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Traders await slew of resource company earnings reports after dismal week on TSX

April 21, 2013 8:45 PM
BOE Report Staff

By Malcolm Morrison, The Canadian Press

TORONTO – The Toronto stock market could be set to move further into negative territory this week as a slew of resource companies deliver quarterly earnings reports.

The TSX had a dismal week, closing down 2.2 per cent, leaving the main Toronto index down 2.95 per cent year to date, as a new round of worry sparked a selloff concentrated on resource stocks.

Oil moved below US$90 a barrel and copper fell to an 18-month low after the International Monetary Fund downgraded its global growth forecast while growth in China slowed earlier in the year.

Gold retreated seven per cent last week, dropping below US$1,400 for the first time in two years, amid worries that the worst-hit countries of the eurozone debt crisis might use their gold reserves to deal with their problems.
And traders worry that slowing economic conditions and falling commodities will not only impact the bottom lines of energy companies and miners, but depress their outlooks.
Colin Cieszynski, market analyst with CMC Markets Canada, thinks that results from the base metal miners will be particularly disappointing since base metal prices have been steadily falling through the quarter while gold prices held up relatively well until recently.

“So, I suspect the gold selloff you will probably see affect results more in future quarters,” he said.

“I suspect with the gold producers, it will be more people looking ahead at what the earnings might be like in future quarters and less perhaps, emphasis on the quarter just passed whereas with base metals, they may look more of a balance between the two.”

The issue with the base metals sector is that it’s hard to see where demand will pick up in the near future.

“A lot of the economies around the world are still struggling,” he said.

“Europe is in a recession, the peripheral economies aren’t getting any better and it looks like Germany and France are about to go back into recession again. The U.S. is struggling, China is struggling, Canada is struggling — everybody is struggling.”

And it’s not just energy companies and miners on the TSX that will feel pinched from slowing global growth. Big transportation companies that move crude and ore like railways will also be affected.

And Canadian Pacific Railway (TSX:CP.TO) in particular could be vulnerable.

The railway hands in quarterly results Wednesday at a time when its stock has soared amid hopes that the railway’s CEO, Hunter Harrison, can improve results at the railway, as he did during his tenure as top executive at rival Canadian National Railways (TSX:CNR.TO).

The stock is about $8 shy of its 52-week high of $132.92. But that is still a long ways away from its 52-week low of $71.61.

Most of the gains have taken place since last September and expectations for CP are high.

“If you figure this thing has gone from $80 to $130 in a matter of six months, then you have had some pretty high expectations getting baked into the stock,” said Cieszynski.

“This could be one of those where even if they met expectations, if guidance isn’t up to what people are hoping for, and people could be looking at the report as an excuse to take some profits, heading into an earnings report (CP) looks vulnerable.”

Canadian National also reports results next week.

Other major TSX resource companies handing in earnings include miners Teck Resources (TSX:TCK-B.TO), Lundin Mining (TSX:LUN.TO), Sherritt Resources (TSX:S), Barrick Gold (TSX:ABX.TO), gas company EnCana (TSX:ECA.TO), and oil companies Cenovus Energy (TSX:CVE.TO) and Imperial Oil (TSX:IMO.TO).

On the economic calendar, the major economic report of the week comes out on Friday when traders will get the first look at first quarter economic growth in the U.S.

Economists look for a gross domestic product to have grown at an annual rate of three per cent.

“Stronger consumer spending despite higher taxes, another double-digit gain in residential construction and inventory rebuilding following Hurricane Sandy’s disruptions should anchor a rebound in real GDP after activity stalled in Q4,” said BMO Capital Markets senior economist Sal Guatieri.

Traders will also digest Canadian retail sales for February on Tuesday. Statistics Canada is expected to report that sales rose 0.2 per cent after a one per cent gain in January. But the performance is expected to reflect a strong rise in gasoline prices that month.

Elsewhere in the U.S., hopes are high for continued strong performance from the housing sector.

March existing home sales are expected to come in at an annual rate of five million units, which would be a four-year high.

New home sales for March are reckoned to come in at an annual rate of 419,000.

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