Toronto stock market to open little changed ahead of Fed policy statement

TORONTO – The Toronto stock market headed for a flat open Wednesday as traders hoped the U.S. Federal Reserve will shed some light on what it intends to do about curbing some of its economic stimulus.

The Canadian dollar was little changed, up 0.02 of a cent to 97.96 cents US ahead of the end of the Fed’s two-day meeting on interest rates and an announcement at 2 p.m. EDT. This will be followed by a news conference with Fed chairman Ben Bernanke at 2:30 p.m.

U.S. futures were generally weak as the Dow industrial futures declined 14 points to 15,230, the Nasdaq futures gained three points to 2,991.5 while the S&P 500 futures dipped one point to 1,644.25.

A cloud of uncertainty settled over markets after Bernanke first mentioned the possibility of tapering the Fed’s monthly purchases of US$85 billion of bonds during congressional testimony May 22. Analysts don’t expect the Fed to make a move on tapering just yet. But uncertainty over whether the Fed feels economic conditions are appropriate for such easing, along with questions about how much the bank might cut back, has resulted in volatility where daily, triple-digit moves have become almost routine.

The bond purchases, the third round of quantitative easing embarked on by the Fed in the wake of the 2008 financial collapse and subsequent recession, have kept interest rates and bond yields low. They have also helped keep a strong rally on most stock markets going for all this year.

BMO Capital Markets senior economist Michael Gregory thinks the Fed wants to reinforce two messages.

“First, QE adjustments are data dependent, so market participants ought to frame their QE expectations around their economic forecasts, not their QE withdrawal fears,” he said.

“Second, slowing and stopping QE is the end of easing, not the beginning of tightening; rate hikes will still be far away (and perhaps now further away than before).”

Worries that the Fed may scale back its bond purchase program have also had an impact on emerging markets in recent weeks. The super-easy monetary policies by central banks in advanced economies like the U.S. prompted money to flow into Asian markets, which could see a reversal when the global central banks unwind their aggressive stimulus programs.

Commodity prices were mixed with the July crude contract on the New York Mercantile Exchange ahead 12 cents to US$98.56.

Statoil says it is evaluating a new discovery of high-quality oil about 500 kilometres northeast of St. John’s, N.L. The Harpoon discovery is about 10 kilometres from the Mizzen discovery, which is estimated to hold between 100 million and 200 million barrels of oil. Statoil has a 65 per cent interest in the Harpoon discovery and the remaining 35 per cent is owned by Calgary-based Husky Energy (TSX:HSE).

July copper was a cent higher to US$3.16 a pound while August bullion rose $4.20 to US$1,371.10 an ounce.

On the corporate front, Valeant Pharmaceuticals International, Inc. (TSX:VRX) has priced its previously announced public offering of shares aimed at helping finance the US$8.7-billion acquisition of eye care company Bausch + Lomb. Valeant will issue slightly more than 23.5 million common shares at a price of $85 per share, for aggregate gross proceeds of some $2 billion. Valeant shares closed up $1.44 Tuesday to $87.74.

Cenovus Energy Inc. (TSX:CVE( said Tuesday that it plans to massively increase the amount of oil it ships by rail by the end of 2014 as the fates of contentious pipeline projects remain undecided. It expects to move 30,000 barrels per day by rail by the end of 2014 _ triple the 10,000 it’s anticipating by the end of 2013.

Shipping giant FedEx posted quarterly earnings of US$2.13 a share ex-items, handily beating estimates of $1.96. Revenues came in at $11.4 billion, missing estimates of $11.44 billion and its shares were off 0.48 per cent in pre-market trading.

European bourses were lower with London’s FTSE 100 index down 0.54 per cent, Frankfurt’s DAX dropped 0.33 per cent and the Paris CAC 40 declined 0.58 per cent.

Earlier in Asia, trading was mixed. While, the Nikkei 225 stock average rose 1.8 per cent, Hong Kong’s Hang Seng index fell 1.1 per cent and South Korea’s KOSPI index shed 0.7 per cent.