TAPERING FEARS SINK MARKETS
TORONTO • The Toronto stock market closed lower Wednesday as minutes from the last meeting of the U.S. Federal Reserve in October failed to provide reassurance that the Fed won’t soon start to withdraw economic stimulus.
The S&P/TSX composite index slipped 12.76 points to 13,430.01.
The market was held back by sliding gold stocks, which continued to deteriorate alongside bullion prices, which hit their lowest level since mid-July on worries about when the Fed will begin tapering its US$85-billion of monthly bond purchases.
The Canadian dollar was up 0.22 of a cent at US95.72¢, but off earlier highs as the greenback gained in value after the release of the Fed minutes.
Losses on U.S. markets picked up as minutes from the Fed’s October meeting indicated the central bank believed that damage from the partial government shutdown was temporary. The minutes also contained a positive tone on the U.S. economy.
“Members believed the headwinds confronting the economy were likely to abate in the months ahead, with growth expected to continue at a moderate pace, and little change in the outlook since the September meeting, which unexpectedly opted not to taper,” observed CIBC World Markets senior economist Peter Buchanan.
“Members did, however, take note of some improvement in the labour market outlook.”
The Dow industrials lost 66.21 points to 15,900.82 while the Nasdaq fell 10.28 points to 3921.27 and the S&P 500 index shed 6.5 points to 1781.37.
The U.S. central bank’s monthly purchase of bonds has kept long-term rates low and pushed investors into riskier but potentially higher-yielding assets such as stocks. The quantitative easing has underpinned substantial gains on many markets this year but left investors on edge for signs that the central bank will start reducing its asset purchases.
Janet Yellen, who is slated to become the next Fed chairman, has already expressed strong support for the low interest rate and bond buying policies aimed at stimulating U.S. growth.
“Some recent Fed comments have given confidence that the tapering of asset purchases will take place later than expected,” said Paul Vaillancourt, managing director at Fiera Capital in Calgary, who wondered about the need for continued high levels of stimulus. “We see [the asset purchases] as artificial life support that the markets don’t really need as much as they did a little while ago,” he said.
Traders also considered a better-thanexpected report on October retail sales.
The U.S. Commerce Department said retail sales rose 0.4% in October, held back by a steep drop in gas prices. Excluding sales at gas stations, retail spending increased an even stronger 0.5%. The consensus had called for October U.S. retail sales to have risen by 0.1% following a flat showing in September.
The gold sector lost about 3.7% as December bullion declined $15.50 to US$1,259 an ounce, its lowest close since mid-July. Goldcorp Inc. faded 80¢ to $24.51 and Barrick Gold Corp. dropped 73¢ to $17.94.