TSX steps back after big gains; C$ down, Canadian economy shrinks in August

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(The Canadian Press)

By Malcolm Morrison, The Canadian Press

TORONTO - The Toronto stock market was lower Friday morning amid data showing that the economy contracted during August. Statistics Canada reported gross domestic product shrank by 0.1 per cent, against expectations for a 0.1 per cent rise.

The S&P/TSX composite index was down 17.3 points to 11,058 after surging 270 points Thursday in the wake of news that the American economy grew at an annualized 3.5 per cent pace in the third quarter. It was the first quarterly growth since early 2008.

The disappointing Canadian showing followed a flat performance in July and Statistics Canada said it was largely due to slides in oil-and-gas extraction and manufacturing. Wholesale trade, agriculture and forestry also retreated, while the public sector, utilities, retail trade and construction were up.

However, analysts thought the news wasn't all that bad.

"The modest decline in August GDP does not defeat the point that the Canadian economy has turned the corner, and as we saw in the U.S. yesterday, Canada's recession is in the rearview mirror," said BMO Capital Markets senior economist Robert Kavcic.

"However, tempering the recovery are those sectors negatively impacted by sluggish U.S. demand and the strong Canadian dollar, and that could pose some downside risk to the Bank of Canada's two per cent growth call for the third quarter."

The loonie was down 1.01 cents to 92.71 cents US.

Lower commodity prices weighed on the Toronto market following strong gains in oil and metal prices Thursday.

The December crude contract on the New York Mercantile Exchange lost 80 cents to US$79.07 after jumping almost US$2.50 Thursday. The energy sector was down 0.6 per cent. Canadian Natural Resources (TSX: CNQ.TO) lost 89 cents to $71.55.

The gold sector lost 1.2 per cent as the December bullion contract on the Nymex lost $3.30 to US$1,043.80 an ounce.

The December copper shed three cents to US$3 a pound amid a drop of almost one per cent in the base metals sector. Teck Resources (TSX: TCK-B.TO) gained 37 cents to $32.14.

The telecom sector was the major advancer with shares in Canada's three big telecoms - Rogers, (TSX: RCI-B.TO), Bell (TSX: BCE.TO) and Telus (TSX: T.TO) - all up sharply after the CRTC ruled Thursday that Toronto-based Globalive isn't Canadian enough to compete as a new national cellphone company. The broadcast regulator said Globalive doesn't meet the Canadian ownership and control requirements to operate as a telecommunications carrier. Rogers shares gained $1.73 to $32.71, Telus shares were up 94 cents to $34.79 and BCE advanced 46 cents to $26.06.

The TSX Venture Exchange inched 0.07 of a point lower to 1,310.35.

New York indexes also backed off following Thursday's strong gains.

Investors were relieved by the report showing the U.S. economy grew but much of that growth was fuelled by government stimulus programs. With those programs winding down, investors worry that the economy might not be able to sustain such rapid improvement after the economy shrank for four straight quarters.

The Dow Jones industrial average lost 40 points to 9,922.5 after running up 200 points on Thursday.

The Nasdaq composite index dipped 5.48 points to 2,092.07 while the S&P 500 index dropped 6.25 points to 1,059.85.

In U.S. economic news Friday morning, the Commerce Department said U.S. consumer spending dropped 0.5 per cent in September, which matched economists' expectations. Personal incomes were unchanged as workers contend with rising unemployment and a squeeze on wages.

Canadian investors have plenty of fresh earnings reports to consider.

Imperial Oil Ltd. (TSX: IMO.TO) reported after Thursday's market close that quarterly profits fell 61 per cent from a year ago, when oil and natural gas prices were much higher. The energy producer and oil refiner earned $547 million, versus nearly $1.4 billion booked a year earlier.

That worked out to a profit of 64 cents per share, compared with $1.57 in 2008. Analysts polled by Thomson Reuters were on average expecting earnings per share of 58 cents.

Operating revenues were $5.55 billion, down from $9.5 billion.

IGM Financial Inc. (TSX: IGM.TO) reported third-quarter profit dropped to $167.4 million from $198.7 million a year ago as revenues slipped. IGM Financial, a member of the Power Financial group of companies, operates under the Investors Group, Mackenzie Financial and Investment Planning Counsel banners. Its shares were off five cents to $39.14.

Eldorado Gold Corp. (TSX: ELD.TO) reported a third-quarter profit of US$30.2 million, up from a year ago, as the company increased gold sales. The Vancouver-based gold miner earned US$30.2 million for the quarter compared with a profit of $17 million a year ago. Revenue totalled $82.6 million, up from $68.2 million and its shares faded 14 cents to $12.06.

Tim Hortons Inc. (TSX: THI.TO) shares gained 25 cents to $32.04 as it said Friday its revenue increased to $563.6 million in the third quarter, up 10.7 per cent from just under $509 million in the comparable quarter of 2008. Despite the sales growth, net income fell to $61.2 million or 34 cents per share in the quarter, down 22.3 per cent from a year ago. Tim Hortons said the lower profit was due to $23.1 million in costs associated with reorganizing the company into a Canadian legal entity.

In other corporate news, Husky Energy Inc. (TSX: HSE.TO) says it has completed and tested two promising exploratory wells to evaluate the shale gas potential in the Montney and Doig formations in northeastern British Columbia. Huskey said late Thursday the drilling results were "very encouraging." Its shares drifted four cents higher to $28.50.

Domtar Corp. (TSX: UFS.TO) quarterly net income rose to US$183 million or $4.24 per share the third quarter, as a Canadian tax credit bolstered the paper producer's profit. A year ago, net income was US$43 million . Quarterly revenues total US$1.5 billion from US$1.6 billion a year ago and its shares were up $2.91 to $45.

Overseas, Asian stock markets snapped three days of losses following the U.S. GDP report, spurring hopes of improved demand for the region's exports.

Major benchmarks from Tokyo to Sydney gained 1.5 per cent while a few markets failed to hold their gains and ended slightly down.

Hong Kong's Hang Seng jumped 2.3 per cent while Japan's Nikkei 225 stock average gained 1.5 per cent.

London's FTSE 100 index was off 0.11 per cent, Frankfurt's DAX dipped 0.99 per cent and the Paris CAC 40 was down 0.73 per cent.