TSX heads lower amid nervousness over fiscal cliff negotiations, Greek bailout

TORONTO – The Toronto stock market was lower Monday afternoon as traders focused on the potential consequences of failing to avoid a looming U.S. fiscal crisis at the end of the year.

They also looked to European Union negotiations surrounding the next instalment of badly needed bailout money for Greece.

The S&P/TSX composite index closed well off the lows of the day, losing 28.19 points to 12,185.05 while the TSX Venture Exchange fell 33.22 points to 1,225.75.

The Canadian dollar was down 0.19 of a cent to 100.62 cents US amid a surprise announcement that Bank of Canada governor Mark Carney is leaving that job June 1, 2013, to take the reins at the Bank of England. However, the currency had traded lower all morning as traders focused on fiscal cliff negotiations in Washington and Greek bailout talks in Brussels.

U.S. indexes were mainly lower amid the release of a new report warning that if lawmakers don’t halt an automatic increase in taxes for households earning less than US$250,000, consumers might curtail their shopping during the crucial holiday season.

The study was prepared by President Barack Obama’s National Economic Council and his Council of Economic Advisers.

The Dow Jones industrials were down 42.31 points to 12,967.37, the Nasdaq composite index gained 9.93 points to 2,976.78 and the S&P 500 index lost 2.86 points to 1,406.29.

The report also says a sudden increase in taxes for middle-income taxpayers would reduce consumer spending in 2013 by nearly $200 billion, significantly slowing the economic recovery.

Traders are hoping to see U.S. politicians make progress this week in arriving at a new budget deal that would stop the imposition of those tax hikes along with steep spending cuts at the start of the year.

If they don’t, the shock from going over a so-called fiscal cliff would likely push the economy back into recession and damage what is already a fragile recovery.

“We’re getting some additional ingredients in the stew from Europe and everybody awaits the finalization, or not the finalization for that matter, of the Greek package — that’s adding to the jitters today,” said Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis.

“The bigger issue prevailing influence on the markets is this will-they-or-won’t-they out of Washington. The markets will have to digest on a day-to-day, maybe even a minute-to-minute basis as to what the progress is towards this.”

On the corporate front, Research in Motion Ltd. (TSX:RIM) (NASDAQ:RIMM) stock found further lift after CIBC World Markets upgraded RIM to sector outperform from sector perform with a US$17 share target. Its shares were ahead 29 cents or 2.5 per cent at $11.90 on very heavy volume of 9.8 million shares.

The Blackberry-maker’s shares surged 25 per cent last week in the wake of other analyst upgrades and optimism about the launch of its new BlackBerry 10 operating system, which will be unveiled at a Jan. 30 event along with its new line of smartphones. It’s viewed as a make or break product launch for Research In Motion.

Hudson’s Bay Co. (TSX:HBC) shares inched up four cents to $16.89 as Canada’s oldest company officially returned to the Toronto Stock Exchange. An IPO by Canada’s oldest company had valued the retailer at $17 a share, or about $2 billion in total. HBC plans to sell a total of 21 million shares — about one-fifth of the company’s stock — raising about $365 million through an initial public offering.

And Canadian conglomerate Onex Corp. (TSX:OCX) is buying U.S. insurance company USI from a Goldman Sachs private equity fund in a US$2.3-billion deal.

The GS Capital Partners fund took the insurance broker private in 2007 for $1.4 billion, including debt. USI employees invested in the 2007 deal, and will now own the business with Onex, the companies said Monday. Onex shares declined 30 cents to $40.25.

Meanwhile, eurozone finance ministers met in Brussels for a third time in recent weeks to get a deal together to release some €44 billion for Greece, which has been surviving on bailouts since 2010.

The eurozone ministers, Greece’s international creditors and the International Monetary Fund have been unable to decide on an agreement.

Greece is unlikely to complete its program of budget cuts and reforms by 2014 and is likely to be given an additional two years to reach that goal.

But that extension will cost several billion euros more, and the disagreements over how to fund this have stopped Greece from getting its money.

The December copper contract on the Nymex was ahead one cent at US$3.54 a pound and the base metals sector was off 1.5 per cent. Sherritt International (TSX:S) declined 14 cents to C$5.08 while Lundin Mining (TSX:LUN) gave back 12 cents to $5.

The energy sector was down 0.57 per cent with January crude on the New York Mercantile Exchange down 54 cents to US$87.74 a barrel. Cenovus Energy (TSX:CVE) lost 61 cents to C$32.81 and Imperial Oil (TSX:IMO) fell 34 cents to $43.11.

Africa Oil Corp. (TSXV:AOI) shares were down about 20 per cent to $8.50, their lowest level in nearly three months on Monday following a drilling report from a 50-50 partnership in Kenya that disappointed some analysts. The junior exploration company announced early Monday that it had received drilling results from the Twiga South-1 exploratory well operated by its partner, Tullow Oil PLC.

The industrials were down 0.28 per cent with shares in SNC-Lavalin (TSX:SNC) down 91 cents or 2.19 per cent to $40.63 after Swiss public broadcaster RTS said the former head of construction of the Canadian engineering firm has been formally charged by Swiss officials on allegations of money laundering. The RTS report is based on unnamed sources and Swiss authorities reached Sunday would not confirm or deny the arrest of Riadh Ben Aissa.

The gold sector was down slightly as December bullion faded $1.80 to US$1,749.60 an ounce. Barrick Gold Corp. (TSX:ABX) was 22 cents lower to C$34.97.