|Globe Investor | December 12, 2013|
The close: TSX suffers biggest drop in 5 months as Fed fears flare
Canada’s main index falls by 190 points
Canada’s main stock index recorded its biggest single-day drop in about 5-1/2 months on Wednesday after a provisional U.S. budget agreement raised fears the Federal Reserve might begin scaling back its monetary stimulus program soon.
The Toronto Stock Exchange’s S&P/TSX composite index closed down 190.59 points, or 1.43 per cent, at 13,133.42. All of the 10 main sectors on the index were in the red.
Profits were also being taken on Wall Street. The Dow Jones industrial average ended down 129.60 points, or 0.81 percent, to 15,843.53. The Standard & Poor’s 500 Index dropped 20.40 points, or 1.13 percent, to 1,782.22. The Nasdaq Composite Index lost 56.68 points, or 1.40 percent, to 4,003.81.
In September, Fed Chairman Ben Bernanke cited tight fiscal policy as one concern when the U.S. central bank surprised market participants by keeping the stimulus intact. A budget showdown in Congress ultimately led to a partial government shutdown in October.
The to-and-fro over when the Fed will begin to halt the flow of cheap dollars has dominated trading worldwide for months. A recent run of strong U.S. data and talk from policymakers have bolstered expectations the process will start soon.
“Right now, the market is sort of taking all this in. All eyes are on any tapering in December and while the deal removes some political uncertainties, it makes tapering more possible,” said Karyn Cavanaugh, market strategist with ING U.S. Investment Management in New York.
The Fed will hold its last policy meeting of the year next week, on Dec. 17-18.
“It certainly does appear that a window of opportunity could be opening up for the Fed to act next week without a sharp market reaction, said CMC Markets strategist Michael Hewson. “The only question remaining is as to whether they will avail themselves of it.”
According to a Reuters poll on Monday, the Fed will begin trimming its monthly asset purchases in March. But some economists are warming up to the idea that it will do so as early as this month or at the January policy meeting.
Despite the expected tapering, an actual interest rate hike remains a distant prospect. Eurodollar and Fed fund futures have not fully priced in a first rate rise until the end of 2015.
Losses were spread across all TSX sectors with the battered gold component leading decliners with slide of about 3.7 per cent as February bullion dipped $3.90 to US$1,257.20 an ounce. The component has skidded 50 per cent this year while gold has fallen 25 per cent on the Fed tapering speculation. Barrick Gold (TSX:ABX) faded 62 cents to C$17.29 while Goldcorp (TSX:G) shed 66 cents to $22.42.
The industrials group was down 1.84 per cent as Canadian National Railway (TSX:CNR) shares dropped $1.90 to $57.65 even as the company said that it expected to deliver double-digit earnings growth in 2014 on a continued economic recovery. The country’s largest railway says its adjusted diluted earnings should be on top of the $3.05 to $3.10 per share forecast for 2013, a level that is in line with analyst expectations.
The energy sector fell 1.64 per cent while January crude dropped $1.07 to US$97.44 a barrel, even as the U.S. Energy Information Administration said that crude supplies fell by a much more than expected 10.6 million barrels last week. Analysts had expected a decline of 2.8 million barrels. Cenovus Energy (TSX:CVE) declined 99 cents to C$30.20.
March copper rose three cents to US$3.29 a pound and the base metals sector gave back 2.16 per cent. Teck Resources (TSX:TCK.B) lost 88 cents to C$24.67.
The telecom sector dropped 1.19 per cent and Rogers Communications (TSX:RCI.B) was down 91 cents at $47.68.
Financials fell 1.16 per cent as Laurentian Bank (TSX:LB) missed expectations. Restructuring costs caused its quarterly net profit to plummet 41 per cent to $27.7 million in the fourth quarter. Adjusting for one-time items, net income dipped three per cent to $35.2 million or $1.14 a share, lower than the $1.31 that analysts had expected. Revenue of $215.5 million missed expectations of $220.5 million and Laurentian shares gave back $2.19 to $44.98.
With files from The Canadian Press
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