Traders work on the floor of the New York Stock Exchange Jan. 27, 2014.BRENDAN MCDERMID/Reuters
Losses continued to pile up on the Toronto stock market late morning Monday amid concerns about emerging markets and the impact of U.S. monetary policy.
The S&P/TSX composite index dropped 101.06 points to 13,646.11, on top of a one per cent slide last week, led by weakness in gold and financial stocks.
Traders also looked to Wednesday's interest rate announcement by the U.S. Federal Reserve to see if the central bank will launch another round of cuts to its massive monthly bond purchases.
The Canadian dollar was up 0.08 of a cent to 90.39 cents (U.S.).
U.S. indexes were mixed, off session highs following data showing sales of new homes in the U.S. dropped seven per cent in December to a seasonally adjusted annual rate of 414,000. But even with the pause at the end of the year, U.S. home sales for all of 2013 climbed to the highest level in five years.
The Dow Jones industrials gained 18.78 points to 15,897.89, helped along by a strong earnings report from industrial bellwether Caterpillar. The Nasdaq composite index lost 37.17 points to 4,091, while the S&P 500 index was off 4.51 points to 1,785.78.
New York markets also sustained steep losses at the end of last week as countries such as Turkey, Argentina, South Africa and Russia found their currencies under pressure. The Fed started easing its bond purchases this month by US$10-billion to $75-billion. This latest round of quantitative easing had flooded emerging markets with cheap money but now those funds are exiting those areas, in turn putting severe pressure on currencies. The worry is the contagion could spread to other markets.
Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis, said emerging markets are less attractive for investors with U.S. interest rates pushing a little higher with the Fed's moves.
"So we're seeing capital move out of those countries, pushing their currencies down," Fehr said. "These countries that have really benefitted from capital (inflows) in the past couple of years are now disproportionately disadvantaged from money moving out of their markets."
Analysts expect the Fed to further taper its bond purchases by another $10-billion a month, to US$65-billion a month, although the timing is uncertain.
Investors were particularly focused on China last week after a widely watched purchasing managers index showed the manufacturing sector of the world's No. 2 economy unexpectedly slipped into contraction during January.
At the same time, other analysts suggest that North American stock markets were vulnerable to a correction after Fed easing helped underpin a strong rally on many equity markets last year that left the S&P 500 alone up about 30 per cent for 2013.
It is also a heavy earnings week in both the U.S. and Canada this week.
On Monday, Caterpillar said it earned $1-billion, or $1.54 per share. That compares with $697-million, or $1.04 per share, a year earlier. Revenue declined 10 per cent to $14.4-billion from $16.08-billion. Analysts surveyed by FactSet expected earnings of $1.27 per share on revenue of $13.41-billion and its shares were ahead 5.8 per cent to $91.19.
Apple announces earnings results later Monday, after the close.
The financial sector led decliners, down 1.35 per cent as emerging market turmoil raised worries about economic growth in those countries. Royal Bank dropped 85 cents to $69.64 but it was Scotiabank which sustained the largest loss in the sector, down $1.52 or 2.4 per cent to $61.53.
"Scotiabank is by far the most internationally-exposed and really the only one that has any meaningful exposure to emerging and developing markets and I think that's why there is more of a reaction out of that name," added Fehr.
The gold sector was down 1.45 per cent while February bullion was off $4 to $1,260.30 (U.S.) an ounce. Barrick Gold faded 33 cents to $20.72 (Canadian) while Kinross Gold declined 15 cents to $5.
The energy sector stepped back one per cent as March crude on the Nymex gave back early gains to move down 67 cents to $95.97 (U.S.) a barrel. Cenovus Energy slid 29 cents to $28.89.
March copper was down a cent at $3.26 (U.S.) a pound and the base metals group was down 0.85 per cent. Sherritt International dipped seven cents to $3.51.
Techs also weighed with BlackBerry 26 cents lower to $10.68.
The market found some lift from the telecom sector as Telus improved by 56 cents to $37.28.
In other corporate news, Hudson's Bay Co. is selling properties that house its Toronto flagship store and executive offices to Cadillac Fairview, which operates the neighbouring Toronto Eaton Centre, in a sale-and-leaseback deal valued at $650-million. HBC also says its recently acquired Saks Fifth Avenue subsidiary will open a full-service store at the Queen and Yonge location. HBC shares dipped 36 cents to $16.33.
European bourses were mixed with London's FTSE 100 down 3.2 per cent, Frankfurt's DAX dipped 0.47 per cent and the Paris CAC 40 was down 0.09 per cent.