TSX extends losses as hopes fade for fiscal cliff deal, eurozone in recession

TORONTO – The Toronto stock market was lower late-morning Thursday, adding to a string of losses amid a lack of confidence lawmakers can stop the U.S. economy from going over the so-called fiscal cliff and new data showing the eurozone has fallen back into recession.

The S&P/TSX composite index was off the worst levels of the morning but still down 35.84 points to 11,893.95 after a 205-point tumble left the index in negative territory for the year. The TSX Venture Exchange fell 24.1 points to 1,234.59.

The Canadian dollar gained 0.12 of cent to 99.74 cents US after the U.S. Federal Reserve indicated further quantitative easing could be on the way. This involves the U.S. central bank printing more money in order to buy up bonds.

On the economic front, Statistics Canada said manufacturing sales rose 0.4 per cent in September to $49.8 billion, reflecting higher production in the aerospace industry and higher sales of primary metals.

U.S. markets were negative as the Dow Jones industrials stepped back 22.98 points to 12,547.97. The Nasdaq was 9.75 points lower to 2,837.05 and the S&P 500 index slipped 1.74 points to 1,353.75.

North American indexes racked up substantial losses Wednesday in the wake of a news conference by President Barack Obama, where he made it clear that higher taxes on upper income earners will have to be part of any deal to deal with the huge U.S. deficit.

The fiscal cliff refers to a series of tax cuts from the Bush era due to expire at the first of the year, raising tax bills for almost all Americans. Combined with huge spending cuts also automatically set to take effect, this which would take a huge chunk out of U.S. gross domestic product and likely push the American economy back into recession, taking other countries’ economies with it.

Such a scenario is bad news for a resource heavy market like Toronto’s as slowing economies in other countries will slash demand for oil and metals, putting pressure on mining and energy stocks.

The TSX has fallen more than 3.5 per cent this past week to a two-month low after the results of the U.S. election essentially left the political landscape unchanged, making it clear it would be difficult to arrange a compromise in Washington.

“Obviously, what’s happened is people are just sort of looking at the market and saying, I have so little gains this year, I better book them now, I can’t take the risk of these people can’t come together on this fiscal cliff,” said John Stephenson, portfolio manager at First Asset Funds Inc.

“I believe they will eventually and there will be a compromise because it would be so idiotic for them to drive the economy of the U.S. off the cliff. But people are so nervous they may do this that they’re not willing to sit around and wait.”

Losses have been even worse in New York as American investors have sold off across all sectors on the expectation of having to pay higher dividend and capital gains taxes at the beginning of the year. The Dow has plunged 5.1 per cent over the last week.

Worries about the health of the global economy intensified Thursday after official figures showed that the worsening debt crisis resulted in the eurozone contracting by 0.1 per cent in the July-to-September period from the quarter before as its economies, including those of Germany and the Netherlands, suffer from falling demand. That followed a 0.2 per cent pullback in the previous quarter for the 17-country monetary union.

The base metals sector led losers, down 1.75 per cent even as December copper was up two cents at US$3.47 a pound. Thompson Creek Metals (TSX:TCM) was down 15 cents at C$2.93 while Rio Alto Mining (TSX:RIO) gave back 20 cents to $5.15.

Gold prices and stocks headed lower amid data showing global gold demand fell in the third quarter as investors bought fewer bars and coins and buyers in China held back because of the economic slowdown. The World Gold Council said about 1,085 metric tons of gold was sold worldwide in the three months through September, down 139 metric tons, or 11 per cent, from a record 1,223.5 tonnes in the same period of 2011.

December bullion fell $14.40 to US$1,715.70 an ounce and the gold sector lost 1.4 per cent as Goldcorp Inc. (TSX:G) faded 58 cents to C$40.70 while Iamgold Corp. (TSX:IMG) fell 41 cents to $11.57 on top of a 19-per cent plunge Wednesday after the miner delivered a disappointing earnings report.

Industrials also weighed on the TSX with Bombardier Inc. (TSX:BBD.B) falling 12 cents to $3.07.

The energy sector was slightly higher as the December crude contract on the New York Mercantile Exchange shed early gains and dipped 16 cents to US$86.16 a barrel. Canadian Natural Resources (TSX:CNQ) was up 34 cents to C$28.08.

Traders also digested dull news from the world’s biggest retailer.

Wal-Mart Stores Inc. said third-quarter profit rose nine per cent to US$3.64 billion, or $1.08 a share while sales rose 3.4 per cent to $113.2 billion. Wal-Mart beat earnings expectations by a penny but analysts had expected revenue of $114 billion and its shares fell 4.4 per cent in New York.

In Canada, forest products company Tembec Inc. (TSX:TMB) reported Thursday that its net loss soared to $47 million in the fourth quarter and to $82 million for the full year, partly due to a $50-million charge related to its recently idled pulp mill in Chetwynd, B.C. Its shares dropped 17 cents or 7.66 per cent to $2.05.