UNEASINESS OVER FED LEADS TO BIG TUMBLE
The Toronto stock market closed lower Thursday as traders worry that the U.S. Federal Reserve will end its open-ended stimulus program of bond purchases by the end of the year.
The S&P/TSX composite index closed off the worst levels of the session, coming back from a 111-point tumble to close down 74.08 points to 12,639.97, with pressure also coming from poorly received earnings news. The TSX Venture Exchange added 2.8 points to 1,133.97.
The Canadian dollar lost US0.14¢ to a fresh seven-month low of US98.16¢ as traders avoided risk and resource-based currencies such as the loonie and commodity prices fell sharply.
U.S. indexes were also in the red in the wake of the Wednesday release of minutes from the Fed’s last policy meeting.
They showed some policy-makers at the U.S. central bank were worried that the Fed’s US$85 billion in monthly bond purchases could eventually unsettle financial markets or cause the Fed to take losses. The purchases, commonly known as quantitative easing, are designed to boost the U.S. economy by increasing liquidity.
The Fed said it would review its asset purchases program at its March meeting.
But New York indexes also came back from the lows of the day as the Dow Jones industrials fell 46.92 points to 13,880.62 after losing as much as 93 points during the morning. The Nasdaq composite index dropped 32.92 points to 3,131.49 and the S&P 500 index was 9.53 points lower at 1,502.42.
Other minutes from recent meetings had signalled uneasiness by some members of the Fed with the bond purchase program.
“Some complacency may have set in,” said Colin Cieszynski, market strategist at CMC Markets Canada. “And just basically, people were saying OK, they will keep it for the whole year. Well, maybe they will, maybe they won’t.”
He thinks it’s reasonable to expect the Fed will probably keep the stimulus program going at the same level for at least six months. “But beyond that, all bets are off because at the end of the year, you start running into the change of chairman.”
Fed chairman Ben Bernanke’s term expires in January and he has expressed no desire to serve another term.
Positive news from the U.S. housing sector failed to make much of a dent on markets. Sales of previously occupied homes rose in January to the second-highest level in three years, up 0.4% in a sign the housing market is maintaining its recovery. Economists had looked for a decline of 0.8%.
Traders flocked to the perceived safe haven of U.S. Treasuries following the release of the Fed minutes Wednesday, pushing the greenback higher and commodities lower.