The Toronto stock market finished sharply lower as minutes of the U.S. Federal Reserve’s latest meeting reinforced the view that the central bank will start winding up a key economic stimulus program sometime later this year.
There was some disappointment that the minutes didn’t provide much in the way of clarity about when the Fed may start winding up its $85-billion of monthly bond purchases and what the pace of the tapering would be.
Sliding mining stocks led the way to the S&P/TSX composite index closing down 97.03 points to 12,573.08.
The Canadian dollar finished down 0.78 of a cent at 95.48 cents US as the greenback strengthened.
New York’s Dow industrials dropped 105.44 points to 14,897.55, its first close below 15,000 since July 3. The Nasdaq was 13.8 points lower at 3,599.79 and the S&P 500 index slid 9.55 points to 1,642.8.
The minutes showed that a few policy-makers wanted to assess more economic data before deciding when to scale back the central bank’s bond purchases. Others said it “might soon be time” to slow the purchases, which have helped keep long-term rates near record lows.
“There is enough in it for everyone,” said John Stephenson, portfolio manager at First Asset Funds Inc.
“The people who think the Fed will remain stimulative and dovish can say it’s pretty much in black and white, it’s not yet appropriate so stop panicking. And the more hawkish people can say well, it still shows they’re talking about taking it off because they’re broadly comfortable with the plan to reduce the bond buying.”
There is nervousness surrounding the tapering of these purchases since the latest bond buying program, known as quantitative easing, has also fuelled a strong rally on the U.S. equity markets this year.
“But I think that stimulus being withdrawn should have been factored into the market by now – it’s actually surprising,” added Stephenson.
He also thinks much of the downward pressure on U.S. markets recently is due to the fact that indexes “have come pretty far and maybe it’s time to lighten up.” The Dow has lost a bit over five per cent since its record high Aug. 2.
Many analysts believe the economy is strong enough to allow the Fed to start tapering its asset purchases as early as September.
Strong housing data out Wednesday bolstered that point of view as the National Association of Realtors said that sales of existing U.S. houses ran ahead 6.5 per cent in July, much higher than the 0.4 per cent rise that economists had expected. That translated into sales at an annual rate of 5.39 million.
Bond yields were higher after the release of the Fed minutes, with the benchmark 10-year U.S. Treasury up 0.06 of a point to a two-year high of 2.88 per cent. Yields started rising in late May after Fed chairman Ben Bernanke first mentioned the possibility of the Fed tapering its asset purchases and have surged about 120 basis points since then.
The base metals sector led TSX declines, down 3.88 per cent and September copper slipped three cents to US$3.31 a pound. Teck Resources (TSX:TCK.B) lost $1.32 to C$26.25.
Turquoise Hill Resources Ltd. is reported to be conditionally in favour of accepting a Chinese coal company’s offer for its majority stake in Inova Resources Ltd. (TSX:IVA), an Australian mining company listed in Toronto and Sydney. Inova says Shanxi Donghui Coal Coking & Chemicals Group Co. Ltd. is offering 22 cents Aus per Inova share and Vancouver-based Turquoise Hill (TSX:TRQ) has agreed to tender it shares unless a better offer comes forward. Turquoise Hill dipped five cents to $5.24. Inova surged eight cents to 24 cents.
The gold sector was down about 3.54 per cent while December gold bullion lost $2.50 to US$1,370.10 an ounce. Goldcorp Inc. (TSX:G) faded $1.31 to C$31.58.
Higher bond yields pushed the interest rate sensitive utilities sector down one per cent and Just Energy Group (TSX:JE) shed nine cents to $6.23.
The industrials group was also a weight, down 0.8 per cent as transport giant Bombardier Inc. (TSX:BBD.B) gave back 14 cents to $4.55.
The energy sector was 0.3 per cent lower while the October crude contract on the New York Mercantile Exchange moved down $1.26 to US$103.85 a barrel. Canadian Oil Sands (TSX:COS) fell 59 cents to $20.10.
Investors also considered earnings reports from the Canadian and U.S. retail sectors.
Sears Canada (TSX:SCC) posted net income of $152.8-million or $1.50 per share, including an after-tax gain of $164.0-million. Ex-items, Sears lost 11 cents per share. Second-quarter revenue was down 9.6 per cent from the same time last year. Its shares slipped 22 cents to $12.05.
Target Corp. reported a 13 per cent drop in second-quarter earnings as the discounter spent money on opening stores in Canada and dealt with cautious shoppers in the U.S. Target earned $611-million, or 95 cents per share. Ex-items, the retailer earned $1.19 per share. Revenue reached $17.12-billion, up two per cent. Analysts were expecting earnings of 96 cents per share on revenue of $17.28-billion, according to FactSet and its shares fell $2.45 to $65.50.
Another big disappointment was Staples. Its stock plunged $2.57, or 15.29 per cent, to $14.26 after the office supplies chain reported earnings and sales that missed analysts’ expectations. The company also slashed its full-year profit forecast.
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