TSX falls back, commodities rise amid mixed Chinese, U.S. manufacturing data

TORONTO – The Toronto stock market closed lower Monday amid mixed readings on the health of the manufacturing sector in the world’s two largest economies.

The S&P/TSX composite index dropped 40.62 points to 12,609.8.

HSBC’s monthly purchasing managers’ index for China fell to 49.2 in May. That’s down from 50.4 in April. Readings below 50 indicate a contraction.

A similar government-sanctioned survey released Saturday found manufacturing ticked up slightly in the world’s second-biggest economy. That report by the China Federation of Logistics and Purchasing found its manufacturing index edged up to 50.8.

“The market has largely started to price in Chinese growth with a seven (per cent) handle,” said Craig Fehr, Canadian markets specialist with Edward Jones in St. Louis.

“It would be nice to see growth tick back up towards eight per cent towards the end of this year, I don’t think it’s unreasonable but the market is starting to come to grips with the fact that China is going to grow more slowly than most had hoped.”

The Canadian dollar was up 0.85 of a cent to 97.3 cents US.

U.S. indexes were higher while the greenback declined as a widely watched gauge of the American manufacturing sector went into contraction territory during May. The Institute for Supply Management’s Index came in at 49, down from an April reading of 50.7. It was the first time the index slipped below the 50 level since Nov., 2012.

The Dow Jones industrials ran ahead 138.46 points to 15,254.03 as the poor showing reinforced the view that the U.S. Federal Reserve won’t be in a hurry to wrap up its economic stimulus program known as quantitative easing.

“You start to think about the potential for the Fed to pull back a bit on its aggressive stimulus and then you move into this phase where the market thinks, OK, good data means less Fed, that’s a bit scary, bad data means the Fed stays in the game and that kind of keeps the underlying confidence,” Fehr added.

The Fed has been buying up US$85 billion of bonds every month to keep long term rates low and encourage lending. It has also been largely responsible for an impressive rally on U.S. stock markets that has gone on practically non-stop since late last year.

The Nasdaq gained 9.45 points to 3,465.37 and the S&P 500 index was ahead 9.68 points to 1,640.42.

Oil and copper prices rose despite the conflicting Chinese data with the July crude contract on the New York Mercantile Exchange up $1.48 to US$93.45 a barrel after a weak global economic outlook depressed prices more than two per cent last week.

But the energy sector was a leading TSX decliner, down 0.45 per cent. Canadian Natural Resources (TSX:CNQ) gave back 66 cents to C$30.24.

The industrials sector also weighed with Canadian Pacific (TSX:CP) down $2.34 to $135.50. The stock has been heading lower since hitting a 52-week high of $144.30 May 17. The stock has soared since Bill Ackman’s Pershing Square Capital, the railway’s biggest shareholder, won the battle to install new board members and a new chief executive, Hunter Harrison, who formerly held the top executive job at Canadian National (TSX:CNR).

After the close of markets, Pershing Square announced it would sell seven million CP Rail shares over the next six to 12 months.

The base metals sector lost early gains to move down 0.23 per cent while July copper gained four cents to US$3.33 a pound. HudBay Minerals (TSX:HBM) was ahead nine cents to C$8.34 while First Quantum Minerals (TSX:FM) fell 18 cents to $18.38.

Consumer staples was a major advancer with Shoppers Drug Mart (TSX:SC) ahead 71 cents to $45.99.

The gold sector was up more than one per cent as August bullion on the Nymex gained $18.90 to US$1,411.90 an ounce. Iamgold (TSX:IMG) improved by 20 cents to C$5.63.

Centerra Gold Inc. (TSX:CG) shares were up 35 cents or 9.16 per cent to $4.17 after it said it expects the Kumtor mine in eastern Kyrgyzstan to achieve its 2013 production target despite last week’s shutdown caused by protests calling for nationalization of the operation.

A new code of conduct unveiled by the CRTC says that wireless customers will be able to cancel their cellphone contracts after two years without any penalties even if they’ve signed up for longer terms. The regulator said the new code will apply to new wireless contracts starting Dec. 2. The TSX telecom sector was down 0.55 per cent. BCE Inc. (TSX:BCE) gave back 52 cents to $46.07.

In other corporate news, drug manufacturer Patheon Inc. (TSX:PTI) had a profit of $100,000 in the second quarter, an improvement from a $79.6-million loss a year earlier, when it recorded a $57.9-million impairment charge. Revenue rose 40 per cent to $253.9 million, with about $54.6 million of the increase due to an acquisition. Its shares dropped 19 cents to $5.51.

CVTech Group Inc. (TSX:CVT) said Monday that its subsidiaries have been awarded several new contracts representing a total value of approximately $77.4 million. The announcement follows comments last week by the company’s second-largest shareholder that CVTech recently twice rebuffed a takeover offer. Its shares were eight cents lower to $1.40 after surging more than 20 per cent Friday.