TSX surges, commodities climb on hopes Europe can contain debt crisis

October 6, 2011 11:20 AM59 commentsViews: 74

TSX surges, commodities climb on hopes Europe can contain debt crisis

TORONTO – The Toronto stock market soared more than 300 points mid-afternoon Thursday with strong support coming from the resource sector as prices for copper and oil ran ahead amid high hopes for a new plan by Europe to shore up its banks.

The S&P/TSX composite index gained 325.02 points to 11,782.24 while the TSX Venture Exchange was ahead 56.46 points to 1,470.11.

The Canadian dollar was lower but well off the lows of the session as commodity prices strengthened, down 0.06 of a cent to 96.08 cents US, backing off slightly from Wednesday’s surge of 1.34 cents.
U.S. markets advanced as traders took in news of the death of Apple founder Steve Jobs, who died at the age of 56 Wednesday. The news came a day after Apple unveiled its latest iPhone. Apple shares were up $4.83 to US$379.18.

The Dow Jones industrial index gained 138.16 points to 11,078.11, the Nasdaq composite index rose 35.93 points to 2,496.44 while the S&P 500 index was ahead 15.64 points to 1,159.67.

The European Central Bank offered new emergency loans to banks on Thursday to help steady them through the government debt crisis, but decided to keep interest rates on hold despite fears of a sharp economic slowdown.

The ECB will offer an unlimited amount of 12-month and 13-month loans to banks. That will provide financing for a longer period and shield them from turbulence in borrowing markets.

Traders were happy with the news as “the liquidity provisions will help the European banking system avoid a liquidity crunch,” said BMO Capital Markets senior economist Benjamin Reitzes.

However, he pointed out that “the measures won’t keep banks from facing questions about solvency.”
Markets sank earlier in the week amid signs of further procrastination and confusion among European leaders as they tried to get a handle on the continent’s debt crisis and, in particular, how to keep Greece from a disorderly default on its debt.

There is great concern that if Greece fails to pay its bills, it will spark a financial meltdown similar to the U.S. banking crisis of 2008.

Investors have been frustrated over what they perceive as a lack of urgency on the part of European leaders in dealing with the financial crisis, which has been brewing since early last year.
“Unfortunately, politicians, until they’re faced with a crisis that absolutely demands that they do something, would like to avoid it and they have been able to kick the can down the road all the time,” said Jim Muir, director at Fraser Mackenzie.

“It’s human nature.”

Renewed hope that European officials can contain the crisis pushed the December copper contract on the New York Mercantile Exchange up 14 cents to US$3.25 a pound and the base metals sector rose 8.2 per cent.
Prices were also boosted by signs of growing demand from China, the world’s biggest copper consumer.

“It looks like the Chinese are slowly coming back to the market, buying corporate warrants which, in turn, they can take delivery down the road,” said Azim Hajee, senior trader with MF Global Canada.

A warrant is an instrument that gives the buyer the right to purchase a security at a specific price within a certain time frame.

“Up to now, they were staying out, saying they had plenty of copper.”

Worries that the global economy could be heading for another recession have sunk copper prices recently, driving them down 31 per cent since the beginning of August to levels around US$3 a pound. Copper is widely viewed as a barometer for the health of the overall global economy since it is used in electronics, homes and infrastructure.
Teck Resources (TSX:TCK.B) gained $1.57 to C$35.34 and Quadra FNX Mining (TSX:QUX) climbed 89 cents to $10.17.
Shares of Ivanhoe Mines (TSX:IVN) jumped $1.68 or 10.8 per cent to $17.22 after the company said an investment agreement for the Oyu Tolgoi gold and copper mine, made with the Mongolian government and partner Rio Tinto, has been reaffirmed.

Oil prices built on Wednesday’s surge of US$4 on data which showed an unexpected drop in U.S. inventories, which signalled demand may be improving. On Thursday, the November crude contract on the New York Mercantile Exchange was up $2.07 at US$81.75 a barrel.

The TSX energy sector was up 3.78 per cent as Suncor Energy (TSX:SU) gained $1.15 to C$28.65 and Cenovus Energy (TSX:CVE) was up $1.43 at $33.63.

Gold stocks also advanced as bullion edged higher while the December contract advanced $11.60 to US$1,653.20 an ounce.

Barrick Gold Corp. (TSX:ABX) rose $1.42 to $49.50 and Goldcorp Inc. (TSX:G) advanced $1.69 to $49.07.
Industrial stocks were also stronger as transportation giant Bombardier Inc. (TSX:BBD.B) improved by 16 cents to $4 while Canadian National Railways (TSX:CNR) climbed $2.14 to $72.63.

Canadian banks also got a lift from the move to strengthen European banks with the sector up 1.83 per cent.
Canadian banks don’t have high exposure to Europe but a Greek default would play havoc with the European financial system. Scotiabank (TSX:BNS) improved by 86 cents to $52.60 while TD Bank (TSX:TD) climbed $1.30 to $73.62.

There was also good news on the U.S. consumer front.

Retailers reported strong revenue gains for September, capping a solid back-to-school shopping season. But uncertainty remains about how consumers will spend during the crucial winter holidays.

Target Corp., Limited Brands Inc. and teen chain The Buckle Inc. reported strong increases that beat Wall Street estimates. There were some stragglers like Bon-Ton Stores Inc., which reported a decline.

In other corporate news, Franco-Belgian bank Dexia is in negotiations to sell off its Luxembourg affiliate to a group of international investors and the Luxembourg government. The move is likely to be the first step in a massive rescue and restructuring.

Dexia is highly exposed to some of Europe’s more indebted countries, including Greece and Italy. Fears that those countries could default are making other banks wary of lending to Dexia. As a result, Dexia is finding it increasingly difficult to fund its day-to-day operations.

Armtec Infrastructure Inc. (TSX:ARF) shares surged $1.03 or 85 per cent to $2.24 after the company received a contract worth $40 million over nine years from BC Hydro. Armtec will be exclusive supplier of concrete utility vaults and associated products to British Columbia’s main electric utility.

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