TSX higher amid positive German confidence data, hopes for more Fed stimulus

TORONTO – The Toronto stock market was higher Tuesday, partly because of reassuring data suggesting Germany will be able to avoid slipping into recession.

Traders also looked to the start of the U.S. Federal Reserve’s two-day meeting on interest rates and hoped for a resolution to the looming fiscal cliff. That is the name for a situation that will arise at the beginning of the year when automatic tax increases and steep spending cuts are due to take hold. The subsequent shock to the economy would likely push the U.S. back into recession.

The S&P/TSX composite index gained 62.46 points to 12,292.93 while the TSX Venture Exchange was down 6.02 points at 1,180.72.

The Canadian dollar inched 0.04 of a cent higher to 101.36 cents US amid data showing Canada’s trade picture improved significantly in October. Statistics Canada says the merchandise trade deficit shrank to $169 million, which was a big improvement over the September figure, when the deficit was $1 billion.

Hopes for more stimulus from the Fed helped push the Dow Jones industrials up 108.39 points to 13,278.27, while the Nasdaq rose 43.54 points to 3,030.5 and the S&P 500 index was up 13.11 points at 1,431.66.

Traders seemed unfazed by the latest back-and-forth charges from Republicans and Democrats that their opposition still hasn’t delivered “serious” proposals for heading off the spending cuts and tax hikes.

“I’m at a point now where I think most of it will get resolved but there will be a bit of that that will be pushed into 2013,” said Sadiq Adatia, chief investment officer for Sun Life Global Investment, adding it’s a good thing that one party controls the Senate while another contols the House.

“This way, the Republicans want something, the Democrats want something and the only way to get it is for them to agree to help the other side. And that is the best chance for the fiscal cliff being averted — they both realize if the fiscal cliff does not get resolved, neither one of the parties wins.”

Investors took in an index of German investor optimism that rose more than expected in December. The ZEW indicator of economic sentiment rose to plus 6.9 points, from minus 15.7 in November. Markets had expected the index to rise only to minus 11.5. Germany’s economy grew a modest 0.2 per cent in the third quarter.

Meanwhile, investors are expecting the Federal Reserve to embark on another round of stimulus when it wraps up its meeting Wednesday. The Fed’s US$400-billion stimulus program, known as Operation Twist, is set to expire after 2012.

It involved the Fed buying $400 billion of longer-term Treasuries and simultaneously selling some of the shorter-dated issues it already held in order to bring down long-term interest rates.

Economists now expect that the Fed will begin buying $40 million of long-term treasury securities each month. This would be on top of an existing plan announced in September that involves the Fed buying $40 billion per month in mortgage-backed securities.

Tech stocks led TSX advancers as MacDonald, Dettwiler & Assoc. (TSX:MDA) rose 90 cents to $54.05.

Patent-licensing firm Wi-LAN Inc. (TSX:WIN) has started litigation against Research in Motion Ltd. (TSX:RIM) alleging patent infringement. The case, launched in the Southern District of Florida, alleges infringement of a patent related to Bluetooth technologies. Wi-LAN shares fell 23 six cents to $4.67.

But RIM jumped 59 cents or five per cent to $12.33 on rising optimism about the new BlackBerry 10 smartphone, which is being unveiled at the end of January.

The consumer discretionary segment was also higher as Canadian Tire Corp. (TSX:CTC.A) rose $1.45 to $68.93 while home improvement chain RONA Inc. (TSX:RON) gained 22 cents to $11.12.

The financials sector was ahead 0.7 per cent with Sun Life Financial (TSX:SLF) up 64 cents to $27.97 and Scotiabank (TSX:BNS) gained 45 cents to $56.39.

Commodities were mixed and the mining group was up 0.6 per cent while copper prices gave up half of Monday’s four-cent rise as the March contract on the New York Mercantile Exchange dipped two cents to US$3.69 a pound. First Quantum Minerals (TSX:FM) gained 27 cents to C$20.64 and Teck Resources (TSX:TCK.B) climbed 30 cents to $35.63.

The energy sector was up 0.45 per cent as the January crude contract slipped four cents to US$85.52 a barrel. Canadian Natural Resources (TSX:CNQ) climbed 40 cents to C$28.42.

Shares in oilsands company MEG Energy Corp. (TSX:MEG) declined $1.15 to $32.50 as the company announced a pair of financing deals to raise a total of $800 million, including one with the Caisse de depot et placement du Quebec. MEG said it has agreed to sell nearly 12.13 million shares to a syndicate of underwriters for $33 per share and another 12.12 million shares to the Caisse de depot et placement du Quebec for the same price.

The gold sector was slightly lower as February bullion fell $4.80 to US$1,709.60 an ounce. Argonaut Gold (TSX:AR) gave back 16 cents to C$9.51.

Investors also took in the first earnings report issued by Hudson’s Bay Co. (TSX:HBC) since the retailer returned to the Toronto stock market. HBC said its loss from continuing operations was $8.5 million or eight cents per share in the third quarter. That compared with a loss from continuing operations of $7.5 million or seven cents per share in the same year-earlier period.

Revenues in the three months ended Oct. 27 were $930.4 million, up from $896.7 million in the 2011 period. Hudson’s Bay Co. also said it will initiate a quarterly dividend of just over nine cents per share and its shares dipped six cents to $16.75.