TSX slightly lower: retail data, U.S. budget deal add to Fed tapering concerns

TORONTO – The Toronto stock market closed slightly lower Thursday as a U.S. budget deal and a solid retail sales report fuelled expectations that the U.S. Federal Reserve could start cutting back on its monetary stimulus program as early as next week.

The S&P/TSX composite index declined 19.03 points to 13,114.39 after Fed concerns sent the market tumbling 191 points on Wednesday. But the index was well off the lows of the morning as mining losses moderated and energy stocks advanced.

The Canadian dollar declined 0.42 of a cent to 93.98 cents US as the stronger than expected retail sales report boosted the greenback.

But U.S. indexes were lower after the Commerce Department said that retail sales rose 0.7 per cent in November, the biggest gain in five months and a better showing than the 0.6 per cent rise that economists had expected. October’s figure was also revised higher to 0.6 per cent from 0.4 per cent.

The Dow Jones industrials dropped 104.10 points to 15,739.43, the Nasdaq lost 5.41 points to 3,998.4 and the S&P 500 index gave back 6.72 points to 1,775.5.

A budget deal in the U.S. Congress also contributed to concerns that the Fed is set to start tapering its US$85 billion of monthly bond purchases.

Analysts have suggested that investors have accepted the fact that the Fed is going to cut back on those purchases, which have kept long-term rates low and supported strong rallies on many markets this year.

And they suggest that once the Fed moves and the uncertainty disappears, the market can resume its upward move.

“That’s the way I’m looking at it,” said Ian Nakamoto, director of research at 3MACS.

“This could all be a setup to next week when they meet and if they do decide to taper, I think the market could rally.”

The prospect of Fed tapering has hung over markets since May when outgoing Fed chairman Ben Bernanke first raised the prospect of cutting back on asset purchases if economic conditions allowed.

Fed tapering concerns also continued to punish bullion prices as February gold fell $32.30 to US$1,227.50 an ounce.

Bullion prices have also been depressed amid low inflation in many countries and an improving global economy, falling about 25 per cent this year. Gold stocks have done much worse, with the TSX Global Gold sector down about 50 per cent on the year.

That sector was down a further 0.3 per cent Thursday, dragged down by Iamgold Corp. (TSX:IMG), which said it was suspending its dividend effective immediately, citing the need to preserve cash in the face of falling prices for bullion. It shares shed 44 cents or 10.8 per cent to $3.63.

The interest-rate sensitive utilities sector was a major source of weakness, down 1.7 per cent. The sector has been weakening for months as Fed tapering talk has pushed bond yields higher. On Thursday, the benchmark U.S. 10-year Treasury yielded 2.87 per cent, up sharply from about 1.6 per cent at the end of April. TransAlta (TSX:TA) fell 13 cents to $13.51.

Canadian utility Fortis is buying power provider UNS Energy Corp. for $2.5 billion, expanding its business into Arizona. Fortis will also assume $1.8 billion in debt. UNS Energy, which is headquartered in Tucson, Ariz., provides electricity and natural gas services to more than 650,000 customers in the state through its two subsidiaries. Fortis shares fell $1.15 to $30.04.

The financials sector fell 0.4 per cent as Manulife Financial (TSX:MFC) lost 16 cents to $19.53.

The base metals sector was down 0.25 per cent while March copper was unchanged at US$3.29 a pound. Thompson Creek Resources (TSX:TCM) dipped six cents to C$2.26 while First Quantum Minerals (TSX:FM) gained 30 cents to $17.20.

The industrials group was the biggest advancer, up 0.55 per cent with Canadian National Railways (TSX:CNR) rising 75 cents to $58.40.

Air Canada (TSX:AC.B) is buying 61 Boeing 737s as it replaces its older Airbus and Embraer narrowbody aircraft. The deal has a face value of about US$6.5 billion. Air Canada says it could expand the order to as many as 109 of Boeing’s 737 MAX planes as it replaces older Airbus and Embraer narrowbody aircraft. Air Canada stock slipped eight cents to $7.60.

The energy sector was up 0.23 per cent as January crude on the New York Mercantile Exchange gained six cents to US$97.50 a barrel. Suncor Energy (TSX:SU) climbed 49 cents to C$36.

In other corporate news, shares in yoga clothing retailer Lululemon Athletica (Nasdaq:LULU) fell 11.65 per cent to US$60.39 in New York after the Vancouver-based company beat estimates for profit and revenue but said it expects flat same-store sales in the crucial fourth quarter.