Toronto stock market set for flat open despite strong Chinese manufacturing data

TORONTO – The Toronto stock market looked set to open little changed Friday as commodity prices rose amid strong Chinese economic data.

HSBC Corp. released its preliminary China Purchasing Managers’ Index for December, which showed greater expansion in the manufacturing sector of the world’s second-biggest economy. The index rose to 50.9 from November’s 50.5.

The Canadian dollar edged up 0.02 of a cent to 101.56.

U.S. futures were positive as investors kept a close eye on budget talks in Washington between President Barack Obama and key Republican lawmakers aimed at averting a fiscal crisis at the end of the year.

A deal must be reached to avoid going over the so-called “fiscal cliff”, which would involve the automatic imposition of hundreds of billions of dollars in spending cuts and tax increases that could plunge the world’s largest economy back into recession, and depress economies around the world.

The Dow Jones industrial futures gained 24 points to 13,118, the Nasdaq futures slipped 4.8 points to 2,642.2 and the S&P 500 futures were up 1.5 points to 1,413.5.

The TSX financial sector will be in focus after Standard & Poor’s downgraded the ratings of six of Canada’s financial institutions, citing a softening economy, low interest rates and a slowing Canadian economy.

S&P says the risk for the Canadian banking sector is increasing and expects intensifying competition for loans and deposits will pressure profit growth.

The firm lowered its ratings for Scotiabank (TSX:BNS), National Bank, Laurentian Bank of Canada (TSX:LB), Central 1 Credit Union, Caisse centrale Desjardins and Home Capital Group (TSX:HCG) each by one notch. The outlooks for all six financial institutions are stable.

In the resource component, natural gas giant Encana Corp. (TSX:ECA) and PetroChina subsidiary Phoenix Duvernay Gas have reached a deal to work together in the Duvernay region, a promising shale natural gas formation in west-central Alberta. Phoenix will end up owning just shy of half of the 180,000 hectares Encana has in the Duvernay. That means the $2.2-billion deal won’t be subject to the same federal review as the just approved $15.1-billion takeover of Nexen Inc. by China’s state owned energy company CNOOC.

Commodity prices advanced in the wake of the Chinese manufacturing report. China has a huge appetite for commodities, which has sent prices higher for oil and metals in the past along with the energy and mining stocks on the TSX.

The January crude contract on the New York Mercantile Exchange rose 61 cents to US$86.50 a barrel.

March copper was up a cent at US$3.67 a pound while February gold bullion dipped 40 cents to US$1,696.40 an ounce.

European bourses were mixed with London’s FTSE 100 index slipping 0.18 per cent, Frankfurt’s DAX rising 0.17 per cent and the Paris CAC 40 falling 0.15 per cent.

Earlier in Asia, Hong Kong’s Hang Seng pulled out of negative territory to advance 0.7 per cent while mainland Chinese shares posted sharp gains, with the Shanghai Composite Index surging 4.3 per cent. The smaller Shenzhen Composite Index shot up 4.2 per cent.

Japan’s Nikkei 225 index sank slightly following the release of a Bank of Japan survey which showed large Japanese manufacturers are more pessimistic about business conditions. The benchmark in Tokyo fell 0.1 per cent, a day after closing at an eight-month high.