Markets Climb a Wall of Fear

Equity markets gained ground this week while the cycle of fear continues around the globe.

U.S. stocks rallied, driving the Standard & Poor’s 500 Index to its best weekly gain since March affirming the old Wall Street adage that “markets climb a wall of fear”. The equity markets surged ahead on strong corporate earnings despite negative international news, almost across the board.

On Friday, it was reported that the Chinese economy grew at its slowest annual pace in nearly three years at 8.1 percent in the first quarter of 2012.

“There are some favorable factors to ensure steady growth in trade, but we should also note that the year of 2012 may be a quite challenging one for China’s trade,” the Commerce Ministry said in an assessment.

China continues to forecast a 10 percent growth rate for imports and exports in 2012 although both targets were missed in March. Imports expanded just 5.3 percent from a year earlier while exports grew 8.9 percent.

A slowdown was also reported by China’s big banks. Eager to escape the negative real interest rates that are centrally set by Beijing, many depositors have reportedly taken to investing in other areas such as real estate or wealth management products.

Chinese banks are only allowed to lend out 75 percent of the deposits they take in so any outflow in capital limits the banks’ ability to meet credit demands.

The cycle of fear continued this week in Europe as well. Although, European stocks advanced for a second straight week after better-than-forecast earnings outweighed disappointing economic data, political uncertainty in France and economic concerns in Spain.

On Friday, Spanish government bond yields rose to the 6 percent danger level a day after Standard & Poor’s cut Spain’s credit rating by two notches to BBB+. The agency maintained a negative outlook on Spain citing a deterioration of government finances and a weakness in the Spanish banking sector.

Here in Canada, the benchmark stock index posted its second straight weekly gain after seven consecutive weekly losses rising 0.74 percent.

News this week in the mining sector saw Iamgold (Stock Profile – TSX:IMG) offer to buy Trelawney Mining and Exploration (Stock Profile – TSXV:TRR) for $585.3 million in cash. The $3.30 per share offer represented a 42% premium over Trelawney’s share price. Iamgold has its sights set on Trelawney’s Cote Lake gold deposit in northern Ontario. In September 2011, MiningFeeds featured Trelawney as 1 of the 10 Most Interesting Gold Stocks – CLICK HERE – for the article.

TSX-Venture listed Gold Canyon Resources (Stock Profile – TSXV:GCU) tacked on a 30.8% gain after the company held its AGM earlier this week. Gold Canyon is a gold exploration and development company whose assets include the notable Springpole Gold project in the Red Lake Mining District of Ontario. The company has also been nurturing a rare earth element project in Malawi, Africa.

While on the senior TSX board, Atna Resources (Stock Profile – TSX:ATN) was up 20.6% after the company reported on the development progress of its 100 percent owned Pinson Mine project near Winnemucca, Nevada. Atna’s President & CEO, James Hesketh stated, “Work at Pinson is proceeding as planned and we are on target to begin sustained production by the end of 2012”.

Mike Luft

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