TSX moves lower amid reminder that Fed stimulus “cannot go on forever”

TORONTO – The Toronto stock market closed modestly lower Tuesday, led by resource stocks that fell alongside prices for oil and copper.

The S&P/TSX composite index was down 32.35 points at 13,326.04, while the Canadian dollar was off 0.14 of a cent to 95.3 cents US even as the Harper government said it will have a bigger than expected surplus in two years despite weak economic performance.

U.S. indexes were also lacklustre amid a reminder to investors to accept the idea that the U.S. Federal Reserve will be putting the brakes on its asset purchase program.

The Dow Jones industrial average was 32.43 points lower to 15,750.67, the Nasdaq inched up 0.13 of a point to 3,919.92 while the S&P 500 index slipped 4.20 points to 1,767.69.

North American markets racked up solid gains throughout October but they have stalled somewhat amid increasing uncertainty about when the Fed might start tapering its US$85 billion of monthly bond purchases, particularly after strong employment and economic growth reports released last week.

Dallas Federal Reserve president Richard Fisher made it clear Tuesday that that level of asset purchases won’t continue, saying “this program cannot go on forever.”

“Our balance sheet has become bloated and, at some point, we will have to taper back on the pace of purchases, but that doesn’t mean we’ll stop,” he told CNBC.

Also, analysts say that U.S. markets could be in for some kind of retracement with the Dow industrials up more than 20 per cent year to date.

Traders also looked ahead to Thursday when the U.S. Senate banking committee will quiz Janet Yellen, President Barack Obama’s candidate to become the next chair of the central bank.

Yellen has a reputation for being a dove as far as stimulus is concerned and traders will be listening for any hints as to whether she thinks the economy is strong enough to start tapering those purchases that have supported a strong rally on many stock markets.

“Personally, I don’t expect the Fed to do anything different than they have,” said John Stephenson, vice-president and portfolio manager at First Asset Funds Inc.

“The reality is, they’re going to be accommodative. I think that most people think (tapering will start) at the earliest, at the end of the first quarter. I think it could easily be the end of the second quarter or later.”

The gold sector led decliners, down about 1.8 per cent as December bullion edged $9.90 lower to US$1,271.20 an ounce. Goldcorp (TSX:G) faded 51 cents to C$25.15.

Losses for oil and copper picked up after the comments by the Fed’s Fisher.

Also, China’s leaders finished a closely watched policy meeting with a promise to give market forces a bigger role in the country’s state-dominated economy. But they failed to produce dramatic reforms.

And traders also expected another increase in U.S. crude inventories. Data is expected to show an increase of 1.8 million barrels in crude oil stocks, which would mark the eighth straight weekly increase.

The base metals sector fell 1.08 per cent while December copper slipped three cents to US$3.23 a pound. Teck Resources (TSX:TCK.B) lost 73 cents to C$27.34.

December crude on the New York Mercantile Exchange dropped $2.10 to US$93.04 a barrel and the energy sector lost almost one per cent.

Canadian Natural Resources (TSX:CNQ) gave back 38 cents to C$32.13.

The tech sector led advancers, up 0.79 per cent as CGI Group (TSX:GIB.A) rose 97 cents to $37.11.

The consumer staples sector was also higher.

Shoppers Drug Mart Corp. (TSX:SC) says its third-quarter net profit was $166 million, down from $168 million a year earlier as it included pre-tax expenses related to a friendly takeover by Loblaw Co. (TSX:L). Ex-items, earnings per share were 88 cents, up from 85 Canadian cents a year earlier and seven cents better than analysts expected and its shares gained 33 cents to $61.05.

Home renovation retailer Rona Inc. posted quarterly earnings of $30 million or 25 cents per share, up from $5.5 million or five cents a year earlier, but down from $33.5 million or 28 cents per share in 2012 when excluding one-time items. Revenues decreased 4.3 per cent to $1.17 billion amid weaker housing construction starts, particularly in Quebec.

Rona was expected to earn $39.2 million or 30 cents per share in adjusted profits on $1.25 billion of revenues and its shares advanced 44 cents to $12.45, matching its existing 52-week high.