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Business Briefing The (painfully slow) rise and (gut-wrenching) fall of the TSX

These are stories Report on Business is following Wednesday, Oct. 15, 2014.

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The TSX in perspective
It took about 2,000 days for Toronto's benchmark stock index to peak, and all of about 40 to correct.

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But it's worth looking at where we stand, and what that means.

As the world trembled during the great slump, Toronto's S&P/TSX composite bottomed in early March, 2009, at just below 7,570.

Then, after the hills and valleys of the post-crisis era, it peaked early last month at almost 15,700.

Today, the index stands at about 13,870, having slipped yesterday into correction territory, defined by a 10-per-cent decline from the peak.

But as my colleague John Heinzl notes, we're still standing at almost 85 per cent above the 2009 low even in the face of the recent, dramatic plunge.

Investors had been hoping that the latest round of corporate results would help turn the tide in what they signal about the world's economic fortunes, particularly those of the United States.

But some analysts aren't so sure, after third-quarter results from some major American banks and other companies.

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"Yesterday's rebound in U.S. markets managed to generate a positive finish for the first time in three days but markets finished well off their highs, suggesting a wider concern perhaps that while yesterday's bank earnings numbers were better than expected, they weren't strong enough to suggest that the U.S. economy was anything other than the best of a pretty poor bunch," said chief analyst Michael Hewson of CMC Markets.

"The slowdown in mortgage lending from both Wells Fargo and JPMorgan appears to suggest that the U.S. consumer remains very much in a cautious mood when it comes to big ticket items and this could well be reflected in the latest retail sales numbers for September which are due later today."

That last comment, by the way, came before the U.S. retail sales report, which was, indeed, weak, helping to drive stocks lower.

Market analyst Chris Beauchamp, of IG in London, was equally cautious, going so far as to cite speculation that the Federal Reserve could at some point launch another round of quantitative easing, an asset-buying stimulus program known as QE, the third round of which has wound down.

"Unguarded talk about QE4 is now doing the rounds, which is an indication of how nervous investors are rather than any actual indication that the Fed is moving in that direction," Mr. Beauchamp said.

"After five years, the economic recovery is still not self-sustaining, a fact that should be more worrying than any drop in oil prices or the fresh woes in the euro zone."

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Everyone's guessing, but nobody knows, of course, where we go from here amid the collapse in oil prices, mounting fears over the global economy and speculation over where the Federal Reserve goes next.

As the chief economist at CIBC World Markets notes so well today, market timing "is not for the faint of heart."

But as Avery Shenfeld sees it – and he's just one voice among the many – maybe it's time to start looking at cheap stocks.

"The TSX is currently trading a very reasonable 14 times forward earnings, which one could argue is in fact cheap given we're in an era of lower bond yields," Mr. Shenfeld said in a research report.

"True, earnings expectations may still be in the process of adjusting to economic events of recent weeks, but the softening of the Canadian dollar has also not likely been fully factored in on the plus side. Perhaps moving gingerly at first, investors would do well to begin to lean back into equities, including cyclically levered energy stocks, in the weeks ahead."

Tokyo's Nikkei and Hong Kong's Hang Seng gained today, but European and North American stocks were hit hard.

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In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 plunged by more than 2.5 per cent.

The S&P/TSX,  in turn, slipped 1.2 per cent, or almost 167 points, while the S&P 500 and Dow were down by between 0.8 per cent and 1.1 per cent, or almost 175 points for the latter.

"The double whammy of dreadful retail sales and empire state manufacturing from the U.S. triggered a wave of panic selling," said market analyst David Madden of IG.

"There has been a swift exodus out of the equity market and into government bonds, with the US 10-year yield dropping below 2 per cent. Trade retractions on Russia, a stagnating euro zone and political uncertainty in the Far East have all played their role in weakening the U.S. economy."

Loonie bounces around
And if you really want to talk about volatility, look no further than the Canadian dollar amid the collapse in oil prices.

The loonie, as Canada's dollar coin is known, moved in a wide range today, as low as 87.83 cents U.S. and as high as 89.06 cents.

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By late in the day, it was at 88.79 cents.

This came as West Texas Intermediate, the U.S. oil benchmark, hit a low of just over $80 a barrel, though later rose. And the U.S. dollar, which has been on a roll, softened up somewhat after that retail sales report.

"We've seen a collapse in oil prices on the demand and supply outlook," said chief currency strategist Camilla Sutton of Bank of Nova Scotia, noting the slump helped drive the loonie to a five-year low and Norway's krone to its lowest in about four a one-half years.

The collapse in oil prices is, of course, a two-sided story. While it plays itself out in the oil market, it's also driving down pump prices, which is good news for American consumers, and thus the broader economy, by "putting more money in people's pockets," Ms. Sutton said.

A decline of $20-a-barrel in the price of oil means a rise of about 8 per cent in the U.S. greenback against the Canadian dollar, JPMorgan Chase foreign exchange strategist Kevin Hebner noted in a study of the loonie.

Thus, he added, the loonie "deserves its 'commodity currency' moniker."

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Having said that, the "key driver" going forward will probably be related to how the Bank of Canada lags the Fed in hiking interest rates, when that comes.

"We expect Canadian growth to lag that in the U.S. for several reasons: Slowing housing activity (recent data has been surprisingly strong, and inconsistent with the BoC's soft-landing thesis, but we expect it to soften from this autumn); stretched household balance sheets; and fiscal tightening," Mr. Hebner said.

(Note their comments on the housing market.)

"Of particular note, the underlying trends in Canadian [capital spending] and employment growth are very weak … Consequently, the key driver of our bearish [Canadian dollar] view is our expectation of BoC vs. Fed policy divergence. This should result from the U.S. continuing to exhibit signs of lift while Canadian growth struggles and lags."

Netflix sinks
Shares of Netflix Inc. plunged in after-hours trading today after the online entertainment sensation added fewer-than-expected new subscribers.

The stock was down by more than 25 per cent within about a half an hour of the Nasdaq close.

Netflix said it brought in more than 3 million new customers around the world in the third quarter of the year, shy of the almost 3.7 million anticipated.

At the same time, Netflix posted a stronger profit of $59-million (U.S.), or 96 cents a share, compared to $32-million or 52 cents a year earlier.

Revenue surged to $1.4-billion.

Netflix projected adding 4 million subscribers in the final quarter of the year, and earnings per share of 44 cents.

Regulators act
Provincial securities regulators have published their final rule requiring companies to report annually on their approach to adding more women to their boards of directors and to senior management, toughening earlier proposals with further disclosure requirements, The Globe and Mail's Janet McFarland reports.

Seven provinces and two territories have signed on to the new standards, which have been championed by the Ontario Securities Commission, requiring companies to disclose their policies for improving the number of women in their senior ranks. Alberta, British Columbia, Prince Edward Island and the Yukon are not participating.

The rules will take effect as of Dec. 31, which means publicly traded companies on the Toronto Stock Exchange will have to include the new information in their annual shareholder proxy circulars next year. Because the TSX is based in Ontario, the rule will essentially cover all public companies in Canada because the OSC is adopting the rules.

OSC chairman Howard Wetston said the rule changes are expected to increase the number of women in senior roles, although they are disclosure requirements only and do not mandate quotas or any other practices.

Home sales, prices rise
High-priced housing appears to be biting into sales.

Not by all that much, according to the Canadian Real Estate Association, but it's noteworthy.

Home sales in Canada climbed 10.6 per cent in September from a year earlier, though dipped 1.4 per cent from August, The Globe and Mail's Tara Perkins reports.

The average price of a home was up 5.9 per cent from a year ago, according to CREA today, while the MLS home price index, deemed a better measure, rose 5.3 per cent.

Notably, new listings slipped 1.6 per cent month to month.

"Affordably priced single family homes are in short supply in some of Canada's hottest housing markets, which contributed to the monthly decline in national sales activity in September," Beth Crosbie, chief of the real estate group, said in reporting the numbers.

AbbVie reconsiders
AbbVie Inc. put the boot to shares of pharmaceutical companies with its announcement last night that it's rethinking its multibillion-dollar merger with Shire PLC.

AbbVie noted the U.S. crackdown on so-called tax inversion deals as it said its board is reconsidering the deal, citing "the impact to the fundamental financial benefits of the transaction."

Shire, in turn, said today that its board will meet but that it "believes that AbbVie should proceed with the recommended offer."

It also noted that AbbVie would be on the hook for a break fee of some $1.6-billion.

Quebec set for deal?
Quebec's giant pension fund manager is poised for a big expansion into Mexico, Reuters reports today.

The Caisse de dépôt et placement du Québec has already pumped $100-million (U.S.) into a Mexican real estate venture.

But, the news agency said, quoting sources, that may well have been just a baby step.

According to the report, the Caisse will join hands with an institutional investor in Mexico in a fund that would put "up to several billion dollars" into Mexican infrastructure projects.

A deal could be done soon, it added.

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