North American markets weak on US economic figures, Fed outlook

TORONTO – North American stock markets were weak as traders reacted to signs Wednesday that growth in the American economy has hit a few setbacks.

The S&P/TSX composite index posted a tiny 1.27-point gain to 15,347.34, with energy and gold issues propping up a broader decline.

The Canadian dollar was up 0.04 of a U.S. cent at 83.17 cents.

Most of the attention was focused on the U.S. economy after the Commerce Department reported that U.S. gross domestic product gave its poorest showing in a year. Annual growth came in at a rate of just 0.2 per cent in the first quarter, which was well below the expectations of economists.

Federal Reserve policy-makers also lowered their assessment of the economy, but also indicated that the U.S. central bank was not yet ready to increase interest rates.

The central bank repeated language that it needs to be “reasonably confident” that low inflation will move back to its two per cent target before moving on historically low interest rates near zero.

While the comments don’t necessarily rule out a June rate hike, it gave observers confidence the Fed won’t move on rates until at least September.

“We’ve come to expect a lot from ‘Fed-speak’ over the past couple years,” said Craig Fehr, Canadian markets strategist at Edward Jones in St. Louis.

“The transparency and communication of the Fed has been ramped up exponentially as a way to not surprise the market, but at the same time the Fed is never going to paint itself into a corner, or provide concrete future guidance.”

The Dow Jones industrial average closed down 74.61 points at 18,035.53, the Nasdaq index was off 31.78 points at 5,023.64 and the S&P 500 gave back 7.91 points to 2,106.85.

On the TSX, most of the positive drivers were commodities stocks, with gold prices getting a boost from the Fed comments while oil prices got a bump on the latest supply figures.

The U.S. Energy Information Administration reported that crude inventories rose 1.9 million barrels in the most recent data, which pushed oil prices to their highest settlement this year, with the June crude contract ahead $1.52 to $58.58 a barrel.

The June gold contract fell $3.90 to US$1,210 an ounce.

The TSX information technology sector was the biggest decliner, falling two per cent, pulled down by Open Text Corp. (TSX:OTC), which reported a sharp drop in third-quarter profits late Tuesday. The Waterloo, Ont.,-based supplier of business software said profits were down more than 40 per cent to US$26.5 million as it faced higher operating expenses.

In corporate developments, Yamana Gold Corp. (TSX:YRI) chief executive Peter Marrone said he would give back special share units he was granted last June, after shareholders voted against the miner’s executive compensation resolution. The company said the units do not have a certain value because the performance conditions haven’t yet been met.

Yamana shares were down five cents to $4.81.

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