The Toronto stock market closed lower Tuesday after the International Monetary Fund warned that economic conditions are deteriorating while traders anticipated the start of an earnings season that could be the most disappointing in years.
The S&P/TSX composite index backed off 145.42 points to 12,273.57 while the TSX Venture Exchange slipped 17.17 points to 1,327.81. The Canadian dollar was up US0.03¢ to US102.19¢, off early highs as gains in metal prices evaporated.
U.S. markets were lower ahead of the release of earnings from resource giant Alcoa Inc. after the close. The Dow Jones industrials dropped 110.12 points at 13,473.53.
The Nasdaq composite index fell 47.33 points to 3,065.02 while the S&P 500 index declined 14.40 points to 1,441.48 amid a report from the IMF that downside economic risks have increased and are considerable. It said Tuesday in a quarterly update of its World Economic Outlook that the global economy will expand 3.3% this year, down from the estimate of 3.5% growth it issued in July. Its forecast for growth in 2013 is 3.6%, down from 3.9% three months ago and 4.1% in April.
The IMF added that the global economic malaise is spreading to more dynamic emerging economies such as China. China's economy now is expected to expand 7.8% this year, down from July's 8% forecast. Meanwhile, Alcoa surprised traders who are expecting the quarterly earnings season to be the worst since the economic revival in 2009.
The company beat expectations on the top and bottom lines. Earnings per share came in at 3¢ against expectations of a break even number. Alcoa's revenues came in at US$5.83 billion, well above the US$5.54 billion that analysts expected. Its shares were up about 0.65% in after hours trading.
The company is seen as an economic bellwether as its products are used in a wide variety of industries, from auto makers to appliance manufacturers.
Earnings expectations across the board are muted for the most recent quarter.
"We do think Q3 earnings are going to be underwhelming", said Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis. "We're likely to see maybe a year-over-year decline."
Fehr added the resource-heavy TSX is particularly vulnerable amid slowing global growth. "The decline in commodity prices we have seen year over year is going to have an impact on earnings on the TSX, maybe even more so than we will see out of the S&P 500," added Fehr.
Commodity prices were mixed after registering losses Monday in the wake of a pessimistic outlook from the World Bank.
