News that one of the top contenders to head the U.S. Federal Reserve has withdrawn his candidacy sent North American markets higher Monday, as investors bet that stimulus funding from the central bank will continue to flow a little longer.
The S&P/TSX composite index climbed 91.60 points to 12,815. The Canadian dollar was stronger, up 0.32 of a cent to 96.97 cents US.
Economist Larry Summers has long been perceived as an opponent to the Fed’s aggressive $85-billion a month bond-buying program, which has helped push down interest rates to spur lending and jump start economic growth. The program, dubbed quantitative easing, has also weakened the U.S. dollar and boosted stock markets.
U.S. indexes jumped on the news. The Dow Jones industrials surged 158.67 points to 15,534.73, the Nasdaq was ahead 13.75 points to 3,735.93 and the S&P 500 added 14.41 points to 1,702.40.
“Certainly, markets are interpreting Summers’ withdrawing from the race as Fed chairman implies that quantitative easing could persist for longer, that interest rates could be pushed further into the future,” said Paul Ferley, the assistant chief economist at the Royal Bank of Canada.
Summers’ withdrawal to succeed current Fed chairman Ben Bernanke means Fed vice-chair Janet Yellen, believed to be a supporter of the stimulus program, may be next in line for the top job.
The development comes as the Fed is set to make a key announcement Wednesday on what it plans to do about its asset purchases. It’s widely expected that the central bank will begin tapering anywhere between $10-billion (U.S.) to $15-billion a month on signs that the U.S. economic recovery is moving forward. What is still left up in the air is at what pace the money will be rolled back.
Meanwhile, oil prices declined as the October crude contract dipped $1.08 to $107.13 (U.S.) a barrel. Gold prices got some lift after closing last week at their lowest price in more than a month. Bullion saw an uptick of $10.10 to $1,318.70 an ounce. December copper was up two cents at $3.23 a pound.
By mid-day, all sectors were seeing sizable gains on the Toronto Stock Exchange, as info tech led the charge with an uptick of 2.28 per cent. Shares in Wi-Lan Inc. (TSX:WIN) were up nearly nine per cent, or 29 cents to $3.68 after the company and Alcatel Lucent USA Inc. agreed to settle their dispute over several patents and withdraw litigation before U.S. district courts in Florida and Texas.
The gold sector was the only decliner on the TSX, down by 0.16 per cent.
On the corporate front, Aimia Inc. announced it has reached an agreement with TD Bank Group and the Canadian Imperial Bank of Commerce for its popular Aeroplan loyalty credit card programs. Each bank will have rights to half the portfolio of accounts that offer their customers loyalty points, which can be exchanged for airline tickets and other goods through Aimia’s flagship Aeroplan program.
Shares in Aimia (TSX:AIM) rose more than five per cent, or 92 cents, to $17.55. TD (TSX:TD) shares were up 1.17 per cent, or $1.05, to $90.97, while shares in CIBC (TSX:CM) jumped 0.85 per cent, or 69 cents, to $81.82.
TD said it expects to acquire approximately 550,000 cardholder accounts from CIBC, representing approximately $3-billion in card balances and $20-billion in annual retail spending. CIBC, which has been the primary Aeroplan credit card issuer for more than 20 years, will retain the half of the portfolio. That will include Aerogold customers with broader relationships with the bank.
Meanwhile, Bombardier (TSX:BBD.B) flew the first test flight of its CSeries commercial aircraft Monday morning.
The flight sets off a year of testing, leading to delivery of the first aircraft, which seats 110– to 125-seat CS100 and is slated to enter into service in about a year. The heavily anticipated first flight had been delayed three times over nearly nine months. Its shares climbed 0.6 per cent, or three cents, to $5.02.
In economic news, Statistics Canada says foreign investors resumed purchases of Canadian securities in July, adding $6.1-billion to their holdings. It says this followed a $15.4-billion divestment in June. Meanwhile, Canadian investment in foreign securities slowed to $900-million and focused on bonds.
South of the border, U.S factories boosted output 0.7 per cent in August, the best since December, and mainly led by auto production.