TSX heads for lower open despite strong bank earnings

U.S. futures were lower after the release of the Fed’s latest regional survey Wednesday showed the pace of economic growth expanding. It also pointed to rising retail sales and loan demand, while housing markets are showing signs of improvement across most areas.

Other reports showed the economy grew faster than earlier reported in the April-June quarter, at a 1.7% annual pace.

The data served to raise uncertainty over whether Fed chairman Ben Bernanke would use a speech Friday to hint at further stimulus measures.

The Dow futures were down 35 points at 13,049, the Nasdaq futures declined 10.2 points to 2,771 and the S&P 500 futures were off 3.8 points to 1,403.4.

The TSX could find support from the financial sector in the wake of reports from Royal Bank (TSX:RY), TD Bank (TSX:TD) and CIBC (TSX:CM).

Royal Bank’s earnings grew to $2.24 billion or $1.47 per share, partly on strength in its Canadian consumer banking operations, from $1.29 billion a year ago. Excluding certain items, the bank earned $1.31 a share in the quarter against analyst estimates of $1.18. RBC also raised its quarterly dividend by 5% to 60 cents per share.

TD Bank’s quarterly net income rose to $1.7 billion, or $1.78 per share, from $1.49 billion a year ago. After adjustments, the bank’s net income was $1.82 billion or $1.91 per diluted share, seven cents better than estimates. TD also upped its dividend, which will rise five cents to 77 cents.

CIBC says its net income in the quarter ended July 31 was $841 million, compared with net income of $591 million for the same period last year. Excluding one-time items, the bank earned $2.06 a share, a dime better than forecast. CIBC also announced a quarterly dividend increase of four cents a share.

National Bank (TSX:NA) is scheduled to report its results Thursday after markets close.

Both Bank of Montreal (TSX:BMO) and Scotiabank (TSX:BNS) also handed in earnings which beat expectations on Tuesday.

And Scotiabank announced after the market close Wednesday that it has reached an agreement to buy ING Bank of Canada from Netherlands-based parent ING Group for $3.13 billion in cash.

The deal is expected to result in a net investment by Scotiabank of $1.9 billion, after deducting the excess capital currently at ING Direct. Scotiabank also announced a public offering of 29 million common shares at $52 – for gross proceeds of $1.5 billion – to fund the acquisition. Its shares closed Wednesday at $53.60, up 70 cents.

Hopes for further Fed stimulus had grown since the release of minutes from the Fed’s last interest rate meeting Aug. 1 which showed a growing number of members wanting to inject another round of stimulus into a weakening economy.

But analysts had pointed out that economic data released since then, including better than expected job creation in July, rising retail sales and a recovering housing sector, had actually pointed to a strengthening economy, meaning the Fed would find it hard to justify more easing.

The Fed makes its next interest rate announcement Sept. 14.

Equally important is the next interest rate announcement by the European Central Bank on Sept. 6. Gains on markets in August have also been anchored in hopes that the ECB will take steps to control high borrowing costs that have bedevilled the weakest members of the eurozone, including Spain.

Meanwhile, Chinese Premier Wen Jiabao said he is worried about the worsening eurozone debt crisis. And he called on Greece, Spain and Italy to embrace budget cuts and get their finances in order after meeting Thursday with visiting German Chancellor Angela Merkel. Wen said Beijing is willing to keep buying European bonds but gave no sign Beijing will bail out the eurozone.

Commodity prices were mixed with the October crude contract down five cents at US$95.44 a barrel.

September copper rose two cents to US$3.47 a pound following four days of losses.

Bullion edged $3.20 lower to US$1,659.80 an ounce.

European bourses headed lower as London’s FTSE 100 index moved down 0.18%, Frankfurt’s DAX lost 0.75 and the Paris CAC 40 declined 0.5%.

Earlier in Asia, China’s benchmark Shanghai Composite Index dropped to another three-year low, losing 0.03% to 2,052.58.

Elsewhere, the Tokyo Stock Exchange’s benchmark Nikkei fell 1%, South Korea’s Kospi slipped 1.2%, Hong Kong’s Hang Seng Index also was down 1.2% while Australia’s S&P/ASX 200 shed 0.9% to 4,315.70.

In Japan, a larger than expected 0.8% drop in retail sales in July from the year before added to worries over the economic outlook.