TSX down, economic worries send oil prices lower, traders look to budget talks

TORONTO – The Toronto stock market was slightly lower late Tuesday morning as falling oil and gold prices punished resource stocks and traders awaited the next development in the U.S. fiscal standoff between Republicans and Democrats.

The S&P/TSX composite index fell 31.83 points to 12,137.91 while the TSX Venture Exchange shed 11.25 points to 1,196.75.

The Canadian dollar was up 0.24 of a cent to 100.75 cents US after the Bank of Canada announced it is leaving its key interest rate unchanged at one per cent, a reflection of economic weakness across the globe.

Traders also took in quarter and annual earnings from Bank of Montreal (TSX:BMO) which beat estimates.

BMO had a fourth-quarter profit of $1.08-billion, up 41 per cent from a year ago.

The bank’s adjusted earnings amounted to $1.65 per share, beating estimates by 22 cents a share. The quarter brought Bank of Montreal’s total net income for the 2012 financial year to $4.19 billion, up 35 per cent from last year and its shares added 52 cents to $59.81.

U.S. indexes were also negative with the Dow Jones industrials down 2.03 points to 12,963.57, the Nasdaq was off 19.34 points to 2,982.86 while the S&P 500 index declined 3.67 points to 1,405.79.

Stocks retreated Monday after the U.S. Institute for Supply Management’s manufacturing index unexpectedly went into contraction territory during November, a signal that uncertainty surrounding the U.S. fiscal situation is hurting the economy.

Market attention has focused almost exclusively on heading off the automatic big spending cuts and significant tax increases that are to be imposed at the beginning of 2013. The worry is that the combination would dramatically slow the U.S. economy and likely push it over a “fiscal cliff” and back into recession.

Traders were unimpressed with a late day development that saw Republicans put forward a proposal calling for raising the eligibility age for Medicare, lowering cost-of-living hikes for Social Security benefits and bringing in $800 billion in higher tax revenue.

The plan relies more on politically sensitive spending cuts and would raise half the $1.6 trillion in revenue proposed by President Barack Obama over the coming decade. But it would keep the Bush-era tax cuts, including those for wealthier earners. Obama has said tax hikes for the very wealthy are a must.

“There’s obviously much gamesmanship going on at the political level,” said Jim Muir, director at Fraser, Mackenzie.

“You believe that they both want some sort of solution but I guess they’re going to read how the wind is blowing and see who is going to give a little. Each has a constituency and they don’t want to be seen up front as giving away.”

The energy sector led decliners, down 0.72 per cent as worries about economic weakness stemming from Monday’s weak ISM reading sent oil prices lower with the January crude contract on the New York Mercantile Exchange down 85 cents to US$88.24 a barrel and the energy sector was down 0.54 per cent. Imperial Oil (TSX:IMO) was down 29 cents to $42.54.

Canadian Natural Resources Ltd. (TSX:CNQ) fell 40 cents to $27.79 after it said it has set a 2013 capital budget of $6.9 billion, which is about $500 million more than the Calgary-based energy company’s capital spending this year. The biggest increase is at CNQ’s Horizon oilsands mining project, which will see its budget rise to $2.55 billion next year from $1.68 billion in 2012.

The tech sector fell 0.54 per cent as CGI Group (TSX:GIB.A) lost 29 cents to $23.03.

Celestica Inc. (TSX:CLS) rose 15 cents to $7.39. The Toronto-based global manufacturing services company says it expects to pay US$7.80 per share to buy back about 22.4 million shares, or about 12 per cent of its outstanding stock. The buyback price was determined by a bidding process known as a modified Dutch auction.

Telecoms were also weak as Telus Corp. (TSX:T) fell 55 cents to $64.26.

The gold sector was off 0.43 per cent as bullion for February declined $21.10 to US$1,700 an ounce after earlier falling below the psychologically important $1,700 mark. Agnico Eagle Mines (TSX:AEM) was down 87 cents to $54.01.

The base metals group was up 0.1 per cent while March copper prices were up a penny at US$3.67 a pound, as the metal benefitted for a second day on a strong Chinese manufacturing report. China, the world’s second-biggest economy, is the largest consumer of the metal. First Quantum Minerals (TSX:FM) gained 24 cents to $20.53.

European bourses were mixed as talks between the 27 European Union finance ministers got under way in Brussels.

They hope to agree on the set-up of a new supervisory body, which will be headed by the European Central Bank and will hold wide-ranging authority over banks.

But Germany and France, the continent’s two largest economic powers, disagree on how many banks the ECB should be allowed to oversee, when it should start, and what its final powers should be.

London’s FTSE 100 index dipped 0.06 per cent, Frankfurt’s DAX was off 0.01 per cent while the Paris CAC 40 was ahead 0.4 per cent.

Earlier in Asia, Japan’s Nikkei 225 index fell 0.3 per cent, Hong Kong’s Hang Seng gained 0.2 per cent and South Korea’s Kospi fell 0.3 per cent. In mainland China, the Shanghai Composite Index rose 0.8 per cent while the smaller Shenzhen Composite Index added 1.3 per cent.