TSX, Dow power ahead

The TSX resource sector in particular benefited from steps by China, the world’s second biggest economy, to encourage growth.

Canada’s central bank is joining the Bank of England, the Bank of Japan, the European Central Bank, the U.S. Federal Reserve and the Swiss National Bank “to enhance their capacity to provide liquidity support to the global financial system.”

Central banks to support global financial system with added liquidity

The central banks are making it cheaper for banks to get U.S. dollar liquidity when they need it, starting next Monday. They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant.

The Canadian dollar surged 0.95 of a cent to 98.01 cents US.

U.S. markets also took off with the Dow industrials jumping 489.07 points to 12,044.7, the Nasdaq gained 104.83 points to 2,620.34 and the S&P 500 index rose 51.75 points to 1,246.94 .

Fears of more financial turmoil in Europe have already left some European banks dependent on central bank loans to fund their daily operations. Other banks are wary of lending to them for fear of not getting paid back.

The co-ordinated action greatly alleviated those worries by cutting short-term borrowing rates to banks, giving them much easier access to money.

“For the month of November, the concern has been mainly Europe and their inability or unwillingness on the part of finance ministers to properly address the problem,” said Chris Kuflik, wealth adviser at ScotiaMcLeod in Montreal.

“And I’m positive the central bankers around the world are very frustrated by sitting back and watching this go on and they finally said, ‘OK, enough is enough’ and you’re not going to take down the world economy because you have a bunch of finance ministers who can’t agree on a solution.”

However, he pointed out that the central bank move is not a fix for the crisis but does buy time so eurozone leaders can come up with a credible plan to deal with it, such as the creation of a fiscal union that would see country’s budgets come under the scrutiny of a central European Union authority.

The reassurance from major central banks further enhanced positive sentiment arising from moves by China to ease lending and encourage growth.

China’s central bank announced that the amount of money China’s commercial lenders must hold in reserve will be cut by 0.5% of their deposits, effective Dec. 5. It was the first easing of monetary policy in three years.

Lending has been tightened as Beijing dealt with unacceptably high levels for inflation, especially for food.

But analysts have expected China to loosen lending controls after inflation eased to 5.5% in October from a three-year high and a surge in housing prices levelled off.

“Clearly China is concerned about the fallout from the crisis in Europe and slowing global demand,” said BMO Capital Markets senior economist Jennifer Lee.

China has been a rare bright spot for the global economy since the financial crisis of 2008. Its strong growth has been particularly helpful for the resource heavy TSX as strong demand has boosted demand for commodities such as oil and metals.

Commodity prices ran up smartly with the January crude contract on the New York Mercantile Exchange up 57 cents to US$100.36 a barrel. The energy group ran up 4.7% while Suncor Energy (TSX:SU) gained $1.37 to C$30.72 and Canadian Natural Resources (TSX:CNQ) advanced $1.96 to $38.31.

The base metals component gained 8.3% as hopes for higher demand from China sent the March copper contract ahead 19 cents to US$3.58. China is the world’s biggest consumer of copper. Teck Resources (TSX:TCK.B) was ahead $3.08 to C$37.35 while HudBay Minerals (TSX:HBM) rose 69 cents to $10.35.

The gold sector advanced while the February gold contract was ahead $31.40 to US$1,750.30 an ounce. Barrick Gold Corp. (TSX:ABX) was ahead $2.58 to C$54.05 and Goldcorp Inc. (TSX:G) advanced $3.71 to $54.95.

Financials rallied strongly on the central bank action, up almost four per cent as Bank of Montreal (TSX:BMO) improved by $2.25 to $59.66 while Royal Bank (TSX:RY) headed up $2.25 to $47.26.

Meanwhile, there was some optimistic news two days before the release of the U.S. non-farm payrolls report for November.

Payroll firm ADP said that the U.S. private sector created 206,000 jobs during November, which was well above expectations of a 130,000 gain and the most since December 2010. Analysts are now looking for the non-farm payrolls report to show the economy created 125,000 jobs during the month.

On Wednesday, traders also took in data showing that real gross domestic product in Canada grew at a better-than-expected annualized rate of 3.5% in the third quarter after a second-quarter drop of 0.5. Economists had expected a reading of three per cent.

European bourses were also stronger as London’s FTSE 100 gained 3.16%, Frankfurt’s DAX was up 4.98% and the Paris CAC 40 jumped 4.22%.

In corporate news, TMX Group (TSX:X) says the Commissioner of Competition has “serious concerns” about the likely competitive effects of Maple Group’s proposed plan to buy the owner of the Toronto Stock Exchange. TMX Group says the concerns are about competition in equities trading and clearing and settlement services in Canada. Its shares slipped 32 cents to $44.43.