Markets higher ahead of key Fed chairman speech

The Toronto stock market was higher Monday following several bruising losses, on hopes that the U.S. Federal Reserve will signal that it is prepared to take further measures to keep the economy from slipping back into recession.

The S&P/TSX composite index ran up 129.91 points to 12,137.38, led by gold stocks as nervous investors continue to send bullion further into record territory. All sectors of the Toronto Stock Exchange were positive while the TSX Venture Exchange was ahead 12.25 points to 1,777.09.

The Canadian dollar advanced, up 0.09 of a cent to 101.24 cents US.

New York markets were also positive but well off the highs of the morning with the Dow Jones industrial average up 70.76 points to 10,888.41.

The Nasdaq composite index advanced 15.96 points to 2,357.8 and the S&P 500 index climbed 6.19 points to 1,129.72.

Both the TSX and the Dow Industrials tumbled about four per cent last week on worries about the health of the U.S. and global economies and levels of European bank funding without a lasting solution for Europe’s debt troubles.

“The question really is, how fast is the recovery happening?”, said Chris King, portfolio manager at Morgan, Meighen and Associates.

“But it is still a recovery. And I don’t understand these markets, they’re unusually fickle for no reason, I think there are very serious problems with the euro that are very real and affecting capital markets worldwide with good reason. But the U.S. and North America and Canada particularly I don’t see a big problem.”

Over the weekend, German Chancellor Angela Merkel and EU President Herman Van Rompuy both ruled out the introduction of eurobonds — debt backed by all 17 euro countries — anytime soon, squashing investor hopes that a more lasting solution to the currency union’s debt troubles may be in the works.

Investors are now looking ahead to Friday and a key speech by United States Fed chairman Ben Bernanke.

The Fed pledged earlier this month to keep interest rates at ultralow levels through mid-2013. Investors wonder whether Bernanke will announce, or at least preview, further steps to help the economy including a third round of bond purchases known as quantitative easing.

A commitment by Bernanke last August to do whatever it took to keep the American economic revival on the rails during the Fed’s retreat at Jackson Hole, Wyo., sparked a rally on markets that only started to run out of steam at the start of the second quarter of this year.

Higher commodity prices benefitted the TSX as oil prices recovered somewhat from a 3.6 per cent slide last week while economic worries sent gold further into record territory.

The December gold contract on the Nymex advanced $36.50 to US$1,888.70, lifting the gold sector 3.3 per cent. Barrick Gold Corp. (TSX: ABX) rose $1.01 to C$51.33 and Goldcorp Inc. (TSX: G) improved by $1.48 to $52.66.

The September crude contract on the New York Mercantile Exchange gained 92 cents to US$83.18 a barrel. However, Brent crude prices fell as Libyan rebels captured most of the country’s capital, boosting hopes the OPEC nation’s oil exports could resume soon. The October contract declined 44 cents to US$109.47 a barrel.

Brent has been at unusual premium to the U.S. crude futures contract for months, in large part due to the fact that Europe relies more than the U.S. on oil from Africa, including Libyan imports.

The TSX energy sector gained 0.45 per cent as Cenovus Energy (TSX: CVE) climbed 50 cents to C$32.67.

The base metals sector erased early gains while the September copper contract lost early momentum and turned down three cents at US$3.95 a pound. First Quantum Minerals (TSX: TCK.B) was down 32 cents to C$20.89 while Lundin Mining (TSX: LUN) advanced nine cents to $5.09.

The financial sector rose 0.74 per cent a day before the big Canadian banks start to report quarterly earnings. Bank of Montreal (TSX: BMO) hands in earnings on Tuesday, National Bank (TSX: NA) is out on Thursday while Royal Bank (TSX: RY) reports on Friday.

“I think the banks will actually continue to show sequential and year over year improvements,” added King.

“In BMO’s case, it will be interesting because it will be the first quarter with M and I incorporated in it,” referring to the bank’s acquisition of U.S. bank Marshall & Ilsley Corp. last December for US$4.1 billion in shares.

“And that seems to have gone much better than what people expected. I think it was a very astute acquisition by BMO.”

Bank of Montreal rose 52 cents to $57.87, National Bank gained 21 cents to $70.55 and Royal Bank gained 25 cents to $49.22.

Telecoms were also strong with BCE Inc. (TSX: BCE) ahead 70 cents to $38.94.

In other corporate news, Lowe’s Cos., the second-largest home improvement retailer in the U.S., said Monday that it will buy back up to US$5 billion of its common stock. Last week Lowe’s reported that its second-quarter net income was nearly flat due to volatile weather and shoppers’ worries about the economy. The company also lowered its sales forecast for the second half of its fiscal year due to consumers’ uncertainty. Its stock was up 30 cents to US$35.55.

Endeavour Mining Corp. (TSX: EDV) and Adamus Resources Ltd., (TSXV:ADU), two international companies which trade on Canadian stock markets, have agreed to merge into a new company focused on gold mining in West Africa. Shareholders of Endeavour will own 55 per cent of the yet-to-be-named combined company, with shareholders of Perth, Australia-based Adamus owning 45 per cent. Endeavour shares rose four cents to C$2.48.

Paladin Energy Ltd. (TSX: PDN) has reached uranium sales agreements worth about $168 million with three new customers in the United States. The deals call for the Australian mining company to supply the buyers with more than 2.8 million pounds of uranium oxide concentrate. Paladin shares gained eight cents to $2.06.

Earlier in Asia, Japan’s Nikkei 225 index lost one per cent to close at 8,628.13 — a five-month low — as a persistently strong yen rattled nerves. A strong yen hurts exports by making them more expensive.

The Shanghai Composite Index lost 0.7 per cent while the Shenzhen Composite Index lost 0.9 per cent. Hong Kong’s Hang Seng, meanwhile, swung into positive territory to eke out a 0.5 per cent gain.

European markets were higher with London’s FTSE 100 index up 1.19 per cent, Frankfurt’s DAX gained 0.3 per cent while the Paris CAC 40 rose 1.13 per cent.