The Toronto stock market searched for direction in morning trading, wavering between a gain and a loss as investors weighed the Bank of Canada’s lowered its economic outlook and U.S. data showed a slowdown in home construction.
The S&P/TSX composite index was ahead 8.82 points at 11,552.29 in mid-morning trading.
The Canadian dollar backed off slightly following the morning announcement by the central bank that it will hike its trendsetting interest rate a quarter point to 0.75 per cent. The loonie was down 0.11 cent to 94.69 cents US.
The second rate increase in as many months had been widely predicted by economists and markets, given Canada’s strong first-quarter GDP growth and recent job creation record.
However, in a statement accompanying the announcement, the central bank’s governing council says the economy’s growth is slowing. The council said growth will be two-tenths of a point lower both this year and next — at 3.5 per cent and 2.9 per cent respectively — than it had thought in April.
And it said rather than returning to full capacity in the spring of 2011, the Canadian economy won’t be up to speed until the end of next year, two full quarters later.
“It looks like the bank still has a tightening bias because, as it suggests in the report, there’s still a lot of stimulus in place, interest rates are still very low, and there is a need to get those rates back to more normal levels or else inflation would become a problem in the long run,” said Sal Guatieri, senior economist with BMO Capital Markets.
“But the key point is nothing’s pre-ordained here. The bank is not necessarily committed to raising rates at the next meeting in September or beyond,” Guatieri added.
The TSX base metals sector gained 1.1 per cent after earlier trading in the red. The September copper contract on the New York Mercantile Exchange gained 5.45 cents to US$2.99 a pound. Shares in Teck Resources (TSX:TCK.B) jumped $1.29 or four per cent to C$34.38.
Financials lost 0.4 per cent after Goldman Sachs Group Inc. (NYSE:GS) reported lower trading revenue and an 83 per cent drop in net income. Shares in Royal Bank of Canada (TSX:RY) lost 22 cents to C$53.41.
The energy sector added 0.3 per cent even as the August crude contract on the Nymex lost 41 cents to US$76.13 a barrel. Shares in Encana Corp. (TSX:ECA) were up 43 cents to C$34.18.
The gold sector gained 1.2 per cent as the August bullion contract added $5.50 to US$1,187.40 an ounce.
The TSX Venture Exchange lost 6.20 points to 1,355.90.
New York markets traded solidly in the red after a key report on the U.S. housing market showed the economy remains weak.
The Dow Jones industrial average lost 91.42 points to 10,063.01. The Nasdaq composite index fell 27.42 points at 2,170.81 while the S&P 500 index was down 7.74 points to 1,063.51.
Construction of new homes and apartments in June dropped five per cent to a seasonally adjusted 549,000, the lowest level since October, according to the U.S. Commerce Department.
Disappointing quarterly revenues at Goldman Sachs and IBM Corp. (NYSE:IBM) also weighed on markets.
In the thick of the U.S. earnings season, traders seem to be focused more on revenue growth and forecasts for future improvement than on profits. That’s because economic reports in recent months have shown the recovery is slowing south of the border, so there is concern about where future sales growth will come from.
With net income of US$3.39 billion, up nine per cent, IBM (NYSE:IBM) beat earnings expectations in the second quarter and raised its guidance for the year. However, the company’s revenue of $23.7 billion fell below the $24.2 billion that analysts expected.
Meanwhile, Goldman Sachs’ net income fell 83 per cent to US$453 million as its trading revenue dropped and it booked a charge for its settlement of a civil fraud suit with the Securities and Exchange Commission. The company’s revenue fell 36 per cent to $8.84 billion.
In Canadian corporate news, Bombardier Inc. (TSX:BBD.B) announced at the Farnborough Air Show in Britain that several customers have ordered a total of 10 jets worth nearly $500 million. Shares in Bombardier fell three cents to C$4.40.
Air Canada (TSX:AC.A) said it will grow its system capacity more aggressively this year than previously expected, primarily because of an increase in international flying. The airline now expects to grow its overall fleet capacity by as much as 7.5 per cent this year, compared to an earlier estimate of between four and six per cent. Shares in Air Canada jumped 31 cents or 16.2 per cent to $2.22.
Overseas, Britain’s FTSE 100 fell 0.5 per cent, Germany’s DAX index fell 1.1 per cent, and France’s CAC-40 fell one per cent. Japan’s Nikkei stock average fell 1.2 per cent while Hong Kong’s Hang Seng added 0.9 per cent.
