Stocks negative after Shanghai market tumbles; Canadian GDP rises in June

Enlarge Photo
(The Canadian Press)

By Malcolm Morrison, The Canadian Press

TORONTO - The Toronto stock market was sharply lower mid-afternoon Monday as investors worried that another selloff on China's main stock exchange could spell trouble for economic recovery and were unaffected by data indicating the Canadian recession may be coming to an end.

The S&P/TSX composite index fell 186.9 points to 10,791.1 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, 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 0.21 of a cent lower to 91.37 cents US.

China's main Shanghai market retreated almost seven per cent Monday, fed by concerns over a tightening in bank lending that could hurt that country's economy.

China, which has continued to grow despite the global recession, is a major consumer of exports including commodities. Chinese stockpiling this year of such goods as copper and soy have helped drive up commodities prices and take the Toronto market up more than 40 per cent from the lows of early March.

"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."

Energy stocks in particular pressured the Toronto market, down 2.75 per cent. The October crude contract on the New York Mercantile Exchange moved down $2.85 to US$69.89 a barrel as China's stock market tumbled and commodities investors questioned whether the U.S. economy can recover strongly in the second half.

EnCana Corp. (TSX: ECA.TO) declined $1.92 to $56.53 while Canadian Natural Resources (TSX: CNQ.TO) lost $2.35 to $62.11.

The TSX Venture Exchange moved 17.56 points lower to 1,171.15.

New York markets were also negative as the Dow Jones industrials moved 85.8 points lower to 9,458.3.

The Nasdaq composite index was 26.8 points lower to 2,001.97 and the S&P 500 index was down 12.2 points to 1,016.75.

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 $5.30 to US$953.50 an ounce while September copper fell 11 cents to US$2.84.

The base metals sector moved down four per cent as Teck Resources (TSX: TCK-B.TO) declined $1.25 to $26.30 and HudBay Minerals (TSX: HBM.TO) slipped 13 cents to $8.44.

The gold sector was off 1.9 per cent and Kinross Gold Corp. (TSX: ABX.TO) faded $1 to $20.54.

Industrial stocks were also a major weight, down 2.7 per cent with Canadian Pacific Railroad (TSX: CP.TO) down $2.33 to $52.37 and Bombardier Inc. (TSX: BBD-B.TO) fell 14 cents to $3.92.

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 $3.32 to US$34.77.

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 84 cents to US$26.

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 three cents to 72 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.