Financials punish TSX, dollar slides as central bank leaves rates unchanged

TORONTO – The Toronto stock market closed lower Wednesday as the initial run of earnings from the big Canadian banks failed to impress and persuaded investors to take some profits from a sharp runup in banks and insurers this year.

The S&P/TSX composite index lost 14.95 points to 13,304.92 with losses held in check by rising mining stocks.

National Bank shares shed early gains and was down $1.37 to $89.53 after it posted $337 million in quarterly net income, adding up to a full-year profit of $1.554 billion. Ex-items, the bank had $370 million of adjusted net income, or $2.09 per share, up eight per cent from $1.93 per share a year earlier, which met expectations. National Bank is also upping its quarterly cash dividend by six per cent to 93 cents and also announced plans for a two-for-one stock split.

“(The earnings) have been OK, they’re reasonably close to expectations, raising dividends and (there is) never anything wrong with that,” said Colin Cieszynski, market analyst at CMC Markets Canada.

“But the banks have moved up quite a bit and, on that basis, sometimes people are using this as an excuse to take some money off the table.”

Overall, the financial sector was the biggest drag on the TSX as investors lowered expectations ahead of earnings coming out this week from the rest of the big banks.

Bank of Montreal (TSX:BMO) shares fell 4.5 per cent Tuesday, even as earnings beat expectations. Investors were disappointed with, among other things, weakness in its U.S. operations. BMO shares were down another 30 cents to $69.95 Wednesday, while Scotiabank (TSX:BNS) dropped 49 cents to $63.70.

But analysts say that banks were vulnerable to some profit taking prior to the release of BMO’s results. Both the bank and the overall financial sector were up over 20 per cent year to date.

At the same time, the Canadian dollar fell to lows not seen for more than three years as the Bank of Canada’s rate announcement left markets with the impression that interest rate hikes are still a long way off.

The loonie was down 0.26 of a cent to 93.65 cents US after the bank left its key rate unchanged at one per cent.

U.S. indexes were mainly lower as traders balanced positive economic data with concerns about the Federal Reserve cutting back on monetary stimulus. The Dow Jones industrials shed 24.85 points to 15,889.77, the Nasdaq was up 0.8 of a point to 4,038, while the S&P 500 index was down 2.34 points at 1,792.81.

Meanwhile, there was positive news on the employment front two days before the release of the U.S. government’s employment report.

Payroll firm ADP reported that the American private sector created 215,000 jobs during November. Economists have been forecasting that the government report would show that the economy cranked out a total of 183,000 jobs during the month.

While the data is another sign of an improving economy, analysts believe a report showing continuing, steady employment gains could persuade the Fed that it’s time to start cutting back on its US$85 billion of monthly bond purchases.

The Fed’s stimulus has supported a strong performance in global stock markets during the past few years. But tapering those asset purchases could work the opposite way, even though it would mean that the U.S. economy is improving.

Also, the central bank’s latest survey shows the U.S. economy held steady during the 16-day partial government shutdown, growing moderately in most regions from October through late November. Manufacturing strengthened in most districts, consumers boosted spending in most regions, and retailers were hopeful, yet cautious, about the holiday shopping season. Hiring improved in about half the Fed districts.

Elsewhere on the TSX, the tech sector was also negative with CGI Group (TSX:GIB.A) down $1.49 to $37.03.

The interest-rate sensitive utilities sector dropped as U.S. bond yields advanced in the wake of the positive economic data. The benchmark U.S. 10-year Treasury climbed to 2.84 per cent from 2.78 per cent, its highest level in more than two months. Atlantic Power (TSX:ATP) fell four cents to $3.52.

The gold group jumped almost three per cent, while February bullion ran ahead $26.40 to US$1,247.20 an ounce.

Metal prices improved following the U.S. jobs data with March copper ahead eight cents to US$3.25 a pound. The base metals component was 0.48 per cent higher while HudBay Minerals (TSX:HBM) dropped 47 cents to C$7.84.

The energy sector was slightly higher as the January crude contract on the New York Mercantile Exchange gained $1.16 to US$97.20 a barrel, while the latest data showed a drop in U.S. supplies. The Energy Information Administration said that crude supplies fell by 5.6 million barrels last week, much bigger than the decline of 1.25 barrels that analysts had looked for.

In other corporate developments, Air Canada (TSX:AC.B) rose 27 cents to $8 after an analyst at BMO increased the price target for the carrier’s shares to $10 from $7.50. Air Canada’s share price has skyrocketed during this 2013 from a 52-week low of $1.59.