TSX sells off, commodities slide

September 28, 2011 | Last updated on September 28, 2011
4 min read

The Toronto stock market closed deep in the red Wednesday as commodities sold off on renewed worries that a planned bailout for Greece will fail and lead to a government debt default.

A default by Greece or another country would send shock waves through the global economy, particularly in Europe, and wreak havoc on the continent’s banking sector.

The S&P/TSX composite index tumbled 235.22 points to 11,585.87 while the TSX Venture Exchange fell 67.75 points to 1,502.68.

Losses in the Canadian dollar picked up during the afternoon as the U.S. dollar strengthened, down 1.16 cents to 96.84 cents US.

New York markets lost early gains with the Dow industrials falling 179.79 points to 11,010.9. The Nasdaq composite index lost 55.25 points to 2,491.58 while the S&P 500 index shed 24.32 points to 1,151.06.

Stock markets had racked up strong advances over the past two sessions. The TSX surged over 350 points and the Dow industrials ran ahead more than 400 points after sustaining big losses in the neighbourhood of 7% last week in large part because of a lack of confidence that European leaders could deal with the eurozone’s debt crisis.

But there are also fears that the global economy is slipping back into recession, which would lower demand for oil, copper, coal, wood and many of the resources Canada produces. That would weaken exports and could squeeze profits in Corporate Canada _ eroding a main driver of rising share prices on the stock market.

The positive tone on the markets initially carried into Wednesday trading after the Finnish Parliament voted to expand the eurozone’s bailout fund’s powers.

But stocks lost early momentum after German Chancellor Angela Merkel hinted that the second Greek bailout package might have to be renegotiated.

Merkel didn’t rule out altering the terms to the euro109 billion package, saying the decision must be based on how Greece’s debt inspectors, the so-called troika, judge Athens’ recent austerity efforts.

“What ends up happening here is you hear rumours and the market is acting on rumours,” said Allan Small, senior investment adviser at Dundee Wealth.

“What I’m telling my clients at this juncture is, stay in the market since the alternatives to the market is 1.5 to 2% on a government bond or GIC. Stay defensive, there are a lot of good dividend players out there.”

Also, Jose Manuel Barroso, the president of the EU’s executive arm, on Wednesday said he supports a tax on financial trades that his office estimated could raise euro57 billion a year in Europe to help combat a debt crisis that is threatening the euro currency.

Barroso said “it is time for the financial sector to make a contribution back to society.”

“That has to pass 17 nations and I have to believe some central bankers over there aren’t going to be too happy with that,” added Small, “so we will see.”

There are also signs of divisions among leaders with reports of heavy resistance to a proposal to ask private holders of Greek debt take on bigger losses.

A report in the Financial Times claimed as many as seven of the eurozone’s 17 members want the banks to take a bigger hit on their Greek bond holdings. The newspaper said Germany and the Netherlands are at the forefront of the calls for the private sector to take a bigger hit. France and the European Central Bank are said to be fiercely resisting the move.

The base metals sector led decliners, down 6.24% as demand worries pushed the December copper contract on the Nymex down 19 cents to US$3.25 a pound, its lowest close since August, 2010. Copper is widely considered a proxy for the overall economy. Teck Resources lost $1.66 to C$30.40 while First Quantum Minerals fell $1.24 to $15.16.

The November crude oil contract was down $3.24 to US$81.21 a barrel, wiping out most of Tuesday’s surge of more than US$4. The energy sector was 3.24% lower with Suncor Energy down $1.33 to C$27.05 and Imperial Oil lost $1.45 to $36.91.

The industrials sector was also a drag as transportation giant Bombardier Inc. fell 27 cents to $3.87.

The gold sector lost about 3% as the December gold contract in New York closed down $34.40 to US$1,618.10 an ounce. Goldcorp Inc. faded $1.18 to C$45.87 while Barrick Gold Corp. gave back $1.14 to $47.42.

Financials also weighed as Royal Bank gave back 55 cents to US$47.53 while Scotiabank fell 54 cents to $52.43.

Investors also took in a report on U.S. manufacturing which came in better than economists expected.

The government said Wednesday that factory orders for durable good fell just 0.1% in August, a smaller decline than the 0.5% drop economists predicted. That reassured investors that the manufacturing industry remains healthy.

In corporate news, Yellow Media Inc. units plunged 28.5 cents or 50.44% to 28 cents after it said it will book a $2.9-billion goodwill impairment charge in third-quarter and stop paying out future dividends to its shareholders.

The telephone directory publisher said the move comes after it launched a review of its operating plans, which also included an examination of the fair value of its assets.

Montreal-based CAE has sold four Level D full-flight simulators (FFS) to customers in Southeast Asia, the Middle East, Eastern Europe and Australia. The company announced Wednesday that the contracts are worth more than $70 million, and bring the number of FFS sales during its current fiscal year to 15. Its shares slipped four cents to $10.14.