Shanghai market tumble triggers North American losses; GDP grows in June

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(The Canadian Press)

By Malcolm Morrison, The Canadian Press

TORONTO - The Toronto stock market wound down August trading on a negative note Monday despite data indicating the recession may be coming to an end as sharp declines in Chinese markets discouraged investors looking for a reason to send the rally higher.

The S&P/TSX composite index fell 138 points to 10,840 as Statistics Canada reported that gross domestic product increased by 0.1 per cent, the first time GDP has grown since July, 2008, following a 0.5 per cent dip in May.

"The upturn in June GDP, the swift snapback in housing amid rebounding consumer confidence, and a stabilizing U.S. economy all suggest that Canada's recession is indeed ending," said BMO Capital Markets deputy chief economist Doug Porter.

For the second quarter as a whole, GDP decreased 0.9 per cent which was a less pronounced rate of decline than the 1.6 per cent drop in the previous quarter.

However, all TSX were sectors were in the red since "from the investors' point of view, it's accepted the recession is over," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

"All the indicators are pointing positive, there's no doubt about it."

The Canadian dollar headed 0.65 of a cent lower to 90.93 cents US.

The energy sector in particular pressured the Toronto market, down 1.5 per cent. The October crude contract on the New York Mercantile Exchange moved down $2.89 to US$69.85 a barrel as China's stock market tumbled and commodities investors questioned whether the U.S. economy can recover strongly in the second half.

Nexen Inc. (TSX: NXY.TO) declined 69 cents to $21.75 while Canadian Natural Resources lost $1.51 to $62.95.

China's main Shanghai market retreated 6.7 per cent while Hong Kong lost 1.9 per cent, in a selloff fed by concerns over a tightening in bank lending that could hurt the country's economy. That in turn has weighed on markets around the globe this month.

"Markets around the world are taking their cue from the Shanghai market," added Nakamoto.

"(They were) the first economy that showed signs of coming down and then going up, the rest of the markets followed so it's a harbinger of what's going to happen here in the short term."

The Toronto market is coming off a gain of 147 points or 1.35 per cent last week, led by advances in the financial sector after most of the big Canadian banks delivered earnings report that beat expectations.

However, the financial sector was down almost one per cent Monday morning with CIBC (TSX: CM.TO) down $1.04 to $63.07 as investors continued to react to the bank's earnings report last week that missed expectations.

The TSX Venture Exchange moved 14.01 points lower to 1,174.7.

New York markets were also negative as the Dow Jones industrials moved 76.9 points lower to 9,467.3.

The Nasdaq composite index was 23.06 points lower to 2,005.71 and the S&P 500 index was down 10.6 points to 1,018.35.

Investors are cautious as August trading ends. They're looking for some sort of catalyst to give the stock market rally that started in March another leg.

Later in the week, key readings will be released on manufacturing and employment in August that have the ability to either sustain or upset the rally.

The most important piece of data this week is the U.S. government's monthly jobs report on Friday. Economists are expecting another 220,000 jobs were lost, down from 247,000 in July. Last month's report showed an unexpected dip in the unemployment rate and investors are anxious to see if the rate continues to fall.

Canadian employment data for August is also released on Friday. Economists expect a drop of about 20,000 jobs during the month.

Other commodity prices slid with the December bullion contract down $8 to US$950.80 an ounce while September copper fell 13 cents to US$2.82.

The base metals sector moved down 3.55 per cent as Teck Resources (TSX: TCK-B.TO) declined 83 cents to $26.72 and HudBay Minerals (TSX: HBM.TO) slipped 18 cents to $8.39.

The gold sector was off 1.5 per cent and Kinross Gold Corp. (TSX: ABX.TO) faded 76 cents to $20.78.

In corporate news, oilfield services company Baker Hughes Inc. said it will buy BJ Services Co. in a cash-and-stock deal valued at US$5.5 billion. Baker Hughes shares fell $2.79 to US$35.30.

The Walt Disney Co. says it is acquiring Marvel Entertainment Inc. for US$4 billion in cash and stock, bringing characters like Iron Man and Spider-Man into the Disney family. Disney shares were off 76 cents to US$26.08.

Brick Brewing Co. Ltd. (TSX: BRB.TO) says it is being taken to court by the world's largest beer maker, which claims the Ontario company has violated the trademarks and copyrights for Bud Light Lime. Brick says Anheuser-Busch, Inc. and Labatt Brewing Co., both subsidiaries of the world's largest beer company, are seeking an injunction from the Federal Court of Canada. Brick shares added a penny to 70 cents.

In other overseas trading, Tokyo's Nikkei 225 stock average lost 0.4 per cent after Japan's opposition party came to power in a landslide victory and amid data showing the country's factory output rose for the fifth straight month in July.

Japan's factory output rose 1.9 per cent last month from June and the country's industry ministry says the trend "continues to show an upward movement."

The July results beat a 1.6 per cent rise forecast in Kyodo news agency's survey of economists.

The London market is closed while the Frankfurt DAX and the Paris CAC 40 both lost about one per cent.