TSX little changed amid strong Chinese manufacturing data, fiscal cliff worries

TORONTO – The Toronto stock market was little changed Friday as the TSX struggled to extend a strong overnight rally in Asia which followed the release of encouraging Chinese economic data.

The S&P/TSX composite index was down 6.14 points to 12,283.03, while the TSX Venture Exchange inched up 0.27 of a point to 1,174.28.

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, sending mainland China’s Shanghai Composite Index up more than four per cent.

The Canadian dollar was down 0.04 of a cent to 101.5 cents US amid signs of weakening in Canada’s manufacturing sector.

Statistics Canada reported that manufacturing sales declined 1.4 per cent in October to $48.8 billion. Economists had expected a dip of 0.2 per cent.

The agency said the slide reflected drops in the aerospace product and parts, motor vehicle assembly and primary metal industries. These declines were partly offset by higher sales in petroleum and coal products as well as the wood product industries.

U.S. indexes were weak as the positive Chinese data was overshadowed by 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 industrials inched 4.15 points lower to 13,166.57, the Nasdaq fell 16.31 points to 2,975.85 and the S&P 500 index was off 4.35 points at 1,415.1.

Other data out Friday morning showed that U.S. factories rebounded in November from superstorm Sandy. The Federal Reserve says factory output increased 1.1 per cent in November from October, offsetting a one per cent decline the previous month that was blamed on the storm.

Total industrial output at factories, mines and utilities also rose 1.1 per cent last month.

The base metals sector led advancers, up about 1.1 per cent as 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 energy and mining stocks on the TSX.

March copper was up a penny at US$3.67 a pound and Turquoise Hill Resources (TSX:TRQ) gained 50 cents to C$7.68 while Sherritt International (TSX:S) climbed 11 cents to $5.14.

The TSX financial sector was slightly higher while 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 that it 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.

Elsewhere, TSX performance was tepid as the gold sector declined 0.4 per cent while February bullion added 30 cents to US$1,697.10 an ounce. Barrick Gold Corp. (TSX:ABX) lost 35 cents to C$33.51.

A Canadian-based mining company operating in Kyrgyzstan says a $152-million claim from the Central Asian country for alleged environmental damages caused by a gold field it is developing is exaggerated and without foundation. Centerra Gold (TSX:CG) says that independent experts have determined its Kumtor mine project has no materially significant environmental issues. Centerra shares slipped three cents to $8.06.

The energy sector was down 0.22 per cent as the January crude contract on the New York Mercantile Exchange rose 31 cents to US$86.20 a barrel. Canadian Natural Resources (TSX:CNQ) was down 26 cents to $28.

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. EnCana shares were down 50 cents to $20.35.

Telecoms were also weak with Telus Corp. (TSX:T) declining 46 cents to $65.47.

Electronics chain Best Buy Co. was a major weight in New York as its shares tumbled 15 per cent after the company extended the window for co-founder Richard Schulze to make a buyout bid until after the holiday season. That erased most of the gains made Thursday when Best Buy shares jumped 16 per cent on a published report that Schulze would make a bid by the end of the week.

European bourses were narrowly mixed with London’s FTSE 100 index up 0.04 per cent, Frankfurt’s DAX off 0.14 per cent and the Paris CAC 40 falling 0.16 per cent.

Elsewhere in Asia, Hong Kong’s Hang Seng pulled out of negative territory to advance 0.7 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.