Monday, February 08, 2010

04:35 pm EST
TSX suffers late fade
Gold, materials tumble

The Toronto stock market faded late in the day Monday, amid mounting debt concerns in Europe and worries about the strength of a global economic recovery.

The S&P/TSX Composite Index wilted in the final hour, losing 107.82 points, or nearly 1%, to 11,115.30

Markets have been pressured by fears about unsustainable government debt in several European countries, particularly Portugal and Greece. Those concerns intensified last week, undermining the euro, after Portugal's lawmakers defeated the government over its deficit reduction plan.

Stock markets have been heading lower since mid-January in the wake of China's plans to limit economic growth. There was also growing uncertainty around the U.S. government's proposed rules to restrict trading by large financial institutions.

Sovereign debt worries have been brewing since late November when Dubai announced it that the government's flagship investment company was in financial trouble and announced a request for a six-month standstill on repayments of its massive debt.

On the TSX, the base metals sector gained ground as March copper added five cents to $2.91 U.S. a pound. Commodity prices were depressed last week as sovereign debt concerns pushed the U.S. dollar higher. Equinox Minerals gained two cents to $3.41 and Teck Resources gained 45 cents to $34.65 ahead of earnings coming out after the market close.

Oil prices headed higher after three days of declines, with Canadian Natural Resources ahead 16 cents to $69.45.

The financial sector turned positive, as Royal Bank rose 37 cents to $53.35.

The gold sector was off as Barrick Gold Corp. faded $1.18 to $37.27.

Elsewhere, the Canpotex marketing partnership has agreed to sell 350,000 tonnes of Canadian potash to China's Sinofert. The fertilizer ingredient was sold at "competitive prices" on the spot market and is to be shipped before the end of March.

Canpotex is owned by three companies: PotashCorp. Agrium Inc. and Mosaic Corp. Potash shares slid $1.74 to $109.31 while Agrium tailed off 78 cents to $62.32.

Bombardier Inc. faded 11 cents to $5.34 after a German customer ordered 48 additional Talent 2 trains from the transportation giant for euro200 million or about $272 million U.S.

And the company also says it is offering to buy back up to $550 million U.S. of its outstanding debt securities for cash, in order to take advantage of current favourable conditions on capital markets.

In economic news, Canada Mortgage and Housing Corp. said housing starts were up 5.8% in January to a seasonally adjusted 186,000 units. Economists expected the annual rate of starts to come in at about 180,000.

The Canadian dollar shed 0.59 cents to 93.08 cents U.S.

ON BAYSTREET

All but two of the 14 TSX subgroups had slid negative by day's end. Gold weighed things down the most at 2.8%, while materials gave back 2.2% and industrials were 1.1% to the bad.

Only slight gains by information technology (0.1%) and consumer discretionaries (0.04%) kept things from being uniformly bad.

The TSX Venture Exchange gained 5.19 points to 1,460.60, while the Nasdaq Canada index subtracted 11.73 points to 715.72.

ON WALLSTREET

In New York, the Dow industrials finished below the 10,000 level Monday for the first time in three months, dragged lower by financial stocks, as investors remained concerned about Europe's debt woes and the U.S. economic recovery.

The blue-chip index tumbled 103.84 points, or 1%, to conclude the day at 9,908.39. The S&P 500 index lost 9.45 points to 1,056.74. The Nasdaq composite trailed off 15.07 at 2,126.05.

The major indexes have been on the decline for four weeks in a row as the optimism that propelled a 10-month rally off 12-year lows hit last March has been replaced by cautiousness.

Bets that an economic recovery was gaining momentum -- combined with trillions of dollars in fiscal and monetary stimulus -- fed the 2009 rally.

But so far in 2010, markets have been choppy and weak as investors wait for evidence that the still-germinating recovery is really taking hold, particularly amid the hard-hit labour market and housing industry.

In January, worries about China curbing bank lending and the U.S. White House limiting trading at big banks raised fears about tighter lending standards and the credit markets.

But stocks tumbled toward the end of last week on fears that Greece might default on its debt, which could trigger defaults in other European nations, including Portugal, Ireland, Italy and Spain. But some of the selling washed out by late Friday, suggesting the knee-jerk reaction had passed.

Helping to take the edge off the selling Monday was a rally in commodity prices and energy and metal stocks as the dollar lost some steam.

Last week, debt concerns battered the euro, propelling the dollar and dragging on dollar-traded commodities. A wish to dump riskier assets including U.S. stocks also added to the selling.

The U.S. dollar slipped versus the euro after rising to a more than six-month high versus the European currency last week. The dollar strengthened versus the Japanese yen.

Over the weekend, finance ministers from the Group of Seven largest industrialized nations pledged to keep providing liquidity to sustain a recovery. But the issue of Greece's potential default was not specifically addressed.

A number of tech stocks gained, including Hewlett-Packard, Intel, Google and Cisco Systems.

Home Depot gained after Morgan Stanley reportedly upgraded the Dow component to "overweight" from "equal-weight," saying it will benefit from a recovering housing market.

But a variety of financial shares fell, dragging on the market. Bank of America, JPMorgan Chase, Goldman Sachs and Wells Fargo were among the big losers.

Former Merrill Lynch CEO John Thain will run struggling small business lender CIT Group, the company said over the weekend. Thain ran Merrill until it was sold to Bank of America in September 2008, at the height of the financial crisis.

CIT emerged from bankruptcy in December. Shares gained 2% Monday morning.

Toyota Motor, reeling from the recall of more than eight million vehicles due to brake problems, told its dealers it is close to announcing a solution to the problems with the Prius hybrid Sedan.

A few big corporations are due to report results this week, including Dow components Coca-Cola and Walt Disney on Tuesday and Sprint Nextel on Wednesday.

Coke is expected to have earned 66 cents U.S. per share up from 64 cents a year ago, according to a consensus of economists surveyed by earnings tracker Thomson Reuters. Disney is expected to have earned 39 cents U.S. per share, down from 41 a year ago. Sprint Nextel is expected to have lost 19 cents U.S. per share after earning 24 cents per share a year ago.

With 320 companies, or 64% of the S&P 500, having reported results, earnings are on track to have risen 207% versus a year ago and revenues to have gained 8%. But the big jump year-over-year is partly due to easy comparisons to a tough fourth-quarter of 2008.

Financial companies in particular are driving the gains. Stripping out financials leaves earnings growth at 16% and revenue growth at 3%.

Results have largely been positive, with 74% of companies beating earnings forecasts and 70% beating revenue forecasts.

Treasury prices slid, thus raising the yield on the 10-year note to 3.59% from Friday's 3.56%. Treasury prices and yields move in opposite directions.

The price of a barrel of oil gained 55 cents to $71.74 U.S.

Gold prices gained back $13 to $1,066 U.S.