The Toronto stock market was sharply lower Wednesday as traders took in glum readings on American employment and speculated if they are weak enough to ensure the Federal Reserve will continue with its economic stimulus plans.
The S&P/TSX composite index fell 120.44 points to 12,473.53 with declines spread across most sectors.
The Canadian dollar shed early gains, down 0.16 of a cent to 96.51 cents (U.S.) amid a strong housing report.
Statistics Canada says municipalities issued $7-billion worth of building permits in April, up 10.5 per cent from March and far better than the month-to-month decline that analysts had expected.
U.S. indexes were lower as traders took in disappointing job creation data. Payroll firm ADP reported Wednesday that the U.S. private sector cranked out 135,000 jobs during May, less than the 165,000 that had been expected.
The ADP report comes two days before the release of the U.S. government’s official employment data for last month.
The Dow Jones industrials declined 122.73 points to 15,054.81, the Nasdaq fell 29.26 points to 3,416 while the S&P 500 index was down 14.48 points to 1,616.9.
Traders also took in the latest reading of the health of the U.S. non-manufacturing sector, which showed stronger expansion. The Institute for Supply Management’s index came in at 53.7, better than the 53 reading that had been expected and up from 53.1 in April. But the data also showed that hiring slowed further in May to the lowest level since last July, coming in at 50.1.
At mid-afternoon, the U.S. Federal Reserve releases its latest regional economic survey.
Traders hope the data will help investors try and work out when the U.S. Federal Reserve may start reducing the amount of government bonds it has been buying in the markets as part of its stimulus program.
The Fed’s monetary stimulus program, involving spending $85-billion a month on bond purchases, has been a huge support to stock markets over the past few years. The purchases are designed to keep interest rates low and give the U.S. economy a lift.
“The Fed has invested the last four or five years a significant amount to assure everyone that we have a sustainable economic recovery ahead of us, even if it might be modest,” said Paul Taylor, chief investment officer for BMO Harris Private Banking.
“And it would be entirely inconsistent with that endeavour for the Fed to reverse and unwind very loose monetary conditions and run the risk of a hard landing of the U.S. economy. And they have been explicit to the investment community about that.”
The industrials sector led declines, down 1.6 per cent with Canadian Pacific shares down $4.02 or three per cent to $127.74.
CP stock fell almost three per cent Tuesday after Bill Ackman’s Pershing Square Capital Management, the railway’s biggest shareholder, said that it plans to sell about a third of its holding over the next six to 12 months.
The telecom sector was down 1.5 per cent, a day after Industry Minister Christian Paradis said Mobilicity and other new wireless carriers won’t be allowed to sell spectrum to big carriers. The move was a setback for Telus which had asked permission to acquire Mobilicity and its spectrum. Telus shares shed 82 cents to $34.99.
Financials also weighed, down 1.1 per cent with TD Bank down $1.04 to $82.98.
Laurentian Bank climbed 20 cents to $44.25 as it said it is boosting its quarterly dividend by a penny to 50 cents a share as its second-quarter profit increased four per cent to $35.1-million.
Resource stocks were also weak with the energy sector off 0.8 per cent as July crude on the New York Mercantile Exchange gained 56 cents to $93.87 (U.S.) a barrel. Cenovus Energy gave back 54 cents to $30.77 (Cdn).
The base metals sector was down one per cent per cent while July copper added one cent to $3.38 (U.S.) a pound. Teck Resources dropped 66 cents to $27.16 (Cdn).
HudBay Minerals Inc. inched up a penny to $8.35 as the miner as downgraded by Moody’s Investors Service to a corporate family rating of B3 from B2. The ratings agency says it believes HudBay will likely require additional capital to develop its various growth projects and will at least partially fund that requirement with debt. Moody’s also notes that weaker-than-expected metal prices have reduced HudBay’s earnings and weakened its liquidity.
The gold sector led advances, up 1.35 per cent with August bullion up $9.60 $1,406.80 (U.S.) an ounce. Barrick Gold Corp. improved by 27 cents to $21.85.
European bourses were negative as London’s FTSE 100 lost 1.97 per cent, Frankfurt’s DAX was down 1.02 per cent while the Paris CAC 40 gave back 1.7 per cent.
In other corporate news, Penn West Petroleum Ltd. says it will be cutting its quarterly dividend by half, slashing 10 per cent of its staff and undertake a strategic review of the company with a new president and chief executive officer in place. The Calgary-based company says a former senior executive from Marathon Oil, David Roberts, will become the new CEO and president on June 19 and the current CEO, Murray Nunns, will retire on July 1. Its shares shed 14 cents to $10.76.
The U.S. government is taking advantage of the recent run-up in General Motors stock to sell off another 30 million shares in the auto giant that it acquired in a bailout. The Treasury Department said Wednesday that it will sell the shares, plus another 20 million owned by a United Auto Workers retiree health care trust, in a public offering after the market closes Thursday. GM shares hit $35.49 (U.S.) Tuesday, the highest point since December, 2010 and were down 31 cents to $34.65 Wednesday.