of “your all-time bonehead moves,”

Papandreou shocked global financial markets with his call for a referendum on the most recent austerity measures required by the EU, IMF and ECB for the disbursement of funds necessary for Greece to avoid a disorderly default. Fitch Ratings told clients a few moments ago that a rejection of the measures would “increase the risk of a forced and disorderly sovereign default and - whilst not Fitch's central rating case - potentially a Greek exit from the euro.”

In short, Greece may have collapsed Plan A – a generous description if there ever was one – without the benefit of having a Plan B in place. The announcement has likely thrown the agenda for this weekend’s G20 summit into disarray and will turn the market’s conversation to the question of what happens when Greece defaults and exits the euro-zone. Will it mean the end of the euro currency? Is Italy next? Spain? Credit default swaps on Italian debt have soared 32 basis points this morning and jumped 28 points on Spanish bonds.

The broad Markit iTraxx index of Western European CDS surged 25 basis points. Gavin Nolan, director of credit research at Markit in London will join us at 10:20 am Eastern to walk us through the implications. Silvio Peruzzo, Euro-area economist at RBS will join the conversation a few minutes later.

The Reserve Bank of Australia cut interest rates this morning for the first time since 2009, saying Europe’s debt crisis was undermining Asia’s export-dominated economies. The rate cut came as a purchasing managers’ index for China fell to 50.4, its lowest level since February of 2009. South Korea, meanwhile, reported its smallest gain in exports in two years. It won’t be hard to connect the dots all the way back to the Canadian economy, earnings growth and the outlook for stocks.

I almost forgot! It’s Mario Draghi’s first day on the job as the new president of the ECB! Congratulations, Mario, and good luck.

It is also the first day of a two-day meeting for the U.S. Federal Reserve’s policy-setting Open Market Committee. The conversation is likely to have changed a bit this morning. How will the increased political and financial risk in Europe affect the discussions? Will there be fewer dissenters this time around? How unconventional can unconventional get?

MF Global became a much more compelling story late yesterday after the Commodity Futures Trading Commission and Securities and Exchange Commission revealed that a last-minute sale of some of the assets to avoid a bankruptcy was scuppered after “deficiencies in customer futures segregated accounts held at the firm” were found.

Unnamed sources are telling Bloomberg and The New York Times that hundreds of millions of dollars in customer accounts may have been funneled into MF Global’s proprietary accounts to back up a losing trade. We need to talk more about the kind of trade that MF Global made, the risk the company took on through its proprietary book and what could happen next. Of course, at the middle of it all, is Jon Corzine, one of the best-known names on Wall Street.

Commodities, currencies, bonds and stocks, they’re all reflecting the sudden increase in financial, political and economic risk emanating from Europe but in different ways. Let’s be specific and accurate. “Commodities falling on European woes” does not help anyone understand anything any better.

And still the earnings parade marches on. We have numbers today from Bell Aliant, Pfizer, Anadarko, Valero, CME Group, Archer Daniels Midland, TransCanada, Baker Hughes, Dollar Thrifty, Dunkin Brands and Westport Innovations.

TMX and Maple hook up

The chase by Marty Cej:

After a five-month courtship that involved the scuttling of proposed marriage with another, the board of TMX Group has agreed to Maple Group’s $3.8-billion takeover offer and will recommend the deal to TMX shareholders. Maple, the consortium made up of 13 members including Manulife, TD, CIBC, and pension plans Caisse de Depot and Aimco, will buy 70- to 80 percent of TMX with cash and the rest in stock. Maple Group is also seeking to buy TMX competitor Alpha Group as part of the deal, as well as the clearing house CDS Inc.


Critics say the deal will mean a monopoly on Canadian stock trading and higher fees while supporters point out that the banks do the bulk of trading on the exchange and are unlikely to raise fees on themselves. It could be a thorny issue for regulators to decide and a tough sell for Maple Group’s public relations team once the word “monopoly” starts popping up in headlines. Are there any other possible bidders out there? Does a broad Canadian ownership with deep pockets put the TMX in an acquisitive position? There has been $30 billion in exchange deals since October of last year, according to Bloomberg data, so why stop now?

Tom Kloet, TMX CEO and prospective CEO for Maple Group in the event of a successful takeover, and Luc Bertrand, former head of the Montreal Exchange and spokesperson for Maple Group, will sit down with us at 12:30.

Canadian Pacific Railway is poised to rally this morning after Pershing Square Capital – the hedge fund of activist shareholder Bill Ackman – disclosed late Friday that it has acquired a 12.2-percent stake in CP, making Pershing the railway’s biggest shareholder. CP stock rallied in the last minutes of Friday trading but a raised price target at RBC – to $80 from $66 – may help things along this morning.

The Globe and Mail says Ackman may get “active” with CP management as soon as this week in a bid to correct the stock’s underperformance relative to CNR as soon as possible. CP’s senior executives met with the company’s financial and legal advisers over the weekend, the Globe reports, to “review options.” The most likely option is to sit and listen to Ackman’s ideas.
It is a big week for central banks with a two-day Fed meeting kicking off Tuesday and Mario Draghi’s first meeting as the new European Central Bank president Thursday.

For Draghi, it will be a battlefield commission as he takes over in the midst of a struggle to bail out the weakest members of the euro-zone, prevent the collapse of the region’s banks and establish a permanent bailout mechanism that will prevent this sort of thing from happening again. Not to mention the vampire issue in Transylvania or the werewolf cull in the Carpathians that continues to be thwarted by PETA. The Fed’s statement will come out at 12:30 pm Eastern Wednesday followed by a Q&A with Ben Bernanke.

The discussion is likely to revolve around jobs and housing and just how unconventional unconventional can get. For the ECB, it could mean a rate cut as Draghi puts his stamp on the job.
Both central banks will also be explicit in their recognition of the European debt crisis as the biggest threat to the global economic recovery. Expect both the ECB and the Fed to lob the problem back to governments ahead of the G20 leaders’ summit this weekend. Monetary policy is doing what it can, they’ll say, so how about a little help on the fiscal policy side?

Today is the last trading day of October in what has proven to be a remarkably bullish month for stocks. We’ll need to slice and dice the market’s performance into leaders and laggards and wax prophetic over what may happen next. Earnings continue to top expectations, money is flowing back into commodities and European leaders are slouching towards a solution in a blue velour pantsuit… will the final quarter of 2011 prove to be the strongest quarter of the year for Canadian stocks?

The best performer for October? Yellow Media. The worst? Agnico-Eagle.

We are also tackling Canadian GDP for August, which rose 0.3 percent, topping the 0.2 percent expected by economists.