TSX to rise, traders relieved by German court ruling, look to Fed announcement

TORONTO – The Toronto stock market headed for a strong open Wednesday after a big chunk of uncertainty was removed from Europe’s efforts to solve a debt crisis that has been dragging on for almost three years.

Germany’s high court on Wednesday rejected calls to block the Europe Union’s permanent rescue fund.

Opponents had challenged Germany’s ratification of the European Stability Mechanism, which is a new, permanent €500 billion bailout fund for the 17 countries that use the euro. They had argued that it violated the country’s constitution and sought an injunction preventing the country’s president from signing the legislation into law.

Germany’s ratification of the ESM is key, because the fund cannot work without the country’s participation.

The Canadian dollar was off 0.05 of a cent to 102.7 cents US after running up almost half a US cent Tuesday. The loonie has run up to a 13-month high this week as traders anticipate that last week’s disappointing U.S. jobs data for August convinced the Federal Reserve that the economy needs another round of economic stimulus.

Such measures could include a third round of quantitative easing, which would see the Fed print more money to buy up bonds in order to keep interest rates low and encourage borrowing.

U.S. futures were sharply higher as traders greeted the German court decision relief and looked to an announcement by the Fed Thursday at the conclusion of their two-day meeting on interest rates.

However, markets could be in for a severe disappointment. Some analysts believe that the Fed will do nothing more than reassert that it’s willing to do more, especially as a number of its policymakers may be reluctant to do something dramatic in the middle of the U.S. presidential campaign.

The Dow Jones industrial futures ran up 42 points to 13,335, the Nasdaq futures were up 12.5 points to 2,791.8 while the S&P 500 futures gained 5.9 points to 1,436.5.

The European rescue fund is important because it can loan money to cash-strapped governments. It’s also due to play a key role in the recent bond-buying plan unveiled by European Central Bank president Mario Draghi, which has helped turn around market sentiment over the last several weeks.

“While the (court) outcome was largely expected, it is still a clear relief for the market, and there was some question over what conditions would be attached to the ruling,” said BMO Capital Markets senior economist Robert Kavcic, noting that the court ruled that the €190 billion German contribution can only be raised with legislative approval.

“In other words, liabilities are not unlimited. Overall, it appears that the conditions are somewhat softer than feared, and the market response has therefore been positive.”

Commodity prices ran up sharply as traders hoped that the court decision and the ECB’s bond-buying plan — which is intended to ease borrowing rates for the hardest-hit members of the eurozone — will help Europe get out of a severe economic slump and raise demand.

The October crude contract on the New York Mercantile Exchange gained 40 cents to US$97.57 a barrel. Traders hope to get a better idea of demand after the U.S. Energy Department is expected to report later in the morning that the country’s crude stockpiles fell by 3.3 million barrels last week.

Copper prices extended a rally into a fourth day with the December contract ahead three cents to US$3.74 a pound. The metal, viewed as an economic barometer as it is used in so many applications, has run up 18 cents over the last three sessions.

The December bullion contract gained $8.70 to US$1,743.60 an ounce.

European bourses were positive in the wake of the German court decision with London’s FTSE 100 index up 0.04 per cent, Frankfurt’s DAX gained 0.54 per cent and the Paris CAC 40 climbed 0.23 per cent.

Investors also looked to elections Wednesday that will see Dutch voters choosing a new parliament. The result could affect how the European Union tackles its debt crisis.

Many Dutch voters are feeling that their wealthy nation is paying too high a price to help bail out countries like Greece and Portugal.

Earlier in Asia, Japan’s Nikkei 225 index rose 1.7 per cent, Hong Kong’s Hang Seng added 1.1 per cent and South Korea’s Kospi gained 1.6 per cent. In mainland China, the Shanghai Composite Index gained 0.3 per cent while the Shenzhen Composite Index gained 0.5 per cent.

In corporate news, Telus Corp. (TSX:T) will go ahead with a meeting of all shareholders on Oct. 17, now that a B.C. court has ruled against a rival proposal from hedge fund Mason Capital Management LLC, which owns millions of shares of the telecom company.

According to Telus, the Supreme Court of British Columbia has ruled that Mason Capital isn’t entitled to call a rival meeting of only voting shareholders on the same day.

Telus and Mason are fighting over converting the telecom’s dual-class share structure of voting and non-voting stock to just one class of common shares but Mason argues the Telus approach doesn’t properly compensate holders of voting shares. Telus argues that only Mason would benefit if the hedge fund prevails.

Dollarama Inc. (TSX: DOL) had a net profit of $49.8 million in its second quarter, up 32 per cent from the comparable period last year. Dollarama’s revenue was up 13.8 per cent, rising to $441 million from $387.5 million for the corresponding period last year.