North American markets end day higher amid rail merger talks, release of Fed minutes

TORONTO – North American markets closed higher Wednesday amid big news in the rail space and as investors scrutinized minutes from the latest meeting of the U.S. Federal Reserve for hints on the direction of interest rates.

In Toronto, the S&P/TSX composite index ended the day up 119.58 points at 13,399.97, helped by gains in the industrials sector after Canadian Pacific Railway (TSX:CP) confirmed it has made a US$28-billion bid for U.S. rail operator Norfolk Southern (NYSE:NSC).

In New York, the Dow Jones industrial average added 247.66 points to close at 17,737.16, while the broader S&P 500 index climbed 33.14 points to 2,083.58 and the Nasdaq rose 89.19 points to 5,075.20.

Wednesday’s release of minutes from the Fed’s October policy rate meeting showed officials generally believed that conditions needed to trigger a rate hike could “well be met” by the time of their next meeting in December.

Among other things, they felt the U.S. job market would improve further and that inflation would trend toward the Fed’s two per cent annual target. They also took note of the U.S. economy’s resilience through a summer of financial market turbulence and felt that global threats had “diminished.”

Kash Pashootan, portfolio manager at First Avenue Advisory in Ottawa, a Raymond James company, said that markets have historically tend to sell off in the period before a rate hike.

“You could argue that most of that digesting of the new rates took place over the past two weeks,” Pashootan said.

The TSX’s recent eight-day slide, which snapped on Monday, was reflected by similar drops on U.S. markets. The Dow average posted three triple-digit losses last week, while the S&P 500 lost nearly 55 points, or 2.7 per cent.

The U.S. central bank has held rates at historical lows near zero since 2008, a factor credited with providing much of the liquidity that has fuelled stock market gains ever since the Great Recession.

Normally, an increase in rates would be a negative for markets, but investors generally seem prepared for the Fed to act in December.

And many see a rate hike as a net positive, considering confirmation that the Fed believes the U.S. recovery is on a solid footing.

On commodity markets, the December contract for benchmark crude oil settled eight cents higher at US$40.75 a barrel after slipping below US$40 for the first time since August earlier in the day.

December natural gas ended the day down 2.4 cents at US$2.347 per mmBtu, while December gold gained 10 cents to US$1,068.70 an ounce and December copper shed 2.6 cents to US$2.08 a pound.

The Canadian dollar lost 0.05 of a U.S. cent, ending the day at 75.09 cents after falling below 75 cents in midday trading.

Pashootan said Canadians could see a 65 cent dollar if the Canadian economy continues to weaken in the face of low commodity prices and the Bank of Canada cuts interest rates for the third time since the beginning on 2015.

— With files from The Associated Press