Canada Stocks Decline, Erasing Gains With Oil as Draghi Fizzles

  • Draghi stimulus overshadowed by comments ECB done for now
  • Financials, energy producers pace declines; gold advances

Canadian stocks fell, reversing a brief advance as gains in global markets evaporated amid the European Central Bank’s expanded stimulus efforts to combat deflation and an uncertain economic recovery in the region.

The Standard & Poor’s/TSX Composite Index fell 0.1 percent to 13,379.14 at 4 p.m. in Toronto, after rising as much as 0.9 percent. The resurgent S&P/TSX remains one of the best-performing developed markets in the world this year, vying with New Zealand for the top spot as the only two nations higher in 2016 while posting returns ahead of the U.S., Germany and U.K.

Global stocks swung between gains and losses as ECB President Mario Draghi unleashed his most audacious stimulus package yet, before whipsawing the euro after saying in comments the central bank is done with lowering borrowing costs for now. Gold futures rallied as the dollar fell against a basket of 10 other currencies after Draghi’s comments.

The ECB’s package includes testing the lower bounds of all the ECB’s interest rates, expanding monthly bond purchases by a third and signaling it may pay lenders to borrow its cash. The moves exceeded market expectations and underscore continued global uncertainty over the pace of a European economic recovery and the risks of a Chinese slowdown.

Canada’s benchmark equity gauge has benefited from the nascent rebound in commodities prices, from crude to copper and precious metals. The index has clawed back gains rapidly after entering a bear market in January. A slide in 2015 resulted in the worst annual performance since the financial crisis.

Shares in the Canadian gauge now trade at about 21 times earnings, roughly 18 percent more expensive than the valuation of the benchmark U.S. equity index, the Standard & Poor’s 500 Index, data compiled by Bloomberg show. 

Canada’s largest lenders slipped, halting a five-day rally. Toronto-Dominion Bank and Bank of Nova Scotia lost at least 0.4 percent as the S&P/TSX Banks Index snapped its longest winning streak since November. The group had climbed 4.4 percent during its run, after the largest lenders reported first-quarter results over the past two weeks.

Penn West Petroleum Ltd. sank 13 percent, the most in two months, after the company said it was exploring options on default risk as it doesn’t see compliance with existing covenants by the end of the second quarter. Oil slipped from a three-month high amid uncertainty about when a meeting between Saudi Arabia, Russia and other producers to freeze output will occur as Iran seeks to rebuild its exports.

TransCanada Corp. lost 3.2 percent to a five-week low amid reports the company has held talks with Columbia Pipeline Group Inc. about a potential takeover, according to people familiar with the matter. Talks are at a standstill and the deal is less likely to happen at the moment, the people said.

Empire Co. plunged 15 percent, the biggest loss for the stock since at least 1988, after the owner of the Sobeys and Safeway brands in Canada reported sales and profit short of analyst expectations. Empire took a writedown of about C$1.7 billion on goodwill and long-lived assets in its West business unit, primarily due to challenges facing its Safeway brand, the company said.

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