TSX up as incoming Fed chair indicates central bank in no rush to start tapering

TORONTO – The Toronto stock market registered a solid advance Thursday as the next likely leader of the U.S. Federal Reserve made it clear the American economy will need to show more improvement before the central bank starts to withdraw economic stimulus.

The S&P/TSX composite index gained 60.72 points to 13,431.38, with support also coming from a strong earnings report from IT company CGI Group (TSX:GIB.A) and one matching analyst expectations from Kinross Gold (TSX:K).

The Canadian dollar fell 0.05 of a cent to 95.53 cents US.

U.S. indexes gained momentum as traders took in confirmation hearings on Janet Yellen’s nomination to lead the Federal Reserve.

The Dow Jones industrials were up 54.59 points to 15,876.22, the Nasdaq added 7.16 points to 3,972.74 and the S&P 500 climbed 8.62 points to 1,790.62.

The session got off to a largely positive start as Yellen’s prepared remarks were released Wednesday after the market close and indicated she won’t be straying from the low interest rate policies of outgoing chairman Ben Bernanke.

She said the economy has regained ground lost to the recession, but that U.S. unemployment at its current level of 7.3 per cent remains too high.

Later, during a question and answer session with senators, Yellen said the Fed understands that quantitative easing, involving the monthly purchase of US$85 billion of bonds, can’t go on forever.

But she made it clear that “it is important not to remove support while the recovery is still fragile.”

“It is also important to remove accommodation when the right time comes,” she added.

A strong rally on markets in October has largely stalled this month on concerns that the Fed could start tapering as soon as December. The Fed’s bond purchases have kept long-term rates low and supported a strong advance on many markets.

“Regardless of when this tapering actually comes to be, and the Fed knows it has this massive balance sheet, it knows it has to start the process to exit,” said Stephen Lingard, portfolio manager at Franklin Multi-asset strategies.

“But that doesn’t mean that tighter policy or even less loose policy is imminent.”

The gold sector led advancers, up about 2.3 per cent while bullion prices advanced with December gold ahead $17.90 to US$1,286.30 an ounce. Goldcorp (TSX:G) gained 61 cents to C$25.90.

Kinross Gold Corp. (TSX:K) reported a big drop in third-quarter net earnings amid falling gold prices and higher production costs. Kinross said net income fell to US$49.9 million or four cents per share in the three months ended Sept. 30. Adjusted earnings were $54.4 million or five cents per share, in line with analyst estimates and its shares rose 20 cents to C$5.40.

The energy sector was ahead 0.85 per cent. Early gains in oil moderated after U.S. Energy Department data for last week showed that crude supplies rose by 2.6 million barrels against an expected increase of 1.8 million barrels and December crude on the New York Mercantile Exchange was down 12 cents to US$93.76 a barrel. Canadian Natural resources (TSX:CNQ) advanced 83 cents to C$33.11.

The tech sector was up 0.55 per cent with shares in CGI Group Inc. (TSX:GIB.A) up $1.62 or 4.3 per cent to $39.24 after posting $141 million of net income in its fourth quarter, compared with a loss of $168 million a year ago. Ex-items, earnings were 67 cents a share for the Montreal-based IT services company, five cents better than expected. CGI has been partially blamed for the huge problems related to the online launch of Obamacare.

Financials were also higher, but shares in Power Financial Corp. slipped 15 cents to $34.84 as third-quarter profit was down about five per cent from a year ago to $434 million. Ex-items associated with the purchase of Irish Life by its Great-West Lifeco subsidiary, Power Financial’s operating earnings were $476 million or 67 cents per share.

The base metals component was slightly lower while copper prices were flat after losing ground the two previous days, reflecting disappointment that a meeting of Chinese leaders earlier this week failed to yield hoped for economic reforms. The December contract was unchanged at US$3.16 a pound.

Turquoise Hill Resources (TSX:TRQ) fell 36 cents or 7.78 per cent to $4.27. The fall came as the miner suspended work on development of its premier project, the copper mine at Oyu Tolgoi in Mongolia after the government said financing for the project would require parliamentary approval. The company said Thursday that talks with the government are continuing but that it would be unable to complete project financing this year.