FED WARNING DAMPENS MARKETS
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 US95.30¢ 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 3919.92, while the S&P 500 index slipped 4.20 points to 1767.69.
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% 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.
Ms. 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% as December bullion edged $9.90 lower to US$1,271.20 an ounce. Goldcorp faded 51¢ to $25.15.
Losses for oil and copper picked up after the comments by the Fed’s Mr. 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.