Canadian dollar coins, or Loonies, are displayed on a map of North AmericaPaul Chiasson/The Canadian Press
The Toronto stock market was sharply higher Wednesday amid a surprise quarter-point rate cut by the Bank of Canada and increased confidence about what the European Central Bank may deliver in the form of another round of economic stimulus on Thursday.
The S&P/TSX composite index jumped 299.2 points to 14,607.68.
But the Canadian dollar plunged 1.79 cents US to 80.77 cents US after the Bank of Canada cut its key rate to 0.75 per cent from one per cent due to economic fallout from the collapse in oil prices.
Markets had universally expected the bank to leave the rate unchanged from where it had been since September, 2010.
Oil prices have plunged 55 per cent since last June amid a glut of supply and have fallen about 40 per cent just since the end of November after OPEC concluded their last meeting with a vow to leave production levels unchanged.
TSX gains were led by a 4.2 per cent rise in the energy sector as oil prices rose $1.57 to US$48.05 a barrel and traders considered how a lower Canadian dollar will be a positive for some TSX sectors.
"A low dollar for energy producers is a positive," said Stephen Carlin, vice-president Canadian equities at CIBC Asset Management, who explained that "we sell the product in U.S. dollar terms, but we have a cost base in Canada – so a lower Canadian dollar makes our cost structure cheaper on a relative basis, relative to the U.S. producer."
The effect on other sectors varies.
"It's modest pain for . . . the food retailers. It will cost you more to import those strawberries from California," he added.
New York indexes were higher after the Wall Street Journal reported that the board of the European Central Bank is proposing a substantial program of quantitative easing, which involves a massive round of government bond purchases. The WSJ said the bank would spend about €50-billion monthly on the program. Markets had been speculating the central bank would announce a program involving spending between €500-billion and €700-billion annually.
Economic growth has been tepid and there have been worries that the region could fall prey to deflationary pressures, a situation where businesses and consumers hold off on purchases in the hope that items will just get cheaper.
The Dow Jones industrial index was ahead 52.24 points to 17,567.47 – dragged down by an earnings miss from IBM. The Nasdaq moved up 27.62 points to 4,682.46 and the S&P 500 index gained 12.60 points to 2,035.15.
"The initial move after an ECB stimulus announcement was always going to be up, but the real question is how long it's going to last," Matt Maley, an equity strategist at Miller Tabak & Co LLC in Newton, Massachusetts, said in a phone interview. "Earnings will take a backseat for the next few days, but they'll be back in focus before long."
Elsewhere on the TSX, the base metals group gained 2.8 per cent with March copper unchanged at US$2.60 a pound.
Most TSX sectors were higher with added support coming from industrials and financials.
The gold sector shed 1.5 per cent while February gold faded $4.60 to US$1,289.60 an ounce, giving up early gains after the ECB report.
In the U.S., Netflix Inc. jumped 18 per cent as it posted subscriber growth that beat projections and said it will complete its global expansion within two years. Energy companies climbed 1.6 per cent for a third day of gains. International Business Machines Corp. slipped 2.8 per cent after its earnings forecast trailed some estimates. Qualcomm Inc. dropped 1.1 per cent as people familiar with the matter said Samsung Electronics Co. will not use its chip in the next version of its smartphone.
Data in the U.S. today showed new residential construction rose more than forecast in December, capping the best year since 2007 and signaling the industry will probably keep expanding this year.
Housing starts increased 4.4 per cent to a 1.09 annual rate, following the prior month's 1.04 million pace that was higher than previously estimated.
"Although investors are very edgy right now, U.S. equities still have a bit further to go," said William Hobbs, head of equity strategy at Barclays Plc's wealth-management unit in London. "The hurdle is just a little bit higher because there has been such a big consensus favoring the U.S. and sentiment is already pretty hot on growth. None of these markets are particularly inexpensive."
With files from Bloomberg