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April 28, 2017

The close: TSX falls nearly 1% on bank, resource shares - Earnings lift Nasdaq to record; S&P, Dow drift

Canada’s main stock index fell nearly 1 per cent on Thursday to its lowest since the beginning of April, dragged down by heavyweight banking and resources shares.

The Toronto Stock Exchange’s S&P/TSX composite index finished the session down 143.07 points, or 0.91 per cent, at 15,506.47. Of the index’s 10 main groups seven were in negative territory.

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Home Capital Group Inc, which has been hit by a series of adverse news last month, said it had hired bankers to help it secure additional funding and size up its strategic options, as the subprime lender reported a further sharp decline in its assets amid a security regulator’s probe into its disclosures.

“It’s a crisis affecting a company which happens to be operating in the mortgage market,” said Fred Demers, chief macro strategist at TD Securities, who did not think there was a risk of contagion like the one experienced during the 2008 financial crisis.

Home Capital shares popped 33.9 per cent to $8.02, offsetting some of Wednesday’s 60-per-cent plunge, but the broader financial group - which accounts for a third of the index’s weight - fell 1.7 percent and touched four-month lows.

Royal Bank of Canada, the country’s biggest bank, fell 1.9 per cent to $93.66, while Toronto-Dominion Bank lost 2.4 per cent to $64.17 and Bank of Nova Scotia shed 2.7 per cent to $75.31.

Home Capital’s funding woes come at a time when federal and provincial governments are trying to cool Toronto’s red-hot property market through a series of measures. The runaway prices have attracted comments from banks CEOs that the market could correct, which in-turn could hurt lender’s earnings growth.

Canada’s federal housing agency said on Wednesday that Toronto still faces price acceleration, overvaluation and overheating..

The energy group - which account for another 20 per cent of the index’s weight - retreated 1.5 per cent as oil prices fell on news that two key oilfields in Libya had restarted, pumping crude for export into an already bloated market.

Canadian Natural Resources Ltd fell 3.6 per cent to $43.43 and Encana Corp also shed 1.7 per cent to $14.48.

The Nasdaq Composite ended at a record high on Thursday, boosted by results-related gains in Comcast, PayPal and Intuit, while the S&P 500 and the Dow were little changed.

Earnings were back in the spotlight, a day after the Trump administration unveiled its tax reform priorities without details on how the reform would be paid for, raising questions on whether deficit hawks in Congress would support it.

Comcast rose 2.1 per cent to $39.59 after touching a record high of $40.62 as strong subscriber growth brought a forecast-beating profit.

Overall profits of S&P 500 companies are estimated to have risen 12.4 perc ent in the first quarter, the most since 2011, according to Thomson Reuters I/B/E/S.

“Most folks were expecting a build in earnings acceleration and that’s what we’ve got. Despite all the economic and geopolitical noise, ultimately the market has been responding to improving earnings,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

He said a premium has been built into stock prices on bets of tax reform and other policies expected from the Trump administration, so “when that is in question you see a sideways action.”

U.S. businesses would mostly benefit if President Donald Trump’s plan to cut corporate tax rates and slash taxes on cash parked overseas becomes law. But the economic benefits and the timing of a possible bill remain in question.

The Dow Jones Industrial Average rose 6.24 points, or 0.03 per cent, to 20,981.33, the S&P 500 gained 1.32 points, or 0.06 per cent, to 2,388.77 and the Nasdaq Composite added 23.71 points, or 0.39 per cent, to 6,048.94.

Technology stocks will be the focus after the bell with heavyweights Microsoft and Alphabet reporting results.

Intuit rose 8.5 per cent to $125.63 after it reported consumer tax-season results and reiterated its quarter and full-year forecast.

PayPal shares hit a record high a day after it raised its earnings outlook and reported higher-than-expected quarterly profit.

Sportswear maker Under Armour shares jumped 9.9 per cent to $21.67 after it posted a smaller-than-expected quarterly loss.

Energy was the biggest decliner among the 11 major S&P 500 sectors, falling 1.1 per cent on the back of a 0.9-per-cent decline in U.S. crude futures.

American Airlines dropped 5.2 per cent to $43.98. The company said it had offered a mid-contract pay increase for pilots and flight attendants that JPMorgan analysts called “a wealth transfer of nearly $1-billion to its labour groups.”

Europe’s main bourses closed lower after falling as much as 0.5 per cent as traders pulled back after a six-session winning streak on relief at the outcome of the first round of France’s presidential election and encouraging earnings.

The pan-European FTSEurofirst 300 index lost 0.23 per cent and MSCI’s gauge of stocks across the globe shed 0.06 percent to edge down from a record.

As widely expected, the ECB made no changes to its record- low interest rates or stimulus program. But euro zone government bond yields and the euro fell after Draghi said policymakers did not discuss removing the bank’s easing bias on monetary policy at this month’s meeting.

The benchmark 10-year Bund yield was last down almost 5 basis points at 0.303 per cent. The euro was down 0.24 per cent to $1.0877 against the dollar.

After weakening against the greenback on Wednesday, the Canadian dollar and Mexican peso went in opposite directions after Washington said it would not scrap the North American Free Trade Agreement (NAFTA).

The Mexican peso strengthened 0.67 per cent versus the U.S. dollar at 19.05, while the Canadian dollar weakened 0.04 percent versus the greenback at 1.36 per dollar.

Oil prices renewed their slump after news that two key oilfields in Libya had restarted, pumping crude for export into an already swollen market. Brent crude is on track for its seventh decline in nine sessions.

U.S. crude settled down 1.3 per cent at $48.97 per barrel and Brent settled off 0.7 per cent at $51.44 on the day.

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