The Toronto stock market fell back Monday as the clocked ticked toward a probable partial shutdown of the U.S. government, while traders took in major dealmaking.
The S&P/TSX composite index dropped 74.49 points to 12,769.59 in a broad-based decline covering all sectors save real estate.
The real estate sector advanced as Brookfield Property Partners LP (TSX:BPY.UN) announced wants to buy out other shareholders of Brookfield Office Properties Inc. (TSX:BPO) in a stock-and-cash deal it valued at US$5 billion. Brookfield Property Partners, which already owns a 51 per cent stake in Brookfield Office Properties, has offered one unit of Brookfield Property Partners or $19.34 (U.S.) in cash per BPO share.
Brookfield Property Partners says the deal will create one of the largest commercial property companies. Brookfield Office Properties shares ran ahead $2.76 or 16 per cent to $20.05 while Brookfield Property Partners units added 22 cents to $20.22.
The Canadian dollar gained 0.07 of a cent to 97.13 cents US as Canada’s economic growth during July came in better than expected.
Statistics Canada reported that the economy grew by 0.6 per cent in July, rebounding from a 0.5 per cent decline in June. Economists had expected gross domestic product growth of 0.5 per cent for July.
U.S. indexes were sharply lower as it looked increasingly likely that lawmakers won’t be able to agree on a compromise budget deal, setting the stage for a removal of non-essential government services starting at midnight.
The Dow Jones industrials dropped 146.36 points to 15,111.88, the Nasdaq fell 35.7 points to 3,745.89 and the S&P 500 index lost 13.64 points to 1,678.11 as investors assessed the damage that could result from such a shutdown.
“The economy will suffer,” said BMO Capital Markets senior economist Michael Gregory.
“According to some studies, each couple weeks of shutdown will reduce real GDP growth by 0.3 percentage points.”
On top of that, an even more worrisome deadline comes up Oct. 17. That is when the U.S. government hits its debt limit and will begin running out of cash to pay its bills.
“Although it’s unclear what the net effect will be, technical default still looms unless the debt limit is lifted,” added Gregory.
The base metals sector led declines, down 1.15 per cent while December copper was unchanged at $3.33 (U.S.) a pound. Teck Resources (TSX:TCK.B) gave back 32 cents to $34.20.
The energy sector fell one per cent amid major dealmaking in the component.
Pacific Rubiales Energy Corp. (TSX: PRE) intends to buy Calgary-based oil and gas company Petrominerales (TSX:PMG) in a proposed deal worth roughly $1.6-billion. Petrominerales shareholders would be paid $11 per share plus they’ll get one share of a new Brazil-focused exploration and production company called ExploreCo that will be based in Calgary.
Petrominerales shares jumped $4.10 or 53 per cent to $11.84 while Pacific Rubiales fell $1.25 to $20.29.
Worries about the economic impact of a U.S. government shutdown punished oil prices and the November crude contract on the New York Mercantile Exchange fell $1.23 to $101.64 (U.S.) a barrel. Elsewhere in the sector, Canadian Natural Resources (TSX:CNQ) shed 31 cents to $32.13.
Prices also declined in the wake of data showing that Chinese manufacturing activity ticked up more slowly than expected in September.
A survey by HSBC Corp. showed that manufacturing activity expanded marginally this month, rising to 50.2 from August’s 50.1. But it surprised analysts by coming in much lower than the 51.2 in a preliminary version earlier this month.
HSBC said the reading was still positive because although it expanded only slightly, it showed further improvement from July, when the index hit an 11-month low.
The gold sector was slightly lower as December bullion declined $14.40 to $1,324.80 (U.S.) an ounce. Kinross Gold (TSX:K) faded six cents to $5.09.
Traders were also focused on Italy where Premier Enrico Letta faces a confidence vote on Wednesday after ministers from former premier Silvio Berlusconi’s centre-right bloc pulled out of the five-month-old government. Though Italy hasn’t needed a financial bailout like other countries that use the euro, such as Greece and Portugal, it has high debts that have compelled successive governments to instigate wide-ranging economic reforms.
Unsurprisingly, Milan’s stock exchange was faring worst, trading down 1.6 per cent. And in another sign of investor unease, the yield on Italy’s benchmark 10-year government bond was up nine basis points to 4.65 per cent, marking the highest level in three months.
European bourses also fell back as London’s FTSE 100 index lost 0.84 per cent, Frankfurt’s DAX fell 1.04 per cent while the Paris CAC 40 was down 1.4 per cent.