The Toronto stock market was lower Friday morning as U.S. Federal Reserve chairwoman Janet Yellen offered no signal that she's altered her view that the economy still needs Fed support from interest rates that have been near zero since the financial crisis.
The S&P/TSX composite index dropped 34.09 points to 15,522 as the market failed to find support from the financial sector after Royal Bank posted a record $2.38-billion profit in its third quarter, up four per cent from a year earlier.
Canada's largest bank said the profit amounted to $1.59 per share under standard reporting and $1.64 per share on an adjusted basis. Analysts had generally estimated Royal would have $1.54 per share of net income and $1.56 per share on an adjusted basis. Royal Bank also increased its quarterly dividend by four cents to 75 cents a share. Its shares were down $1.01 to $80.65 but earlier hit an all-time high of $82.15. Its stock has surged more than 13 per cent this year.
Other major Canadian banks report next week and "it's set up for them pretty well to make some money," said Gareth Watson, vice-president investment management and research at Richardson GMP.
"I think it's been a similar theme for the past few quarters, in which we've had decent equity and bond markets, (so) you should have good capital markets, decent wealth management performance."
The Canadian dollar was down 0.08 of a cent to 91.29 cents (U.S.) as the consumer price index declined 0.2 per cent month-month in July and retail sales for June jumped 1.1 per cent.
New York's Dow Jones industrials fell 25.88 points to 17,013.61, the Nasdaq rose 1.28 points to 4,533.38 while the S&P 500 index edged 4.18 points lower at 1,988.19.
The central bank chief also said at the Fed's annual conference in Jackson Hole, Wyo., said that the Great Recession complicated the Fed's ability to assess the U.S. job market and made it harder to determine when to adjust interest rates. She noted that while the unemployment rate has steadily declined, other gauges of the job market are harder to assess and may reflect continued weakness.
The Fed has been generally expected to raise rates mid-2015 but there are concerns the Fed may move even earlier.
Yellen reminded her audience that rate hikes could come sooner than expected if progress in the labour market continued to be more rapid than anticipated or if inflation moves up more rapidly.
CIBC World Markets chief economist Avery Shenfeld said Yellen's speech contained a "'on the one hand, on the other hand' conclusion . . . on rate hike timing, in that it will come earlier or later depending on whether economic conditions beat or lag behind expectations."
Rising rates are seen as a drag for the stock markets since some investors would choose to invest their money in securities with a guaranteed return, like bonds.
The TSX energy sector was also a weight down 0.45 per cent while October crude was down 75 cents to $93.21 (U.S.) a barrel.
The base metals component lost 0.33 per cent as September copper rose three cents to $3.21 a pound.
The gold sector was flat as growing tensions between Ukraine and Russia sent the December bullion contract in New York ahead $4.20 to $1,279.60 an ounce.