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TSX Finishes In The Red

The Toronto stock market finished in the red on the final day of January trading as worries about European deflation and emerging markets persuaded investors to step back after a big runup. The S&P/TSX composite index dropped 40 points to 13,694. The Canadian dollar advanced 0.31 of a cent to 89.92 cents US as November gross domestic product rose 0.2%, in line with forecasts. New York’s Dow industrials dropped 149 points to 15,698, the Nasdaq fell 19 points to 4,103 and the S&P 500 index lost 11 points to 1,782.  Data showed that inflation in the eurozone fell to 0.7% in the year to January from 0.8% the previous month. The data raised worries that the region could slip into a situation where prices are actually falling. Such deflation can hurt an economy as consumers delay purchases and businesses postpone investment.

The TSX is up 0.53% for the month and the Dow industrials are down 5.3%. But analysts suggested that a reason for the decline is that investors simply wanted to cash in on a huge rally last year that left the Dow up well over 20%. “This is more like taking profits,” said Sid Mokhtari, a technical analyst at CIBC World Markets, noting that the U.S. market has only fallen 4% this month peak to trough. “Internals of the market are still OK, we don’t see too many damaged profiles to the market internals, which is generally a good sign.”

 

Canadian Economy Grows For Fifth Straight Month

The economy grew by 0.2% in November compared with October, boosted by the resource sector, marking the fifth straight monthly increase. The increase matched the expectations of economists and was just below the 0.3% gain in October. “While looking somewhat deep into the rear-view mirror, the decent month continues to point to a sturdy end to 2013 for the Canadian economy,” BMO chief economist Doug Porter wrote in a note. “The three-month trend in growth is now running at a nifty 3.8% annualized clip, and output is up 2.6% from a year ago.” Statistics Canada said the output of goods-producing industries rose by 0.4% in November, led by an increase in oil and gas extraction which rose 2.6%. Mining and quarrying was up 1.3%, while utilities gained 2.1% as cold weather boosted demand for electricity and natural gas. Manufacturing was down 0.5%. The output of service industries rose 0.2% as retail trade gained 0.8%. Wholesale trade lost 0.6%. TD Bank economist Leslie Preston said with two out of three months now in hand for the fourth quarter, the economy looks to have built on the momentum of the third quarter.   Last week, the Bank of Canada said in its monetary policy report that economic growth in the second half of 2013 was better than expected and should pick up from an estimated 1.8% in 2013 to 2.5% both this year and next. The central bank expects global growth—led by stronger momentum in the U.S.—to rise from 2.9% in 2013, to 3.4% and 3.7% in the following years.

 

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Sources: Bloomberg; advisor.ca; Investment Executive; Statistics Canada; BMO; TD