BUSINESS

TSX rises amid solid bank earnings, tech sector deal, jobs data disappointment

05/31/2012 08:28 EDT | Updated 07/31/2012 05:12 EDT
TORONTO - The Toronto stock market erased an early loss to register a solid gain as traders balanced strong earnings reports from two of Canada's big banks and major acquisition news from Canada's tech sector with disappointing U.S. economic data.

The S&P/TSX composite index rose 78.58 points to 11,511.8 while the TSX Venture Exchange inched up 0.3 of a point to 1,289.73.

The tepid performance caps a month most traders are happy to see come to an end as worries about the eurozone, worsening economic conditions in the region and slower Chinese economic growth have resulted in sharp losses. The TSX is down 6.65 per cent for the month, weighed particularly by the resource sector as commodity prices have sunk to multi-month lows.

"The resource sector is awful," said Fred Ketchen, manager of equity trading at Scotia Capital, noting that the base metals sector has plunged 21 per cent this year. Copper plunged 12.4 per cent this month alone.

"Like the rest of the world, China has slowed down . . . and that doesn’t enthuse anybody because here we were led to believe earlier in the year that China was the area that was going to save the world because of all this demand."

Markets could find some lift Friday after the Chinese government reports its most recent purchasing managers index.

Canada’s largest IT services company, Montreal-based CGI Group (TSX:GIB.A), plans to more than double the size of its global workforce and total revenue through a friendly, $3.1-billion deal to acquire U.K. firm Logica PLC. CGI shares surged $2.94 or 13.99 per cent to $23.95.

Another sharp drop in commodity prices and weak American data sent the Canadian dollar down 0.35 of a cent to 96.81 cents US, its lowest close in 2012.

U.S. markets were in the red after payroll processing firm ADP said the U.S. private sector created just 133,000 jobs this month, less than the 150,000 that economists had expected.

Meanwhile, economists have been expecting that the U.S. government's non-farm payrolls report being released Friday will show the American economy cranked out about 140,000 jobs.

And the number of Americans filing for jobless insurance last week came in higher than expected — 383,000 versus the 370,000 anticipated.

U.S. economic growth was revised lower for the first quarter to 1.9 per cent from 2.2 per cent.

And just after the open, other data showed a deterioration in a widely watched index measuring the health of the manufacturing sector in the U.S. Midwest. The Chicago Purchasing Managers Index came in at 52.7, still showing expansion but down sharply from the April showing of 56.2.

The Dow industrials lost 26.41 points to 12,393.45, the Nasdaq composite index fell 10.02 points to 2,827.34 and the S&P 500 index was down 2.99 points at 1,310.33.

"You put all that stuff which is showing no growth basically in the U.S. and then you have all the worries, either real or imagined in Europe, and everything keeps playing against you here," added Ketchen.

"And until we get over this, I guess we’re going to have to put up with it."

The TSX financial sector was up 1.54 per cent after CIBC (TSX:CM) said it earned $811 million of net income in the second quarter, up from $767 million in the comparable period last year. That amounted to $1.90 per diluted share of net income, or $2 per share on an adjusted basis, 12 cents higher than analyst expectations. CIBC’s total revenue was just under $3.1 billion and its shares rose $1.74 to $72.07.

National Bank of Canada (TSX:NA) shares added 52 cents to $73.66 as it reported a $553-million profit in the second quarter, up 69 per cent from the same time last year. The bank also announced it was increasing its quarterly dividend to common shareholders by five per cent to 79 cents per share. Excluding special items, National Bank had $347 million of net income in the three months ended April 30, up six per cent from a year earlier.

The resource sector was a drag on the TSX as commodity prices continued to slide and the base metals sector fell 0.37 per cent with copper extending Wednesday's seven-cent drop, down two cents at US$3.37 a pound. Teck Resources (TSX:TCK.B) fell 35 cents to C$30.94 and Ivanhoe Mines (TSX:IVN) lost 31 cents to $9.75.

The energy sector was flat with the July crude contract on the New York Mercantile Exchange down $1.29 to US$86.53 for a loss of 17 per cent on the month amid worries about the future of the eurozone and the health of the region's banking sector.

The gold sector was also negative as bullion dipped 20 cents to US$1,564 an ounce. Goldcorp Inc. (TSX:G) faded 19 cents to $37.70.

Concerns about Europe have lately been focusing on Spain’s banking system, especially after Bankia, the country’s fourth-largest lender, last week announced it needed €19 billion in state aid.

Investors are worried that Bankia’s woes might be replicated across Spain’s banking sector, which has suffered badly from the collapse of the construction sector. An economic recession has fuelled concern that the country will become the fourth euro country to be bailed out.

Nervous traders have sent the yield on Spain’s 10-year bond to around the 6.5 per cent mark and not far from the seven per cent threshold that is considered to be unsustainable in the long-run.

But Greece remains at the centre of worry about the future of the eurozone, particularly after inconclusive elections May 6 saw increased support for parties dead set against the austerity measures that have allowed the country to keep afloat on massive international bailouts. Uncertainty over Greece will rattle markets at least until the next Greek election June 17.