The Toronto stock market registered a solid gain after two days of losses that were sparked by indications that the U.S. Federal Reserve is likely to start winding up monetary stimulus later this year.
The S&P/TSX composite index ran ahead 84.92 points to 12,053.49.
But the Canadian dollar continued to pile up losses amid data showing a disappointing read on retail sales and tame inflation, falling of a cent to 95.66 cents US, its lowest level since late November, 2011.
U.S. indexes also moved ahead after registering big losses since Wednesday when Fed chairman Ben Bernanke said the Fed will slow down its bond purchases this year and complete them by the end of 2014 – sooner than many observers had expected.
New York’s Dow Jones industrials gained 59.38 points to 14,817.7, the Nasdaq was ahead 3.56 points to 3,368.19 while the S&P 500 index was up 8.37 points to 1,596.56.
Investors have got used to central banks flooding the financial markets with stimulus since the 2008 financial collapse and subsequent recession.
The Fed’s purchase of $85-billion (U.S.) a month in bonds has kept long-term rates low and also helped fuel a strong rally on stock markets, with the exception of the resource-weighted TSX where mining stocks in particular have lost ground amid a sluggish global recovery.
Nonetheless, the Fed thinks that economic data is strong enough to allow it to let up on its bond buying program.
The prospect that the policy will be unwound sooner than many investors thought prompted big moves late Wednesday and Thursday with the Dow shedding well over 500 points, but still leaving the blue chip index up about 12.5 per cent year to date.
The TSX had fallen about 400 points in the past two sessions, leaving the main Canadian index down 3.75 per cent so far this year.
However, an easing of stimulus by the U.S. central bank hasn’t been the only worry as traders were also concerned about the latest indication of a slowing Chinese economy.
HSBC said Thursday that the preliminary version of its monthly purchasing managers index for China’s manufacturing sector fell to a nine-month low of 48.3 in June, down from 49.6 in May. Numbers below 50 indicate a contraction in the manufacturing sector.
Fears over Greece have also resurfaced in recent days as concerns swell over the future of the coalition government.
The latest concerns have arisen after one of the junior partners in the coalition, the Democratic Left, rejected a compromise deal over last week’s surprise decision by conservative Prime Minister Antonis Samaras to close the public broadcaster. Though the other junior partner, socialist Pasok, accepted the deal, the future of the coalition government remains in question.
The International Monetary Fund has even hinted that it may delay its bailout payments to the country if pledged reforms aren’t enacted.
Commodity futures were mixed after sustaining a severe mauling. Prices fell heavily Thursday, partly because of demand concerns that arose from the Chinese data but also because the signal from the Fed that bond purchases will be tapered has pushed the U.S. dollar and government bond yields higher.
The yield on the U.S. benchmark 10-year bond hovered around 2.45 per cent Friday morning, up from about 2.25 per cent before Bernanke made his announcement Wednesday afternoon. The yield was as low as 1.6 per cent in early May.
A higher U.S. dollar pressures commodities because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals, which are dollar-denominated.
The gold sector led advancers, up 1.8 per cent as August gold climbed $7.70 to $1,293.90 an ounce on the New York Mercantile Exchange after tumbling $88 to a 2 1/2 year low. Barrick Gold was ahead 50 cents to C$17.60.
The base metals component ticked 0.82 per cent higher as July copper edged up two cents to $3.08 a pound following an eight-cent drop. Teck Resources rose 28 cents to $22.79.
The July crude contract was down 24 cents to US$94.90 a barrel after giving up almost $3 on Thursday. The energy group was up 0.35 per cent Outside of the resource sectors, the tech sector was ahead 0.8 per cent with BlackBerry up 14 cents to $14.59 at the end of a volatile week for the stock.
Elsewhere, shares in Wi-LAN Inc. jumped 61 cents or 14.35 per cent to $4.86 after it said Thursday after the close that it has renewed its licensing agreement with Samsung Electronics Co., Ltd. Under the agreement, Wi-LAN grants Samsung a licence to its patents for wireless products such as handsets, tablets and laptops, and for networking infrastructure equipment.
The financial sector was up 0.45 per cent as TD Bank climbed 75 cents to $81.38.
In economic news, Statistics Canada said that the annual inflation rate rose to 0.7 per cent in May while core inflation was stable at 1.1 per cent, both below expectations.
Inflation was up 0.2 per cent in May compared with April.
Canadian retail sales edged up a weaker than expected 0.1 per cent to $39.5-billion in April, following flat sales in March. Statistics Canada said that stronger sales at motor vehicle and parts dealers were offset by weaker sales at gasoline stations. Economists had expected sales to rise by 0.2 per cent.
In corporate news, New Flyer Industries Inc. of Winnipeg will pay $80-million cash to acquire North American Bus Industries, also known as NABI from an affiliate of Cerberus Capital. NABI has a bus manufacturing plant in Alabama, a parts distribution centre in Ohio and a service centre in California. Its shares rose 11 cents to $10.16.
European bourses weakened from early levels as London’s FTSE 100 index climbed 0.29 per cent, Frankfurt’s DAX slipped 0.07 per cent and the Paris CAC 40 was up 0.22 per cent.