Markets recover from earlier losses
Written on February 1, 2008
Stock markets staged a strong runup Thursday as early worries about the bond insurance sector receded and investors hoped that Wednesday's half-point cut in the U.S. Federal Reserve's key funds rate would help the U.S. skirt a recession.
Toronto's S&P/TSX composite index ran ahead 156.87 points to 13,155.08, recovering from a triple-digit tumble earlier in the session. The junior TSX Venture Exchange was up 9.31 points to 2,564.69.
At the end of a tough month for investors amid U.S. economic uncertainty and huge writedowns connected to American mortgages, the TSX finished the month down almost five per cent from the end of December.
The volatility on equity markets pressured the Canadian dollar, which closed down 1.06 to 99.62 after tumbling as much as 1.55 cents.
In economic news, Statistics Canada reported that growth slowed to 0.1 per cent in November.
On Wall Street, the Dow Jones industrials also came back from a steep, triple digit deficit to surge 207.53 points to 12,650.36 but the blue chip index tumbled 4.8 per cent during January. The Nasdaq composite index rose 40.86 points to 2,389.86 but lost almost 10 per cent this month while the S&P 500 index climbed 22.74 points to 1,378.55 for a loss of 6.15 per cent this month.
The session got off to a sharply lower start after MBIA Inc., the world's largest bond insurer, reported writedowns of US$3.5 billion on souring credit derivatives in the fourth quarter, raising the possibility that it could lose its top credit rating.
And banks, which have already written down billions of dollars' worth of securities linked to mortgages, could find themselves having to take more writedowns tied to bonds insured by companies like MBIA.
But sentiment improved after MBIA chief executive Gary Dunton told investors in a conference call that he is confident the company can retain its AAA credit rating and that it will still be able to raise fresh capital.
"Today is really more of a relief rally because the Fed did what the Street wanted. They did what was expected of them and the MBIA news relieved the fears of some investors," said Ryan Detrick, strategist at Schaeffer's Investment Research in Cincinnati.
However, other analysts caution the issues surrounding the bond insurer sector aren't going away soon.
"It's only going to get worse because right now, as we speak, of the subprime loans, 25 per cent are in default – one out of four cannot pay anything on these loans, right now and that's before some of these mortgage resets hit a crescendo in March," said John Stephenson, portfolio manager at First Asset Management.
"Until this whole (bond insurer) monoline situation is resolved, you are going to have nothing but bad news."
There was no joy to be had from the latest economic data. The U.S. Commerce Department says consumer spending edged up just 0.2 per cent in December, the year's peak shopping season, down sharply from a one per cent gain in November.
There was also glum employment news a day before the release of the January U.S payday loan low fee. non-farms payroll report. U.S. jobless insurance claims rose 69,000 to 375,000 last week, the biggest gain since September 2005 in the wake of hurricane Katrina.
On the TSX, the energy sector ticked ahead one per cent as oil prices fell. The March contract on the New York Mercantile Exchange dropped 58 cents to US$91.75 a barrel.
Petro-Canada (TSX: PCA) says its fourth-quarter profit jumped 36 per cent to $522 million. Net earnings in the quarter amounted to $1.08 a share.
Analysts' consensus forecast was for earnings of $1.32 a share, before one-time items and its shares dropped $1.42 to $45.63.
Imperial Oil Ltd. (TSX: IMO) shares were ahead 21 cents to $49.36 after the company earned $3.19 billion in 2007, a company record, including $886 million or 96 cents per share in the fourth quarter. Annual revenue was $25 billion for the year, including $6.7 billion in the fourth quarter.
The reassurances from the bond sector send the Toronto financial sector up 1.2 per cent, with CIBC (TSX: CM) ahead $4.55 or 6.6 per cent to $73.25 and National Bank (TSX: NA) advanced $1.25 to $50.53.
The gold sector was down 1.6 per cent as the April bullion contract on the New York Mercantile Exchange moved up $1.70 to US$928 an ounce.
Barrick Gold Corp. (TSX: ABX) declined $1.10 to C$51.81. Shares in Iamgold Corp. (TSX: IMG) dropped $1.10, or 12 per cent, to $8 after it said the French government is denying final permits needed to begin construction of its Camp Caiman project in French Guiana.
In other corporate news, shares in Gildan Activewear Inc. (TSX: GIL) were up $1.63 to $37.09 after the Montreal-based company promised its shareholders that the T-shirt and sock manufacturer will see years of strong growth as it enters the Asian market.
Teck Cominco Ltd. (TSX: TCK.B) shares declined 37 cents to $32.78 after the Vancouver company lowered its 2008 production guidance from its Highland Valley copper mine to 113,000 tonnes compared with earlier guidance of 122,000 tonnes.
Lundin Mining Corp. (TSX: LUN) is restating its financial results for the first three quarters of 2007 and expects to recognize a US$55-million reduction in reported net income.
Lundin said there has been misinterpretation of applicable tax legislation relating to tax rate reductions claimed by Somincor, the company's subsidiary in Portugal. Lundin shares were down nine cents to $7.76.
Dell Computer says it's closing the company's Edmonton call centre this spring, affecting 900 employees. That follows its decision this week to cancel a 1,200-employee expansion at its Ottawa call centre and reduce current staff levels by an undisclosed number of employees.
On the TSX, advances beat declines 971 to 627 with 223 unchanged as 457 million shares traded worth $9.4 billion.