BUSINESS
10/21/2011 08:43 EDT | Updated 12/21/2011 05:12 EST

TSX to open higher amid rising commodities, hopes for debt crisis resolution

TORONTO - The Toronto stock market closed higher Friday as commodity prices ran ahead strongly amid hopes that Europe will come up with a comprehensive plan to deal with its crippling debt crisis, albeit a few days later than planned.

The S&P/TSX composite index was off highs of the session but still up 119.16 points at 11,949.49 while the TSX Venture Exchange rose 20.12 points to 1,532.91.

Higher prices for oil and metals also helped push the Canadian dollar up 0.62 of a cent to 99.14 cents US.

Strong corporate earnings from the likes of McDonald's sent U.S. markets sharply higher as the Dow Jones industrial index surged 267.01 points to 11,808.79. The Nasdaq composite index closed up 38.84 points at 2,637.46 and the S&P 500 index was 22.86 points higher at 1,238.25.

Traders are now looking to the middle of next week for an agreement that would deal comprehensively with the debt crisis, which threatens the region’s banks and a fragile global economic recovery.

Germany and France announced Thursday afternoon that in addition to Sunday’s summit of eurozone leaders, a second meeting will be held by Wednesday at the latest.

Europe’s two biggest economies are at loggerheads over how to make best use of the bailout fund, the so-called European Financial Stability Facility, or EFSF. While France is proposing to turn it into a bank, which would have access to unlimited credit from the European Central Bank, Germany appears reluctant to sanction such a move.

However, on Friday, German Chancellor Angela Merkel said both countries agree on the main points of a plan to deal with the debt crisis.

"I don’t know if they get how grave the situation is if they don’t do anything," commented Chris Kuflik, wealth adviser at ScotiaMcLeod in Montreal, adding that he thinks markets would be trending higher if it wasn't for the debt crisis.

Recent economic data and corporate earnings indicate the U.S. isn't about to slip into recession.

"If you see banks start to go under, it has the possibility of sparking 2008-type repercussions because all the banking industry institutions are connected around the world."

There were also reports that Europe is considering having €940 billion available to countries that need help.

Meanwhile, eurozone finance ministers said Friday that Greece will get its next batch of aid money amounting to €8 billion, likely by mid-November, saving the country from a potentially disastrous default. The ministers also said that they were working on another rescue package for the debt-ridden country, which would include new aid money and contributions from the private sector.

They did not give details on the new package.

The willingness to take on extra risk pushed commodity prices sharply higher, with the December crude contract on the New York Mercantile Exchange ahead $1.33 at US$87.40 a barrel. The TSX energy sector rose 1.6 per cent as Suncor Energy (TSX:SU) rose 37 cents to C$30.27 and Canadian Natural Resources (TSX:CNQ) moved up $1.23 to $33.66.

The base metals sector rose 2.88 per cent as copper prices recovered somewhat with the December contract ahead 17 cents to US$3.22 a pound after tumbling 20 cents on Thursday. First Quantum Minerals (TSX:FM) was up 94 cents to C$15.99 and Teck Resources (TSX:TCK.B) was ahead 64 cents at $34.80.

Railway stocks rose alongside mining stocks with Canadian National Railways (TSX:CNR) ahead $1.16 at $75.04.

The gold sector was ahead as the December gold contract jumped $23.20 to US$1,636.10 an ounce. Kinross Gold Corp. (TSX:K) rose six cents to C$13.83.

Gains were broad based, with the financial sector ahead 0.85 per cent as TD Bank (TSX:TD) improved by 78 cents to $74.50.

The Toronto market finished the week down 132 points or 1.09 per cent amid wild intraday volatility that has seen the main index move hundreds of points in either direction, responding to news reports and rumours about what action the eurozone might take to deal with the debt crisis.

On the economic front, Statistics Canada said the country’s annual inflation rate edged up a notch to 3.2 per cent last month. On a month-to-month basis, consumer prices rose two-tenths of a percentage point between August and September. The major drivers of inflation remain gasoline and food. They were up 22.7 per cent and 4.3 per cent respectively from a year ago.

In earnings news, General Electric Co. said its third-quarter profit rose 18 per cent to US$2.34 billion as its lending business continues to rebound. Excluding a large dividend payout to Warren Buffett’s Berkshire Hathaway, GE’s profit came in at 31 cents per share, which met expectations. Revenue was flat at $35.4 billion but still beat expectations but its shares were down almost two per cent to US$16.31 in New York.

Fast-food giant McDonald’s Corp. rose 3.75 per cent to US$92.34 after reporting a nine per cent increase in income. The results beat analysts’ expectations and marked McDonald's ninth straight quarter of gains.

Precision Drilling Corp. (TSX:PD) shares declined 62 cents to $10.98 as it reported quarterly profit of $83 million or 29 cents per diluted share, up from $56 million a year ago. Revenues rose 37 per cent to nearly $493 million from $359.1 million. Analysts polled by Thomson Reuters were, on average, expecting Precision to report earnings of 21 cents per share and revenues of $511 million.

Shares in electronics manufacturer Celestica Inc. (TSX:CLS) added 10 cents to $8 after the company said it expects revenue to fall about three per cent in its fourth quarter as many customers slash orders amid economic uncertainty. The comment from CEO Craig Muhlhauser came as Celestica reported Thursday that third- quarter revenue was up 18 per cent from a year ago to $1.83 billion. Net earnings came in at US$50.2 million, compared with a profit of $21.3 million a year ago.

Elsewhere, Air Canada (TSX:AC.B) and the union representing its flight attendants have agreed to binding arbitration to settle their contract dispute. Hearings are to begin Oct. 28 and a binding arbitration award is to be made by Nov. 7. The labour board will appoint an arbitrator if the two sides can’t agree on one and the carrier's shares were unchanged at $1.37.