TSX dips, led by mining and energy sector declines
Published Tuesday, June 11, 2013 9:52AM EDT
Last Updated Tuesday, June 11, 2013 12:07PM EDT
TORONTO -- The Toronto stock market was in the red Tuesday amid a number of concerns about what central banks can do to stimulate a lacklustre global economic recovery.
These include the failure of Japan's central bank to unveil more measures to boost that country's economy, whether the U.S. Federal Reserve will start to taper off some of its bond purchases and a court challenge on the legality of the European Central Bank's approach to the euro crisis.
The S&P/TSX composite index dropped 108.42 points to 12,274.25, led by declines in the mining and energy sectors.
On the corporate front, Lululemon Athletica Inc. (TSX:LLL) (NADAQ:LULU) plunged 17.3 per cent to $69.50 on the TSX after CEO Christine Day said after the close Monday she was stepping down. She will remain in the job until a successor is named. The yoga wear retailer also handed in earnings of 32 cents a share, beating expectations of 29 cents, and announced plans to delist from the TSX.
The Canadian dollar clawed back its earlier losses, rising 0.03 of a cent to 98.17 cents US after rallying over the last two days on data showing strong job creation last month and rising housing starts.
U.S. indexes were also in the red but off the worst levels of the session with the Dow Jones industrials down 71.68 points to 15,166.91, the Nasdaq falling 19.34 points to 3,454.43 and the S&P 500 index giving back 9.51 points to 1,633.3.
"The key reason for today's selloff is really the Bank of Japan and that they're leaving physical stimulus efforts really unchanged," said Jeff Bradacs, portfolio manager at Manulife Asset Management.
"I think that's causing a broader reaction to the market when they're also looking at the Fed and when is that time to taper off the stimulus and the market is really trying to digest what is the Fed's view on the economy and whether that means tapering off fiscal stimulus."
The Bank of Japan started a big monetary stimulus earlier this year in an attempt to get the economy out of a two-decade stagnation. And there had been expectations it would announce new measures Tuesday to temper the rise in government bond yields by extending the duration on its ultra-low-interest rates to banks. Instead, the bank's policy board merely upgraded its economic assessment and the Japanese yen strengthened at least one per cent against all its 16 major peers.
Investors have also been closely monitoring developments in the U.S. and looking for signs whether the economic picture has improved enough for the Federal Reserve to reduce the amount of financial assets it buys in the markets -- so-called tapering. Speculation that it will has eased somewhat after last week's slightly better-than-expected U.S. jobs report for May.
The quantitative easing program, involving the purchase of US$85 billion of bonds each month, has kept interest rates low and also helped fuel a strong rally on U.S. stock markets.
However, the TSX has been dragged lower by mining stocks in particular, a reflection of slow global recovery's impact on demand for commodities.
Commodity prices backed off sharply Tuesday morning and the base metals component was 2.2 per cent lower while July copper retreated for a fourth day, down six cents to US$3.18 a pound. First Quantum Minerals (TSX:FM) fell 40 cents to C$17.62 while Turquoise Hill Resources (TSX:TRQ) dropped 33 cents to $6.27.
Rail stocks fell alongside miners as Canadian Pacific Railway (TSX:CP) gave back 60 cents to $126.66.
The gold sector fell about 2.75 per cent as August bullion dropped $12.90 to US$1,373.10 an ounce. Barrick Gold (TSX:ABX) faded 55 cents to C$20.26.
Shares of Kinross Gold Corp. (TSX:K) fell 35 cents to $6.09 after the company announced it's halting development of its Fruta del Norte project in Ecuador. The gold miner said after the close of markets Monday it would stop work on the project after it was unable to reach an agreement with the government of Ecuador on "key economic and legal terms."
The energy sector fell about 0.8 per cent with July crude on the New York Mercantile Exchange down $1.19 to US$94.58 a barrel. Cenovus Energy (TSX:CVE) shed 44 cents to C$30.07 and Suncor Energy (TSX:SU) was 46 cents lower to $31.34.
Outside of the resource sector, financials also weighed on the TSX as TD Bank (TSX:TD) was 64 cents lower to $81.82.
Tech stocks were also negative as Constellation Software (TSX:CSU) dropped $4.50 to $144.50.
Traders also looked to the start of a two-day hearing by Germany's constitutional court on the legality of a key European Central Bank program that has been credited with calming the 3 1/2 year-old euro debt crisis. The Federal Constitutional Court is considering arguments against the ECB's offer to buy government bonds and lower borrowing costs for indebted countries.
Opponents of the bond-buying program say the program oversteps the ECB's mandate, which forbids it from financing governments.
European bourses were sharply lower as London's FTSE 100 index lost 1.56 per cent, Frankfurt's DAX lost 1.37 per cent while the Paris CAC 40 index fell 1.65 per cent.
In other corporate developments, Telus Corp. (TSX:T) shares fell 41 cents to $34.30 as the telecom called off its plan to buy small wireless provider Mobilicity after Ottawa signalled last week that it would not allow the deal. Mobilicity, which has about 250,000 customers, said Monday that it will instead go ahead with a recapitalization plan. The deal had required the federal government to allow the larger company to transfer ownership of wireless spectrum owned by Mobilicity.
Encana Corp. (TSX:ECA) has picked its new chief executive from outside the company. Canada's largest natural gas producer has appointed Doug Suttles, a 30-year veteran of the industry who most recently was chief operating officer at BP Exploration & Production. EnCana gained four cents to $18.95.