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2012 Canada Market Recap

Canadian stocks ended December slightly higher, tracking U.S. market, on optimism that an agreement will be reached to avoid the “fiscal cliff” and a U.S. recession will be averted. The S&P/TSX Composite closed 1.6% higher, with metals and mining leading the gainers.

Canada’s central bank was unwavering in its view that it may need to hike interest rates, not cut them, even as the country’s economy shows signs of slowing and uncertainty over the U.S. fiscal cliff shakes North American economic confidence. Bank of Canada Governor Mark Carney held the overnight lending rate at 1% since September of 2010, the longest period of bank inactivity on rates since the early 1950s. The Canadian economy grew by just 0.1% in October from September, indicating a very slow start to the fourth quarter amid foreign and domestic economic woes, Statistics Canada data said. The Bank of Canada said Q4 growth will be 2.5% annualized but the October data confirm market suspicions the real figure will be much less impressive. Meanwhile, the country’s annual inflation rate in November fell to a three-year low of 0.8% on a smaller year-over-year increase in gasoline prices and lower prices for cars. Retail sales in October jumped by 0.7% from September to a record C$39.45 billion ($39.85 billion), pushed up by higher sales at motor vehicle dealers and gas stations, Statistics Canada said. The country’s job market bounced back in November after a sluggish October. The economy added 59,300 net new jobs in the month, mostly full-time positions and in the private sector. Moreover, trade deficit shrank much more than expected for the second month in a row in October as imports fell to a 15-month low while exports increased. The deficit fell to C$169 million ($171 million) from a revised C$1.01 billion in September compared to analysts’ forecast of a C$1.20 billion shortfall.

Metals and mining sector rose for a fifth straight month, surging by 7.0%. Harry Winston Diamond posted a profit as it sold more smaller-size diamonds but cut its full-year diamond production target as it defers the reprocessing of rejects to focus on higher-value carats. The company cut its full-year production target to about 7.1 million carats from about 8 million. It posted net income of $3.4 million, or $0.04 per share, for August to October, compared with a loss of $4.7 million, or $0.06 per share, a year earlier. In deal-related news, First Quantum Minerals sweetened its unsolicited bid for Inmet Mining, valuing the smaller rival at about C$5.1 billion, and said the combined entity could potentially become one of the world’s top copper producers. As per the new proposal, First Quantum is offering up to C$2.5 billion in cash and would issue a maximum of 115.9 million shares, in a deal that values Inmet at C$72 a share, or C$5.1 billion. In other news, Sherritt International appointed Dean Chambers as its CFO, replacing Michael Robins.

Financial shares also maintained their upbeat trend, gaining 1.8%. In earnings, Bank of Nova Scotia’s quarterly profit rose 31%, driven by strong gains in wholesale and international banking. Canadian Imperial Bank of Commerce reported a 13% increase in quarterly earnings, driven by higher income from its wholesale banking and wealth management businesses. Toronto-Dominion Bank’s reported a flat quarterly profit and said it would buy Epoch Holding, which owns Epoch Investment Partners, for $668 million in cash. Bank of Montreal reported Q4 adjusted earnings of C$1.65 per share on revenue of C$4.18 billion, compared to an adjusted earnings of C$1.20 per share on revenue of C$3.82 billion, a year ago. The bank added that it will repurchase up to 15 million of its common shares. In deal news, Great-West Life’s unit Canada Life is close to a deal for state-rescued insurer Irish Life, a source familiar with the negotiations said. Sun Life Financial said it will sell its U.S. annuity business and some life insurance businesses for $1.35 billion to Delaware Life Holdings. Sun Life said the deal will reduce its risk profile and help focus its U.S. insurance operations on its growing employee benefits and voluntary benefits franchises.

The gold sector posted the biggest decline among the different sectors this period, falling 2.2%, after reaching its 4-month low. China National Gold is set to make an announcement soon on its talks over buying a stake in African Barrick Gold, an executive at the company said. The company had said earlier, that it was in talks with China Gold to sell all or part of its 74% stake, worth about $2 billion in the African miner. Centerra Gold said COO Ronald H. Colquhoun will be retiring and Gordon Reid has been appointed as his successor effective 01 January.

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