Financials lead TSX lower; N.Y. negative on deteriorating consumer sentiment

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(The Canadian Press)

By Malcolm Morrison, The Canadian Press

TORONTO - The Toronto stock market turned lower mid-morning Tuesday as financial stocks lost ground while investors took in news that the economy was still shrinking during April - but at a slower pace than the previous month.

The S&P/TSX composite index was down 138.6 points to 10,338.2 on the last day of second quarter trading, led by a 1.7 per cent drop in the financial sector.

Volumes were lower than normal a day before the TSX closes for the Canada Day holiday.

Statistics Canada said real gross domestic product fell in April by 0.1 per cent. GDP shrank by 0.3 per cent the previous month.

"The mild drop in April GDP reinforces the point that the worst of the declines for the economy are behind, but we have yet to reach the turning point," said BMO Capital Markets deputy chief economist Doug Porter.

"We look for another drop in May output, and possibly for June as well before the economy begins to grind out some modest growth in July."

The main index is coming off a five-session string of advances, the latest positive showing in the April-June period that has seen the TSX jump 20 per cent.

The Dow Jones industrial average is ahead about 12 per cent and the S&P 500 16 per cent.

"It's been a good quarter overall," said Janet Engels, director of private client research at RBC Wealth Management.

"I think everyone is just going to be looking to end the quarter and lock in some gains."

Analysts say the quarter saw a continuation of the big change in sentiment that took root in early March. Investors stopped pricing in a depression-like scenario and instead concentrated on so-called green shoots - data that indicated economies were close to getting out of recession and possibly into a recovery by the end of the year.

But they also say investors are no longer content to settle for news that is merely "less bad" and are nervous that the economy's rebound won't be as robust as envisaged. This fear has recently put a dent in the market's advance that started March 10 and at one point had sent indexes in Toronto and New York up around 35 per cent.

The Canadian dollar dropped 0.38 of a cent to 86.07 cents US.

The TSX Venture Exchange slid 4.46 points to 1,101.1.

New York markets turned negative as data showed that consumer confidence unexpectedly fell in June.

The Dow Jones industrial average stepped back 64.7 points to 8,464.7.

The Nasdaq composite index lost 10.68 points to 1,833.38 while the S&P 500 declined 7.95 points to 919.3 as the Conference Board said its Consumer Confidence Index stood at 49.3 for June, down from its revised May level of 54.8. The reading was much worse than the 55 reading that economists had expected.

The confidence index has two parts. The Present Situation Index, which measures how shoppers feel now about the economy, declined to 24.8 from 29.7. The Expectations Index, shoppers' outlook for the next six months, declined to 65.5 from 71.5 in May.

There was also some positive news from the U.S. housing sector indicating that home price declines are moderating.

The Standard&Poor's/Case-Shiller index showed home prices in 20 major cities tumbled by 18.1 per cent from April 2008.

April, however, marked the third straight month both indexes didn't set record price declines. And yearly losses in 13 metros improved compared to March.

Investors will also take in a key report on the manufacturing sector Wednesday, while Thursday brings the much anticipated monthly jobs report.

The TSX energy sector edged up a slight 0.35 per cent Tuesday as the August crude contract on the New York Mercantile Exchange lost 33 cents to US$71.16 a barrel. But hopes for higher demand have driven the price of oil up 40 per cent in the second quarter while the energy sector has moved up more than 22 per cent.

The TSX base metals sector, up 73 per cent during the quarter, lost early headway to move down 0.45 per cent on Tuesday. Ivanhoe Mines (TSX: IVN.TO) advanced 15 cents to $6.51.

Teck Resources (TSX: TCK-B.TO), the best performing stock on the TSX during the quarter, was off three cents to $18.55. Teck stock has surged 163 per cent since March 31.

The August bullion contract in New York was down $9.90 to US$930.80 an ounce, sending the gold sector down 1.55 per cent. Barrick Gold Corp. (TSX: ABX.TO) faded 98 cents to $39.39.

U.S. markets are closed Friday in observance of the Independence Day holiday.

In overseas trading, Japan's Nikkei 225 rose 174.97 points, or 1.8 per cent, to 9,958.44, while Hong Kong's Hang Seng reversed early gains to close down 149.78, or 0.8 per cent, at 18,378.73

London's FTSE 100 and Frankfurt's DAX were off 0.36 per cent while the Paris CAC 40 was down 1.5 per cent.