TSX tumbles: economic pessimism grows in wake of falling U.S. home sales

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(The Canadian Press)

By Malcolm Morrison, The Canadian Press

TORONTO - Losses picked up on the Toronto stock market Wednesday morning as hopes for recovery of the American housing sector suffered a setback, further raising doubts about the strength of the U.S. economy.

The S&P/TSX composite index tumbled 204.6 points to 10,849 after a surprising drop in American consumer confidence during October helped send the main index down 181 points Tuesday.

Sales of new homes in the U.S. dropped unexpectedly last month, falling 3.6 per cent to a seasonally adjusted annual rate of 402,000 from a downwardly revised 417,000 in August. Economists had expected a rise of 2.6 per cent.

The median sales price of US$204,800 was off 9.1 per cent from a year earlier, but up 2.5 per cent from August.

The TSX was already down about four per cent over the last three sessions before this latest slide. Analysts also pointed out that a round of profit taking wasn't surprising considering the TSX had gained about 50 per cent since the lows of March with hardly a break.

But that gain was based on hopes for a strong economic rebound being place by late this year and recent economic data, including the drop in U.S. consumer confidence, have shaken those hopes.

"I'm expecting that the recovery won't be as robust as everybody thinks it is," said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.

"If I step back and ask what should I be expecting in the next six months to a year, I think you have to say to yourself, maybe this little puppy is not as robust as we thought it would be. We might trend down from the highs that we have had recently."

The Canadian dollar was down 0.68 of a cent to 93.12 cents US.

All TSX sectors were negative with the energy group down 2.46 per cent as the December crude contract on the New York Mercantile Exchange dropped $1.70 to US$77.85 a barrel despite data from the American Petroleum Institute showing a decline of 3.5 million barrels in crude inventories last week. EnCana Corp. (TSX: ECA.TO) declined $1.55 to C$60.68 on the TSX.

Nexen Inc. (TSX: NXY.TO) reported that its profit in the third quarter fell to $122 million or 23 cents a share, down 86 per cent from the same time last year, beating analyst estimates by a penny a share. Nexen's revenue was cut in half to $1.1 billion from $2.2 billion and its shares were down 45 cents to $23.54.

Mining stocks were also under pressure as the December copper contract on the New York Mercantile Exchange backed off five cents to US$2.95 a pound and the base metals sector lost 6.6 per cent. Teck Resources (TSX: TCK-B.TO) dropped $2.52 to $30.54.

Sherritt International Corp. (TSX: S.TO) reported that net income fell to $55.9 million or 19 cents per share in the third quarter, down from $133.1 million or 45 cents per share a year earlier because of lower commodity prices, "largely due to the impact of relatively weakened global industrial demand on the base metals market."

Revenue fell 18.5 per cent to $389.6 million and its shares stepped back 67 cents to $6.58.

The gold sector was down almost two per cent as December bullion on the Nymex lost $2.80 to US$1,032.60 an ounce. Barrick Gold Corp. (TSX: ABX.TO) faded 91 cents to $37.47.

Groups outside the commodity sectors were also down sharply.

The financials sector lost 1.34 per cent with Manulife Financial (TSX: MFC.TO) down 68 cents to $20.08 while the tech sector declined two per cent and Research In Motion Ltd. (TSX: RIM.TO) moved down $1.63 to $66.07.

The TSX Venture Exchange eased 26.98 points to 1,279.48.

Economic data also depressed New York markets and the Dow Jones industrial average was off 35.9 points to 9,846.3.

The Nasdaq composite index gave back 32.22 points to 2,083.87 while the S&P 500 index was down 10.3 points to 1,053.1.

In other Canadian earnings news, Maple Leaf Foods Inc. (TSX: MFI.TO) shares ran up 44 cents to $10.90 as the company said quarterly net income came in at $22.5 million or 17 cents a share, compared to a net loss of $12.9 million or 10 cents a share a year ago. Last year's third-quarter had felt the brunt of a listeria-induced recall at a Maple Leaf plant in Toronto.

Quarterly revenues for the company dipped to $1.29 million from $1.34 million last year.

Methanex Corp. (TSX: MX.TO) fell to a third-quarter loss of $831,000 or a penny per share as revenue fell due to lower methanol prices. Analysts were expecting a loss of four cents a share and its shares were down 48 cents to $18.51.

In the U.S., ConocoPhillips said Wednesday that low natural gas prices and thin margins from its gasoline refining business drove profits down 71 per cent in the third quarter, but the oil company is ramping up production as crude prices jump.

The third-largest U.S. oil company made $1.5 billion, or $1 per share, for the quarter while revenue totalled $41.3 billion, down from $71.4 billion in the year ago quarter.

Major Asian markets fell as signs American consumers were struggling undermined hopes for a stronger turnaround in the world's largest economy.

In Japan, the benchmark Nikkei 225 index lost 1.4 per cent while Hong Kong's main index retreated 1.8 per cent.

London's FTSE 100 index lost 2.32 per cent, and Frankfurt's DAX fell 2.27 per cent and the Paris CAC 40 declined 2.1 per cent.