Stock markets rise amid Chinese rate cut, stimulus hint from ECB chief Draghi

TORONTO – The Toronto stock market closed higher Friday, with commodity prices and resource companies advancing amid signs that central banks are prepared to step up efforts to keep the fragile global economic recovery going.

The S&P/TSX composite index climbed 35.95 points to 15,111.13.

China’s central bank cut its interest rates and promised to inject extra credit into the financial system if needed. And the head of the European Central Bank said the ECB is willing to “step up the pressure” and broaden its efforts to stimulate the struggling eurozone economy.

The Canadian dollar also made a solid advance, up 0.53 of a cent to 88.98 cents US, as higher than expected inflation in October raised speculation about when the Bank of Canada might hike interest rates. Statistics Canada said inflation rose by 0.1 per cent from September — pushing the annual inflation rate to 2.4 per cent. Economists had been looking for a drop in October.

U.S. indexes charged ahead with the Dow Jones industrials up 91.06 points to 17,810.06, the Nasdaq advancing 11.1 points to 4,712.97 and the S&P 500 index climbing 10.75 points to 2,063.5.

China’s central bank cut the interest rate on its one-year loans to financial institutions by 0.4 of a percentage point to 5.6 per cent. The country’s annual rate of economic growth slowed to a five-year low of 7.3 per cent last quarter. The move by the central bank came a day after the release of data showing that Chinese manufacturing activity fell to a six-month low in November.

“It’s a strong move,” said Jean-Francois Dion, portfolio adviser at wealth management, RBC Dominion Securities.

“At the same time, demand from emerging economies had been really driving demand for resources over the past few years. Slowing growth has been weighing on our resource sector in Canada and that explains the strength of the bounce we’re seeing today.”

Many analysts think a key motivation behind China’s rate cut has been the recent sharp fall in the value of the Japanese yen, which is likely to have an impact on China’s exports.

Meanwhile, the ECB’s Mario Draghi said that if current efforts do not achieve the desired effect, the bank could “broaden even more the channels through which we intervene.” For many in the markets, that was a clear hint that the bank could soon starting buying government bonds.

While China’s growth has been slowing, conditions in the eurozone are much worse with the region teetering on the edge of recession, as indicated in data out Thursday from financial information company Markit. Its purchasing managers’ index for the eurozone, a broad gauge of business activity, fell to a 16-month low in November.

The move by the Chinese central bank in particular pushed the base metals group up 5.75 per cent as December copper gained one cent to US$3.06 a pound. A major beneficiary was Teck Resources, up $1.72 or 9.44 per cent to $19.94.

January crude in New York ahead 66 cents at US$76.51 a barrel and the energy sector climbed 1.8 per cent.

The TSX gold sector slipped about 0.1 per cent as December bullion advanced $6.80 to US$1,197.70 an ounce.

The financials sector was weak with Royal Bank (TSX:RY) down 51 cents to $82.53 as the bank said would exit its international client wealth management business in the Caribbean and other international private banking groups. RBC wouldn’t confirm a Financial Post report that the move could affect more than 300 brokers and private bankers. The move by RBC came as the bank prepares to post quarterly and full fiscal year earnings on Dec. 3.

The TSX ended the week up 268 points or almost two per cent, leaving the market up 11 per cent year to date.