China concerns to depress Toronto stock market at end of lacklustre week

TORONTO – The Toronto stock market appears headed for a decline Friday as commodity prices ease on concerns over Chinese moves to reform its industrial sector.

The Canadian dollar was off 0.1 of a cent to 97.33 cents US after running up almost 1/2 a US cent on Thursday.

U.S. futures were also lower with the Dow Jones industrial futures moved down 45 points to 15,439, the Nasdaq futures dropped 6.8 points to 3,043.2 and the S&P 500 futures gave back 6.25 points to 1,677.75.

There are concerns that an overhaul of China’s industrial sector could cause a sharp slowdown in the world’s second-largest economy.

Beijing has ordered companies to close factories in 19 industries from steel to glass where overproduction has led to price-cutting wars, affirming its determination to push ahead with a painful makeover of the economy. That move followed weak manufacturing data on Wednesday.

Commodities were lower across the board as demand concerns pushed the September crude contract on the New York Mercantile Exchange down $1.08 to US$104.41 a barrel.

September copper eased five cents to US$3.14 a pound and August bullion slipped $1.50 to US$1,327.30 an ounce.

The TSX looks set to end the week flat or even with a decline following weak earnings reports from the resource sector, in particular from Cenovus Energy (TSX:CVE) and PotashCorp (TSX:POT) in a reflection of falling commodity prices.

The telecom sector has also been negative this week, despite a strong earnings report from Rogers Communications (TSX:RCI.B) as investors mull the effects of a possible entry into the sector by U.S. telco Verizon Communications.

Bell has joined major telecom companies Rogers and Telus in calling for Ottawa to change its policy on foreign ownership of small Canadian wireless companies.

The three Canadian rivals say they have been put at an unfair disadvantage that allows foreign carriers like Verizon to buy small Canadian wireless carriers while denying them the same opportunity.

At the end of a heavy earnings week, electronics manufacturing company Celestica Inc. (TSX:CLS) posted net income of $28.0 million, or 15 cents per share, up from $23.6 million, or 11 cents per share, a year earlier. Adjusted earnings were 21 cents a share, four cents better than analysts expected.The company knew it would take a hit from losing BlackBerry (TSX:BB) as a customer as a result of the smartphone company’s slimmed-down strategy. As it turned out, Celestica’s revenue was US$1.495 billion — down 14 per cent from a year earlier but up three per cent if BlackBerry were excluded.

After the close on Thursday, Amazon.com Inc. reported a surprise loss of $7 million, or two cents per share, in the April-June quarter. That’s down from earnings of $7 million, or one cent per share, a year ago. Revenue rose 22 per cent to $15.7 billion. Analysts, on average, were expecting earnings of five cents per share on revenue of $15.73 billion and its shares were down 1.8 per cent in pre-market trading in New York.

Traders were also cautious ahead of a slew of top tier economic data next week, topped off by a two day meeting of the U.S. Federal Reserve that will be closely watched for any clue as to when the central bank might be thinking of trimming a key element of economic stimulus. The Fed currently spends US$85 billion a month to buy bonds, a move that has kept long-term rates near record lows and supported a strong stock market rally.

But Fed chair Ben Bernanke has indicated the Fed could start cutting back on those purchases later this year if the economy improves sufficiently.

There are also reports on second-quarter gross domestic product, the health of the manufacturing sector and the week ends with the release of the U.S. non-farm payrolls report.

In other corporate developments, Walmart Canada has chosen Halifax as the location for its first Supercentre in Atlantic Canada. The Supercentre will add fresh food to the department store’s offerings, putting competitive pressure on grocery retailers such as Sobeys (TSX:EMP.A). Walmart began rolling out the Supercentre large-scale stores in Ontario several years ago.

Earlier in Asia, China’s Shanghai Composite dropped 0.5 per cent and Japan’s Nikkei 225 index fell three per cent due to a big rise in the yen, which risks making the country’s exports less competitive on international markets.

Elsewhere in the region, Australia’s S&P/ASX 200 rose 0.1 per cent while Hong Kong’s Hang Seng was up 0.3 per cent.

European bourses were mixed with London’s FTSE 100 index down 0.34 per cent, Frankfurt’s DAX was down 0.53 per cent while the Paris CAC 40 gained 0.35 per cent.