Stocks tepid, fiscal cliff worries overshadow hopes for further Chinese stimulus

TORONTO – The Toronto stock market was little changed late morning Wednesday amid major acquisition activity in the real estate sector and significant cost-cutting moves from Canadian Pacific Railway.

The S&P/TSX composite index edged 11.1 points higher to 12,148.28. The index was off the best levels of the session as traders continued to look for progress on a deal to avert the so-called U.S. “fiscal cliff” of automatic spending cuts and tax increases at the start of the new year. Without a deal, the U.S. could well fall back into recession and push much of the world down with it.

“That’s what markets are focused on, will the U.S. careen off the fiscal cliff or not?” said John Stephenson, portfolio manager at First Asset Funds Inc. He observed that the laser-like focus on the cliff issue has resulted in markets, “whether they be oil markets, gas markets, bond markets, equity markets, moving together instead of moving by their fundamentals.”

“(The cliff) is the main story right now and everything else is secondary.”

The TSX Venture Exchange was down 8.76 points to 1,184.1.

A group led by KingSett Capital is proposing a $4.4-billion takeover of Primaris Retail Real Estate Investment Trust (TSX:PMZ.UN), one of Canada’s largest shopping mall operators.

At the same time, industry leader RioCan Real Estate Investment Trust (TSX:REI.UN) has conditionally agreed to buy five regional malls and three other shopping centres currently owned by Primaris. RioCan values that part of the Primaris portfolio at $1.1 billion. Primaris units surged 13.89 per cent to $26.24 while RioCan units rose 28 cents to $27.24.

Canadian Pacific Railway (TSX:CP) plans to bring down operating costs by cutting about a quarter of its workforce, or 4,500 employees, by 2016. The cuts are part of a plan to increase annual revenue growth between four and seven per cent from 2012 levels as well as reduce its full-year operating ratio, a closely watched measure of how much revenue is required to run the business, to the mid-60s range by 2016. CP shares ran ahead $3.49 to $96.49.

The Canadian dollar slipped 0.02 of a cent to 100.66 cents US.

New York markets also lost early traction as the Dow Jones industrials slipped 9.16 points to 12,942.62, the Nasdaq declined 30.93 points to 2,965.76, paced by a four per cent drop in Apple Inc. shares, while the S&P 500 index was down 5.85 points to 1,401.2.

Markets had earlier headed higher on hopes that China’s new leadership will back new measures to stimulate the world’s second-biggest economy.

The catalyst to the optimism had been a Chinese government pledge to maintain policies intended to strengthen the economy and an expression of willingness to “fine tune” them and make them more effective.

There were also reports that the government lifted investment limits for insurance companies and that the new Chinese leadership will remain focused on urbanization, which could ramp up infrastructure spending.

China has been a major prop for a global economy still trying to recover from the financial collapse and subsequent recessions of 2008. Signs of stimulus are welcome because the Chinese government had to take steps to weaken the economy over the last couple of years to deal with higher than acceptable inflation.

Commodity prices were mixed and the mining sector led advancers, up 1.33 per cent as March copper edged up one cent at US$3.66 a pound. Teck Resources (TSX:TCK.B) gained 83 cents to $34.08 while First Quantum Minerals (TSX:FM) climbed 50 cents to $20.88.

The industrials group was up 0.8 per cent as Canadian National Railways (TSX:CNR) rose 40 cents to $89.36.

The energy sector gained 0.37 per cent with the January crude contract on the New York Mercantile Exchange down 82 cents to US$87.68 a barrel. Canadian Natural Resources (TSX:CNQ) was ahead 17 cents to $27.60.

The gold sector was the leading decliner, down 1.7 per cent while February gold fell $8 to US$1,687.80 an ounce. Iamgold (TSX:IMG) slipped 44 cents to $11 and Goldcorp Inc. (TSX:G) was off 67 cents to $37.18.

Traders also took in some weak jobs data. Payroll firm ADP reported that the private sector created 118,000 jobs during November. The U.S. government releases its non-farm payrolls report for November on Friday and economists expect the economy created only about 95,000 jobs. But they agree that job creation was impacted by Superstorm Sandy.

Other data showed increasing expansion in the U.S. service sector.

The Institute for Supply Management says its index of non-manufacturing activity rose to 54.7 from 54.2 in October. Any reading above 50 indicates expansion. A measure of employment fell sharply but still showed companies added workers last month.

In other corporate news, resource giant Freeport-McMoRan Copper & Gold says it is buying oil companies Plains Exploration & Production and McMoRan Exploration for about US$9 billion. The additions of the oil and gas drillers are expected to create a natural resources conglomerate with assets ranging from oil rigs in the Gulf of Mexico to mines in Indonesia and Africa. Freeport shares tumbled 13.8 per cent to US$32.99 in New York.

And the European Union has imposed its biggest ever cartel fine of almost €1.47 billion on seven companies for fixing the market of television and computer monitor tubes for a decade ending in 2006. It said the companies, including Philips, LG Electronics and Panasonic, artificially set prices, shared markets and restricted their output at the expense of millions of consumers.

European bourses were weak amid an unexpectedly big 1.2 per cent monthly decline in retail sales across the 17 European Union countries that use the euro in October.

London’s FTSE 100 index added 0.09 per cent, Frankfurt’s DAX gained 0.03 per cent while the Paris CAC 40 was down 0.06 per cent.