TSX adds to losses over fiscal cliff worries

If a deal between the Republicans and Democrats isn’t reached, tax increases and government spending cuts to the tune of US$600 billion automatically take effect. The worry is that such a drastic measure would result in the United States sliding back into recession, dragging down other economies, including Canada’s.

One reason for the lack of confidence in American lawmakers is that traders recall the fierce infighting that went on during the debate on raising the U.S. debt limit during the summer of 2011. The raucous debate pressured financial markets around the world.

“We often quote (that) past performance is no guarantee of future results,” said Norman Raschkowan, North American strategist at Mackenzie Financial Corp.

“But clearly, everyone still looks at past performance and when you think back to the summer of 2011 that’s where people look at the fact that the composition (of Congress) hasn’t changed so people expect it increases the odds we do go over the cliff.”

The Canadian dollar was down 0.43 of a cent to 99.96 cents US as nervousness about the consequences of a looming budget crisis in Washington sent traders to the perceived safe haven of U.S. Treasuries for a second day.

U.S. indexes lost early momentum and turned lower after New York markets registered their steepest losses of 2012 on Wednesday.

Losses were bigger in the U.S. as investors worry that taxes on capital gains and dividends could rise substantially after the first of the year.

The Dow Jones industrials racked up a triple-digit loss for a second day, giving back 121.41 points to 12,811.32. The Nasdaq was down 41.7 points to 2,895.58 while the S&P 500 index slipped 17.02 points to 1,377.51.

The threat of a U.S. downgrade by ratings agency Fitch had added to the negative sentiment.

Hours after Barack Obama defeated Republican challenger Mitt Romney in a cliff-hanger election, Fitch said that the U.S. government’s top AAA rating would be at risk if Congress and the president did not immediately forge an agreement to avoid the fiscal cliff.

Commodity prices were higher following steep losses on Wednesday.

But TSX weakness was led by a 1.22% decline in the base metals sector as December copper added three cents to US$3.47 a pound after falling seven cents Wednesday. Thompson Creek Metals (TSX:TCM) gave back 13 cents to C$2.98 and First Quantum Minerals (TSX:FM) shed 77 cents to $22.14.

The energy sector lost 1.15%, while December crude gained 65 cents to US$85.09 a barrel after demand concerns, higher inventories and the rising American dollar combined to send prices skidding more than $4 Wednesday. Cenovus Energy (TSX:CVE) lost 60 cents to $33.14.

Canadian Natural Resources Ltd. (TSX:CNQ) weighed on the sector as its shares fell 93 cents to $28.02. CNQ had $360 million of net income in the third quarter or 33 cents per share, down from $753 million or 68 cents per share a year earlier. Adjusted net earnings fell to $353 million or 32 cents per share from $606 million or 55 cents per share a year earlier as results were affected by lower prices for crude oil, synthetic crude oil and natural gas liquids.

The industrials sector fell 1.1% as Bombardier Inc. (TSX:BBD.B) fell eight cents to $3.37 while Canadian Pacific Railway (TSX:CP) shed $1.36 to $90.55.

The financials sector was also a weight, down 0.57% as Royal Bank (TSX:RY) gave back 61 cents to $55.72.

Sun Life Financial Inc. (TSX:SLF) said it earned $383 million, or 64 cents per share, for the latest quarter, compared with a loss of $621 million, or $1.07 per share, a year ago. Operating net income, which excludes items that the company believes are not ongoing, was $401 million, or 68 cents per share, beating expectations of 63 cents and its shares ran ahead 94 cents to $25.31.

The gold sector gained about 1.3% while December bullion gained $12 to US$1,726 following a $1 dip. Goldcorp Inc. (TSX:G) improved by 40 cents to C$44.91. Kinross Gold Corp. (TSX:K) ran up 82 cents or 8.78% to $10.16 after it posted a quarterly earnings profit Wednesday that beat expectations. It also said it expects to meet the higher end of its production targets for the year.

Elsewhere on the earnings front, Tim Hortons Inc. (TSX:THI) shares fell $2.48 or 5.01% to $47.03 after the coffee, doughnut and fast food chain saw a 10.3% increase in total revenue. Net income attributable to shareholders was $105.7 million or 68 cents per share, up from $103.6 million or 65 cents per share a year ago. But the company also faced a decline in the number of customers at its restaurants.

And Canadian Tire Corp. Ltd. (TSX:CTC.A) stepped back $2.32 to $68.84 even as the retailer said it is boosting its dividend almost 17%. The retailer also said quarterly net earnings fell to $131.4 million or $1.61 per diluted share, compared with $136.5 million or $1.67 per diluted share a year ago.

The eurozone debt crisis also weighed on markets after Germany’s Finance Minister Wolfgang Schaeuble said the monetary union is not yet in a position to make a decision on releasing the next batch of bailout funds to Greece. As anticipated, the cash-strapped country still has to pass its budget for 2013 while lawmakers in some countries, including Germany, have to authorize the release of funds. The budget vote is to be held Sunday.