TSX heads for lower open, FedEx warning heightens worries of global slowdown

TORONTO – The Toronto stock market looked to move lower Wednesday morning on worries about a slowing economy and what central banks can do about it.

The Canadian dollar was 0.17 of a cent lower at 101.27 cents US ahead of the Bank of Canada’s interest rate announcement.

The loonie seemed unaffected by Tuesday’s Quebec election which saw the pro-independence Parti Quebecois win the contest, but only securing a minority government.

“Last night’s victory by the sovereign PQ party in Quebec has had little impact in currency markets, with election results largely foreshadowed in opinion polls,” said Mark Chandler, head of Canadian FIC strategy at RBC Dominion Securities.

The Bank of Canada was widely expected to leave its key rate unchanged at one per cent, reflecting slowing economic conditions in most of the world.

But traders will look for any change in wording in the bank’s statement to provide clues as to when the bank might start raising rates.

New York futures were negative with the Dow Jones industrial futures down 15 points to 13,035, the Nasdaq futures slipped 7.5 points to 2,767 and the S&P 500 futures were off 2.6 points to 1,403.4.

Nervousness about a slowing global outlook was heightened after FedEx delivered a profit warning, saying after the market close Tuesday that profit for the first quarter ended Aug. 29 will come up short of management’s prior projection of $1.45 to $1.60 a share. The package-delivery company cited “weakness in the global economy (that) constrained revenue growth at FedEx Express more than expected.”

Its shares were down three per cent in pre-open trading in New York.

Both FedEx and larger rival UPS have warned about the impact of slower economic growth on their results. In July, UPS said customers were worried about what’s in store in the second half of the year. The delivery companies have cut or reduced the frequency of flights in Asia, as shipments both within the region and to Europe and the U.S. have slowed.

Traders anxiously awaited Thursday’s interest rate announcement from the European Central Bank amid hopes the ECB will move to ease the eurozone debt crisis by addressing the high borrowing costs that have bedevilled some of the weakest members of the monetary union, particularly Spain. It is expected some sort of bond-buying program will be announced but it would come with strings attached.

To be eligible for the central bank’s help, for example, countries would likely have to formally apply for assistance from the eurozone’s rescue facility and accept conditions on their budget policies, which many governments would be reluctant to do.

“Spain, for example, will have to apply for such support before the ECB will buy any of its bonds, and ongoing buying will be conditional on meeting the targets set by the rescue fund,” said CIBC World Markets chief economist Avery Shenfeld.

Europe’s economy also remains fundamentally weak. A survey of the eurozone’s services sector on Wednesday showed the sector continued to contract in August. The so-called purchasing managers’ index fell more than earlier estimated, suggesting the currency bloc is headed for a sharp drop in GDP in the third quarter.

Markets also looked ahead to Friday’s release of the August non-farm payrolls report to see if a weak report would persuade the U.S. Federal Reserve to embark on another round of stimulus.

Commodity prices were mixed with the October crude contract on the New York Mercantile Exchange down 13 cents to US$95.17 a barrel.

December copper on the Nymex was up a penny at US$3.48 a pound while December bullion shed $2.50 to US$1,693.50 an ounce.

European bourses were mixed with London’s FTSE 100 index down 0.12 per cent, Frankfurt’s DAX gained 0.86 per cent and the Paris CAC 40 was ahead 0.17 per cent.

Earlier, in Asia, Japan’s Nikkei 225 index fell 1.1 per cent, Hong Kong’s Hang Seng lost 1.5 per cent, South Korea’s Kospi dropped 1.7 per cent while Australia’s S&P/ASX 200 shed 0.6 per cent.