TSX heads for flat open amid lower commodities, Bank of Canada rate decision

TORONTO – The Toronto stock market headed for a flat open Tuesday while commodities moved lower and traders exercised caution while waiting for the next development in the U.S. fiscal standoff between Republicans and Democrats.

Traders also took in quarter and annual earnings from Bank of Montreal (TSX:BMO) which beat estimates.

BMO had a fourth-quarter profit of $1.08-billion, up 41 per cent from a year ago.

The bank’s adjusted earnings amounted to $1.65 per share, beating estimates by 22 cents a share. The quarter brought Bank of Montreal’s total net income for the 2012 financial year to $4.19 billion, up 35 per cent from last year.

The Canadian dollar was up 0.09 of a cent to 100.6 cents US ahead of the Bank of Canada’s announcement on interest rates, scheduled for 9 a.m. EST. The bank is widely expected to leave its key interest rate unchanged at one per cent for an 18th meeting.

U.S. futures were slightly higher with the Dow Jones industrial futures gained 16 points to 12,966, the Nasdaq futures were four points higher to 2,674 while the S&P 500 futures added 0.9 of a point to 1,408.

Stocks retreated Monday after the U.S. Institute for Supply Management’s manufacturing index unexpectedly went into contraction territory during November, a signal that uncertainty surrounding the U.S. fiscal situation is hurting the economy.

Market attention has focused almost exclusively on heading off the automatic big spending cuts and significant tax increases that are to be imposed at the beginning of 2013. The worry is that the combination would dramatically slow the U.S. economy and likely push it over a “fiscal cliff” and back into recession.

Traders were unimpressed with a late day development that saw Republicans put forward a proposal calling for raising the eligibility age for Medicare, lowering cost-of-living hikes for Social Security benefits and bringing in $800 billion in higher tax revenue.

The plan relies more on politically sensitive spending cuts and would raise half the $1.6 trillion in revenue proposed by President Barack Obama over the coming decade. But it would keep the Bush-era tax cuts, including those for wealthier earners. Obama has said tax hikes for the very wealthy are a must.

Worries about economic weakness sent oil prices lower with the January crude contract on the New York Mercantile Exchange down 79 cents to US$88.30 a barrel.

March copper prices were unchanged at US$3.66 a pound while bullion for February declined $16.10 to US$1,705 an ounce.

Earlier in Asia, Japan’s Nikkei 225 index fell 0.3 per cent, Hong Kong’s Hang Seng gained 0.2 per cent and South Korea’s Kospi fell 0.3 per cent. In mainland China, the Shanghai Composite Index rose 0.8 per cent while the smaller Shenzhen Composite Index added 1.3 per cent.

European bourses were positive as talks between the 27 European Union finance ministers got under way in Brussels.

They hope to agree on the set-up of a new supervisory body, which will be headed by the European Central Bank and will hold wide-ranging authority over banks.

But Germany and France, the continent’s two largest economic powers, disagree on how many banks the ECB should be allowed to oversee, when it should start, and what its final powers should be.

London’s FTSE 100 index adding 0.03 per cent, Frankfurt’s DAX rose 0.3 per cent while the Paris CAC 40 was ahead 0.76 per cent.