John Woods
The Canadian dollar fell sharply Tuesday even as the Bank of Canada raised its key interest rate by a quarter point to 0.5 per cent, while worries about Europe and a report showing Chinese manufacturing slowed in May pushed the Toronto stock market lower.
The loonie was down nine-tenths of a cent to 94.93 cents (U.S.) as the central bank also said that economic conditions around the world are uneven and acknowledged there's "the possibility of renewed weakness in Europe."
The bank added that "the required rebalancing of global growth has not yet materialized."
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The loonie was under selling pressure as fresh concerns about the health of Europe's economic recovery pushed investors to the safe haven of the U.S. dollar. But it also moved lower as traders take the point of view that it is highly uncertain what the central bank will do about raising rates in the future.
"The Bank of Canada now is keeping its policy options fairly open," said Sal Guatieri, senior economist at BMO Nesbitt Burns.
"It certainly won't be on autopilot in raising interest rates over the next few months."
On the Toronto stock market, the S&P/TSX composite index fell 110.1 points to 11,652.9 while the TSX Venture Exchange was down 10.17 points to 1,503.91.
One of the few bright spots was Scotiabank, which turned in a record profit of nearly $1.1 billion or $1.02 a share, which beat analyst estimates for about 93 cents per share. Earnings were up sharply from $225 million a year ago. The bank's provision for credit losses was reduced to $338 million, down $151 million from the same time last year. Its shares rose 63 cents to $48.88.
Worries about Chinese growth were in focus after surveys showed that growth in the country's manufacturing sector had slowed. The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index fell to 53.9 in May from 55.7 in April and 55.1 in March due to lacklustre demand both at home and abroad.
Strong Chinese growth has helped lead the global economy out of recession and has been particularly beneficial to the resource heavy Toronto stock market because of heavy demand for oil and metals.
The base metals segment was the leading decliner, down 2.75 per cent as economic worries and the higher U.S. currency pushed July copper in New York 4 cents lower to $3.06 a pound. Teck Resources fell $1 to $35.54 (Canadian) while First Quantum Minerals fell $2.21 to $54.19.
The energy sector fell 1.75 per cent as the July crude contract on the New York Mercantile Exchange down 55 cents to $73.42 (U.S.) a barrel. Suncor Inc. lost 40 cents to $32.10 (Canadian) while Canadian Natural Resources dropped 92 cents to $36.33.
The TSX global gold sector was the only positive group, up 1.36 per cent as investors seeking safe havens pushed the August bullion contract on the Nymex up $12 to $1,227 an ounce. Barrick Gold Corp. improved by 92 cents to $45.07.
The financial sector was also a drag on the TSX with Royal Bank down 83 cents to $54.29 and CIBC shed $1.03 to $70.73. Both banks delivered earnings reports late last week which missed analyst forecasts.
New York markets also stepped back as traders got back to work following the Memorial Day holiday.
The greenback strengthened as the euro fell to a new four-year low of $1.2112 before rising to $1.2196. The euro has been seen as an indication for confidence in whether countries like Greece, Spain and Portugal will be able to cut spending to contain mounting debt without stalling a recovery.
The Dow Jones industrial average fell 52.4 points to 10,084.3.
The Nasdaq composite index moved down 11.68 points to 2,245.36 while the S&P 500 index lost 7.1 points to 1,082.3.
Earlier in Asia, Japan's Nikkei 225 stock average fell 0.6 per cent, and Australia's S&P/ASX 200 dropped 0.4 per cent. Hong Kong's Hang Seng retreated 1.4 per cent. The signs of slowing in the manufacturing sector helped drag China shares lower, with the benchmark Shanghai Composite Index falling 0.9 per cent.
London's FTSE 100 index fell 2.04 per cent with shares in BP PLC plunging 13 per cent to 429.2 pence (US$6.20) on the London Stock Exchange. Because of a bank holiday, Tuesday was the first day of London trading after the oil company's failed attempt over the weekend to block the oil leak in the Gulf of Mexico.
BP said that costs for the spill have reached $990-million.