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

TORONTO – The Toronto stock market was higher Tuesday amid 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 as well as an update on the fiscal cliff crisis. House Speaker John Boehner was scheduled to speak on the House floor around midday.

Fiscal cliff 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 lower to 101.28 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. Exports rose one per cent to $38.1 billion while imports fell 1.2 per cent to $38.3 billion.

Hopes for more stimulus from the Fed helped push the Dow Jones industrials up 107.43 points to 13,277.31, while the Nasdaq rose 41.24 points to 3,028.2 and the S&P 500 index was up 12.69 points at 1,431.24.

Investors took in an index of German investor optimism which 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, know 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.

The eurozone government debt crisis also returned to centre stage following the surprise weekend announcement by Italian Prime Minister Mario Monti that he will resign after Italy’s 2013 budget has gone through parliament.

Monti, a technocratic leader who has been credited with restoring confidence in Italy’s economy, said he found it impossible to lead after former prime minister Silvio Berlusconi’s party, parliament’s largest, dropped its support for the government. Analysts fear Monti’s resignation could spark a new round of Italian political turmoil.

Tech stocks led TSX advancers as MacDonald, Dettwiler & Assoc. (TSX:MDA) rose $1.05 to $54.20.

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 added six cents to $4.96 while RIM advanced 48 cents to $12.22.

The consumer discretionary segment was also higher as Magna International (TSX:MG) rose 52 cents to $47.71.

The financials sector was ahead 0.6 per cent with Sun Life Financial (TSX:SLF) up 39 cents to $27.72.

Commodities were mixed and the mining group was up 0.3 per cent while copper prices gave up some of Monday’s four-cent rise as the March contract on the New York Mercantile Exchange dipped one cent to US$3.69 a pound. Thompson Creek Metals (TSX:TCM) edged up seven cents to C$3.18 while First Quantum Minerals (TSX:FM) gained 19 cents to C$20.56.

The energy sector was up 0.4 per cent as the January crude contract added eight cents to US$85.64 a barrel. Canadian Natural Resources (TSX:CNQ) climbed 27 cents to C$28.29.

Shares in oilsands company MEG Energy Corp. (TSX:MEG) declined $1.06 to $32.59 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 $5.30 to US$1,709.10 an ounce. Argonaut Gold (TSX:AR) gave back 15 cents to C$9.52.

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 one cent to $16.80.

European bourses advanced in the wake of the German economic data as London’s FTSE 100 index gained 0.14 per cent, Frankfurt’s DAX was up 0.66 per cent and the Paris CAC 40 gained 0.93 per cent.

Earlier in Asia, Japan’s Nikkei 225 index fell 0.1 per cent with Japanese utilities coming under pressure a day after a team of geologists said that a nuclear power plant in western Japan is likely located on an active fault. Japanese guidelines prohibit nuclear facilities above active faults.

Hong Kong’s Hang Seng rose 0.2 per cent but shares in mainland China fell, with the main Shanghai index closing 0.4 per cent lower.

In other corporate news, HSBC will pay US$1.9 billion to settle a U.S. money-laundering probe, avoiding a protracted legal battle that would have further embarrassed the British banking giant. The probe of Europe’s largest bank by market value focused on the transfer of funds through the U.S. financial system from Mexican drug cartels and on behalf of countries such as Iran that are under international sanctions.

And Delta Air Lines is buying almost half of Richard Branson’s Virgin Atlantic for US$360 million as it seeks a bigger share of the lucrative New York-to-London travel market.