Canadian Stocks Fall as Fed Says It May Moderate Stimulus Pace
Canadian stocks fell the most in a week, ending two days of gains, after the U.S. Federal Reserve said it may reduce the pace of bond purchases later this year as economic risks subside.
Eight out 10 industry groups in the Standard & Poor’s/TSX Composite Index (SPTSX) retreated as telephone, utility and raw-material companies plunged at least 1.5 percent. BlackBerry dropped 3.7 percent after Sanford C. Bernstein Ltd. cut the stock’s rating, citing a “weak” take-up of its BlackBerry 10 smartphones. Premier Gold Mines Ltd. and Barrick Gold Corp. fell at least 3.6 percent.
The S&P/TSX lost 99.17 points, or 0.8 percent, to 12,268.29 at 4 p.m. in Toronto. The gauge had rallied 1.5 percent in the previous two sessions. Trading was 11 percent higher than the 30-day average.
“The expectation was the Fed’s statement would be more dovish in terms of when tapering will start,” said Brian Huen, managing partner with Red Sky Capital Management Ltd. in Toronto. He helps manage C$220 million ($213 million). “Unfortunately it came off hawkish and the sell-off came. We had a pretty nice rally into today, and taking money off the table after that statement is not unexpected.”
The Fed may “moderate” its pace of bond purchases later this year and may end them around mid-2014, Chairman Ben S. Bernanke said. The Federal Open Market Committee said at the conclusion of a two-day meeting in Washington that risks to the outlook for the economy and the labor market have “diminished since the fall.”
The U.S. central bank said it will keep buying bonds at a pace of $85 billion a month, and repeated that it’s prepared to increase or reduce the pace of purchases depending on the outlook for the job market and inflation.
Canadian equities fell earlier in the day as Bank of Canada Governor Stephen Poloz said in his first public speech since taking office June 3 that a pick-up in foreign demand for Canada’s exports, particularly in the U.S., is critical to bolstering confidence. The U.S. and China are Canada’s largest trading partners.
The S&P/TSX reached a five-month low in April as concern over global growth dragged down mining stocks. The index has since climbed 2.7 percent, but remains the third-worst performer among 24 developed markets in 2013.
Utilities stocks lost the most in the benchmark index today, declining 2.3 percent, the biggest one-day slide since November. Raw-materials producers fell 1.7 percent, with declines accelerating after the Fed announcement, as the price of gold dropped to a four-week low.
The S&P/TSX Gold Index slid 2.8 percent to its lowest in a month, as 26 of 29 members slumped. Premier Gold plunged 7.2 percent to C$2.05, extending its four-day drop to 18 percent. Barrick Gold, the world’s largest producer of the precious metal, slid 3.6 percent to C$18.55.
“Inflation remains at a low pace and the easing may end, so there are no real solid reasons to back gold,” Edward Lashinski, the Chicago-based director of global strategy for futures trading at RBC Capital Markets LLC, said in a telephone interview. The Fed’s plan to scale back asset purchases “is making gold investors nervous,” he said.
Mobile-phone service providers fell, pacing declines among telephone stocks. Verizon Communications Inc. said it has expressed interest in acquiring wireless carrier Wind Mobile, a move that would let the leading U.S. mobile-phone service expand into Canada.
Rogers Communications Inc. slipped 1.4 percent to C$46.25 while Telus Corp. declined 3.1 percent to C$34.35.
BlackBerry, formerly known as Research In Motion Ltd., declined 3.6 percent today to C$14.58. The maker of smartphones was cut to underperform, an equivalent of sell, from market perform by Bernstein analyst Pierre Ferragu. Initial enthusiasm over BlackBerry 10 models appears to be waning and the company may disappoint investors in the second half, Ferragu said in a note to clients.
BlackBerry rallied 4 percent yesterday after an analyst with RBC Capital Markets increased his shipment estimates for the new phones.
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