TSX, New York markets sharply higher as Fed decides to begin tapering

TORONTO – North American stock markets closed sharply higher Wednesday as the U.S. Federal Reserve ended months of speculation and announced it will start cutting back on its monthly asset purchases.

The central bank said at the end of its two-day interest rate meeting that it would cut its US$85 billion of bond purchases by $10 billion — half Treasuries, half mortgage-backed securities — starting in January.

It will make further decisions on tapering based on how economic data looks, particularly in regards to employment and inflation.

Toronto’s S&P/TSX composite index ran ahead 154.57 points to 13,334.73, with gains spread across all sectors save for the gold group.

U.S. indexes also took off as the Dow Jones industrials surged 292.71 points to 16,167.97, the Nasdaq jumped 46.38 points to 4,070.06 and the S&P 500 index rose 29.65 points to 1,810.65. Both the Dow and the S&P closed at record highs.

Losses in the Canadian dollar picked up after the 2 p.m. EST announcement as the greenback gained in value and the loonie fell 0.7 of a cent to 93.55 cents US.

The Fed also went to some pains to assure financial markets that short-term rates aren’t going up any time soon. It plans to hold its key short-term rate near zero “well past” the time when U.S. unemployment falls below 6.5 per cent.

“In terms of making a decision to actually taper, they did it in a way that highlighted that they’re not in an aggressive position to remove tapering or shift towards tightening,” said David Watt, chief economist at HSBC Bank of Canada.

“This is the least they could have done to actually taper and keep the markets relatively balanced in terms of what their view is on the Fed going forward.”

Later, at his last news conference as Fed chair, Ben Bernanke said the expectation is for similar moderate tapering steps throughout 2014.

Financials led advancers, up 1.34 per cent as Manulife Financial (TSX:MFC) improved by 50 cents to $20.23 and TD Bank (TSX:TD) climbed $1.60 to $97.41.

The energy sector moved ahead 1.33 per cent with January crude on the New York Mercantile Exchange ended 58 cents higher at US$97.80 a barrel amid data showing oil inventories rose 2.94 million barrels last week, less than the four million barrels that analysts had expected. Suncor Energy (TSX:SU) was ahead 89 cents to C$36.40.

Imperial Oil Ltd. (TSX:IMO) has applied for regulatory approval to build a new Aspen oilsands project northeast of Fort McMurray, Alta., which would cost an estimated $7 billion. The first phase of Imperial’s $12.9-billion Kearl oilsands mine north of Fort McMurray started up earlier this year. Imperial gained $1.06 to $46.43.

March copper was unchanged at US$3.32 a pound while the base metals component rose 1.15 per cent. First Quantum Minerals (TSX:FM) gained 52 cents to C$17.59.

The telecom sector was up 0.55 per cent as federal Industry Minister James Moore said the government will move to prevent wireless providers from charging customers of rival companies more than they charge their own customers for domestic roaming. The CRTC is already investigating the issue of whether big wireless companies are charging their smaller Canadian competitors too much to use their networks. Telus (TSX:T) was up 42 cents to $36.44.

The gold sector was the sole decliner, down 0.44 per cent even as February gold edged up $4.90 to US$1,235 an ounce. Kinross Gold (TSX:K) faded eight cents to C$4.80

Elsewhere on the corporate front, a report from a federal review panel on Enbridge’s (TSX:ENB) proposed Northern Gateway pipeline, which would link the Alberta oilsands with a tanker port on the B.C. coast, will be released Thursday following more than a year of hearings.

The highly anticipated report on the controversial project will include the panel’s recommendations but the final decision on whether the pipeline can go ahead rests with the federal government. Enbridge rose 90 cents to $44.85.

In the U.S., FedEx Corp. posted net income that was 14 per cent higher than a year earlier, when superstorm Sandy hurt business. However, the second-quarter profit of $1.57 per share was lower than the $1.64 per share expected by analysts. Revenue rose three per cent to $11.4 billion, about what analysts were expecting.

FedEx raised its full-year profit outlook slightly and its shares rose 63 cents to US$139.72.