Pescod Talks about...

Worries about state debt sends stocks lower; commodities depressed by rising US$

14:43 December 8, 2009, EDT.
(Canadian Press)

TORONTO - The Toronto stock market was well into the red mid-afternoon Tuesday as investors worried about downgrades by credit rating agencies and commodity prices in particular were punished by a rising American dollar.

The S&P/TSX composite index dropped 117.2 points to 11,372.5 as the Bank of Canada said it was leaving interest rates unchanged at 0.25 per cent.

The Canadian dollar was down 0.96 of a cent to 94.02 cents US. The central bank warned that the main risks to an economic rebound are "a more protracted global recovery and persistent strength in the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation."

Investor sentiment took a knock following a warning from Moody's Investor Services that the United States and Britain must get a grip on their public finances to avoid threats to their top Triple-A credit ratings. In an assessment of eight Triple-A countries, Moody's said the public finances in both countries are deteriorating considerably and may therefore "test the Aaa boundaries" in the future.

The Moody's report comes after rival Fitch cut Greece's credit rating from single-A-minus to BBB-plus. It said the downgrade "reflects concerns over the medium-term outlook for public finances given the weak credibility of fiscal institutions and the policy framework in Greece, exacerbated by uncertainty over the prospects for a balanced and sustained economic recovery."

And Moody's Investor Services again downgraded six state-linked companies in Dubai as fresh concerns surfaced about the troubled Arab boomtown's debt woes.

Analysts also point out that investors are finding it tough to find reasons to send markets higher in light of the strong rally that started in early March and has gone along with hardly a break since.

"I don't think we're overvalued, I don't think we're undervalued, I think we're just kind of trading on the whims of news items these days and people are just kind of coasting to the end of the year from this point," said Chris King, vice-president and portfolio manager at Morgan, Meighen and Associates.

Financials were lower as Bank of Nova Scotia (TSX:BNS) missed earnings expectations. Scotiabank shares were down $1.05 to $47.56 as the bank reported net income of $902 million or 83 cents per share for the fourth quarter, up from year-ago profit of $315 million or 28 cents per share. Analysts had expected 87 cents a share. The bank also said that provision for credit losses was $420 million in the fourth quarter, up $213 million from last year.

Overall, the financials sector slipped 1.47 per cent with Royal Bank (TSX:RY) down 76 cents to $54.64.

The January crude contract on the New York Mercantile Exchange gave back 93 cents to US$73 a barrel and the energy sector declined 1.42 per cent. Suncor Inc. (TSX:SU) was down 67 cents to $36.09 while Canadian Natural Resources (TSX:CNQ) moved $1.40 lower to $67.30.

The gold sector was down 1.65 per cent. A stronger American currency pushed the February gold contract on the New York Mercantile Exchange down $21.20 to close at US$1,142.80 an ounce.

Barrick Gold Corp. (TSX:ABX) faded $1.23 to $43.40 and Goldcorp Inc. (TSX:G) stepped back 91 cents to $42.65.

The base metals sector was off 0.75 per cent as March copper slipped six cents to US$3.15 a pound. HudBay Minerals (TSX:HBM) lost 64 cents to $13.36.

Global mining company Xstrata PLC is recording about $2.4 billion in writedowns linked to its copper and nickel assets, many of them in Canada. Xstrata, which acquired Toronto based nickel and copper producer Falconbridge several years ago, is slashing 670 jobs by closing Canadian copper and zinc smelters in northern Ontario by May 2010.

The majority of the impairment charges announced Tuesday, however, come from Xstrata cutting the value of its Australian, Norwegian and Canadian nickel assets.

Teck Resources Ltd. (TSX:TCK.B) shares declined 44 cents to $35.26 after it said it expects coal production in 2010 to be 23.5 million to 25 million tonnes and is planning for further production increases in 2011 and 2012. The Vancouver-based miner is currently forecasting coal production of 20 million tonnes and sales of 19.5 to 20 million tonnes for 2009.

All sectors were lower save for a rise in the tech component, where Research In Motion Ltd. (TSX:RIM) climbed $2.07 to $65.47.

The TSX Venture Exchange was down 21.17 points to 1,413.23.

New York markets also fell with the Dow Jones industrial average fell 106.5 points to 10,283.6.

The Nasdaq composite index declined 10.58 points to 2,179.03 while the S&P 500 index moved down 10 points to 1,093.25.

In other corporate news, provincial pension fund giant Caisse de depot et placement du Quebec is selling all its common shares in Atlantic Power Corp. (TSX:ATP), representing nearly 19 per cent of the total, for $121.9 million. It's not known who the purchasers are and Atlantic shares were down 77 cents to $10.50.

Garda World Security Corp. (TSX:GW) shares ran ahead 72 cents to $9.82 after it said Tuesday it had been awarded a US$100-million contract from the U.K. Foreign and Commonwealth Office to provide security services for the British Embassy and its offices in Iraq.

Shares in Stornoway Diamond Corp. (TSX:SWY) jumped 6.5 cents to 37 cents after the Vancouver-based miner delivered a positive report on its Renard Diamond Project in North Central Quebec.

On the economic front, there was positive news from the Canadian housing sector. Canada Mortgage and Housing Corp. said housing starts were up last month with single home activity leading the way.

CMHC said the seasonally adjusted annual rate of housing starts reached 158,500 units in November, up 1,100 units from October. The agency added that the November total is the highest of the year.