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TSX drops 1000 points in three days, US credit downgrade sends shockwaves

Published: 10:33 08 Aug 2011 EDT

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Canadian markets were pummelled this morning, after a downgrade in the United States’ triple A credit rating sent shockwaves through global equity markets.


For the first time in history, credit rating agency Standard & Poor's took down the United States' top triple A credit rating to AA+.


All three US indexes dropped sharply in the first 30 minutes of trading on Monday, with the Dow Jones Industrial Average shedding 194 points, or 1.69%, to 11,190.00. The broader S&P 500 slid 2.25% while the tech laden NASDAQ slumped 2.49%. These losses follow some of the worst performances of the three indexes last week since the financial crisis in 2008.


European markets also chalked up significant losses, with Britain's FTSE 100 tumbling more than 2%, while Germany's DAX slid almost 2.8%. Asian markets closed down by over 2% as well, with  Japan's Nikkei 225 finishing at 9,097.56.


On Sunday, Group of Seven leaders met to curtail the global crisis, backing a move by the European Central Bank earlier that day that pledges to buy government bonds, which is expected to help Italy and Spain finance their enormous debts and avoid yet another bailout in the 17-country eurozone region.


The relief from this news has been overshadowed, however, by the uncertainty brought about from the S&P downgrade. The main worry is that US borrowing rates will rise at the same time the country is struggling to reduce its $1 trillion deficit. Despite the downgrade, the yield on US Treasuries actually dropped, as they are still being perceived as a safe haven asset, as there are few other such alternatives.


In Canada, equities were hit equally hard by the ongoing concerns about sovereign debt.  The S&P/TSX composite fell a whopping 340 points, or 2.8%, to 11,821 while the S&P/TSX Venture, a market for junior companies, fell a eye-watering 4.8% to 1,724.


The hardest hit sectors on the TSX included Mining & Metal, which plunged 5.34%. Oil for September delivery shed 3.6%, or $3.18, to $83.70 per barrel, weighing on the TSX Energy sector, which fell 4.7%.  Other hard hit sectors included industrials and healthcare Overall, decliners outnumbered gainers by a ratio of nearly 6 to 1.  Including today’s losses, the TSX has dropped around 1000 points in the last three trading days.


There was however a silver lining within the mining sector: a rally in gold and silver. The yellow metal for December delivery rose by more than 3% in electronic trading to $1,706.70 per ounce, while silver gained $1.54 to $39.76 per ounce.


This helped lift gold and silver producers.  Newmont Mining (NYSE:NEM, TSE:NMC) rose 3.8% in Toronto and 2.9% in New York, making it the best performing stock in the S&P 500.  Other notable risers included CGA Mining (TSE:CGA, ASX:CGA) which added 4.7% in Toronto, Vista Gold (TSE:VGZ) rose more than 6% and Eldorado Gold (TSE:ELD) which tacked on 56 cents, or 3.3%.


For virtually every other commodity business, today was a day best forgot for bulls. Fertilizer giant Potash Corp (TSE:POT, NYSE:POT) dropped 3% in Toronto, coal and base metals miner Teck Resources (TSE:TCK.B, NYSE:TCK) fell 5.5%, oil and gas giant Suncor (TSE:SU, NYSE:SU) gave up 4.3%, uranium producer Cameco (TSE:CCO, NYSE:CCJ) fell 5.3%.


In the financial sector, losses were more in-line with the overall market, with the exception of Manulife Financial (TSE:MFC) which fell 4.4%. Other stocks hit hard this morning included intellectual property business Wi-LAN (TSE:WIN, NASDAQ:WILN) which dropped a whopping 11% this morning, and China focused timber group Sino-Forest (TSE:TRE) which plunged 9.55%.


Research In Motion (TSE:RIM, NASDAQ:RIMM) fell a more pedestrian 2.2% this morning in Toronto, though at $22.41 per share, this is little consolidation for long time bulls in the stock...RIM’s 52 week high was $69.30 – ouch.

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