Markets fall on no stimulus prospects

Markets dropped for a second day on Wednesday thanks to a bevy of disappointing economic news, leading off with the previous day’s release of the minutes of the latest U.S. Federal Reserve meeting that appeared to erase any prospect for a third round of monetary stimulus south of the border.

In Toronto, the benchmark S&P/TSX composite index closed at 12,178.66, down 144.95 points, or 1.18% as commodity prices declined. Eight of the 10 sub-indexes fell, led by materials, down 2.62%, and energy, off 2.02%.

The price of oil dropped US$2.54 to US$101.47 a barrel after the U.S. Energy Department announced stockpiles were at their highest point since 2008 thanks to gains in domestic production.

The price of gold fell US$ 57.70 to US$1,612.30 an ounce as the U.S. dollar advanced following the release of the Fed’s Open Market Committee minutes on Tuesday in which the central bankers essentially said that, short-term, no more monetary stimulus will be needed.

“With the U.S. economy and employment improving, the potential for QE3 has been pretty much written off now, particularly with a U.S. election coming later this year,” said Colin Cieszynski, an analyst with CMC Markets. “Because of this, expectations of increased liquidity have evaporated, dragging on stocks and shoring up support for the greenback.”

Also on Wednesday, Spain fell well short of its target in a debt auction, and a report showed growth in the U.S. service sector weakened in March, which fuelled concerns about an economic slowdown.

“The overnight bond auction from Spain didn’t do that well,” Marcus Xu, director of equity investments at Genus Capital Management in Vancouver, told Bloomberg. “The yield was really backing up there and less demand than anticipated.”

It’s not entirely unusual —or unanticipated — for the S&P/TSX composite index to have fallen to a three-month low on Wednesday after having seen strong gains in the first two months of the year.

“In general, investor sentiment had become pretty positive,” said Bruce Mccain, chief investment strategist at the privatebanking unit of Keycorp in Cleveland.

“When that happens, there’s a tendency for the market to sober up a bit and take a second look at problems they had ignored up to that point.”

The Canadian dollar fell 61 basis points to US$1.0036 on Wednesday.

The Dow Jones industrial average lost 124.80 points, or 0.95%, closing at 13,074.75, and the Nasdaq composite fell 45.48 points, or 1.46%, to 3,068.09.

Canada’s junior Venture exchange dropped 46.49 points, or 3.01%, to 1,499.14.