June 5, 2008 / 1:07 PM / 11 years ago

Toronto stocks may ease on oil and rate outlook

*Commodities mostly down, may hit resource shares

*Bernanke comments still weigh on rate-sensitive stocks

TORONTO, June 5 (Reuters) - The Toronto Stock Exchange’s main index may decline for a third straight session Thursday, with little support likely from commodities and growing expectations that U.S. interest rates may rise before year-end.

The prices of key commodities were mostly lower — with oil and most metals down, and natural gas up — clouding the outlook for the resource-heavy Canadian index.

MDS Inc MDS.TO reported a lower second-quarter profit and the health sciences company reduced its fiscal outlook on Thursday, possibly weighing on some sectors of the TSX. For details, see: [nN04378250]

The markets are still digesting comments from U.S. Federal Reserve Chairman Ben Bernanke, which heightened inflation worries and the expectation that the central bank will hike interest rates by year-end, taking the wind out of stocks.

Bernanke said on Wednesday long-term inflation expectations were a “significant” concern. In response, European stocks dipped early on Thursday.

With crude oil on a three-day slide, TSX resource shares may weaken on Thursday.

However, CIBC Chief Economist and Strategist Jeff Rubin said he remained confident oil will head higher, taking TSX energy shares with it.

“Neither speculation nor the value of the US dollar is material to the oil outlook,” he wrote in a research note.

“We estimate that accumulation of ‘paper’ barrels of oil in the hands of speculators has been, at most, one-fifth of the increase in Chinese demand for actual barrels of oil over the last five years.”

Airlines may attract attention after Air Canada ACa.TO said it passenger loads rose to a record last month, while rival Westjet (WJA.TO) flew lighter loads. See: [nN04429385]

In economic news, the value of Canadian building permits jumped 14.5 percent in April to their highest level since October. See: [nN05321235] Economists surveyed by Reuters had expected, on average, a gain of just 0.7 percent.

The S&P/TSX composite index .GSPTSE starts the day at 14,690.46 after easing 38.15 points, or 0.3 percent, in a resource-led fall the previous session.

$1=$1.02 Canadian Reporting by Jonathan Spicer; Editing by Frank McGurty

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