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The Toronto stock market eked out a minor gain Monday thanks mainly to mining and energy stocks while continued weakness in the U.S. dollar supported the Canadian currency near parity against the greenback.
But New York markets closed lower after running up sharply last week in the wake of the U.S. Federal Reserve's interest rate cut, losing early momentum after talks between the United Auto Workers and General Motors Corp. broke down and the union made good on its promise to strike.
Canada's currency fell 0.08 of cent to 99.83 cents (U.S.) after trading at $1.0015 earlier in the morning. The loonie had hit parity with the U.S. dollar for the first time in almost 31 years last Thursday.
The Toronto stock market surged as much as 100 points in the early going but ended up finishing the session up just 18.21 points to 13,958.28 on top of last week's 0.7 per cent rise as early gains in financial, mining and tech stocks evaporated .
On Wall Street, the Dow Jones industrials was down 61.13 points to 13,759.06. The Nasdaq composite index declined 3.27 points to 2,667.95 while the S&P 500 index moved 8.02 points lower to 1,517.73.
General Motors had given strong support to U.S. markets ahead of the 11 a.m. EDT strike deadline. But as the deadline passed and word came out that workers were walking out, the stock moved down. GM stock finished the session down 15 cents (U.S.) to $34.79 after going as high as $38.66.
Stock markets were fired by last week's half-point cut in interest rates, which sent the Dow blue-chip index up 2.8 per cent last week. The Fed's cut was bigger than the quarter-point that had been widely expected.
Bob Tebbutt, vice-president of risk management at Peregrine Financial Group Canada, said the Fed's move caused money to flow out of the U.S. debt market to other countries offering higher rates.
"And so you have weakened the U.S. dollar... which makes U.S. exports cheaper, which means that U.S. manufacturers do better because they provide more goods into the world market, manufacturers will have to hire more people and their business will improve and they can borrow money at lower rates ― so why shouldn't the stock market take off?"
No major pieces of economic data were due Monday, but on Tuesday, investors will take in existing U.S. home sales. Economists expect them to drop for a sixth-straight month, "likely down four per cent to a five-year low," said a commentary from BMO Nesbitt Burns.
In Toronto, the energy sector continued to mend after taking a hit last week after a call for a 20 per cent increase in Alberta's royalties levied on oil and gas companies.
The sector advanced 0.25 per cent even as the November crude contract on the New York Mercantile Exchange declined 67 cents (U.S.) to $80.95 a barrel after a tropical depression in the Gulf of Mexico dissipated without damaging oil and gas infrastructure. Talisman Energy shares rose 25 cents (Canadian) to $10.
Shares in Calgary's PrimeWest Energy Trust shot up $6.37 or 32 per cent to $26.31 after The Abu Dhabi National Energy Co. made a $5 billion offer for the company. The global conglomerate, based in the United Arab Emirates and also known as TAQA, announced Monday a bid of $26.75 per unit, plus the assumption of debt, for natural gas-focused PrimeWest.
The offer lifted other energy trusts; Paramount Energy Trust gained 30 cents to $7.80 and Pengrowth Energy Trust moved ahead 76 cents to $17.98.
The TSX metals and mines sector was the strongest advancer, up 1.15 per cent. Shares in Teck Cominco Ltd. fell 40 cents to $47.55 after it announced it is paying $599.4 million to boost its stake in Fording Canadian Coal Trust to 19.95 per cent. Fording units were up 5 cents to $37.70 after earlier hitting a 52-week high of $38.75.
HudBay Minerals rose 36 cents to $26.56.
Gold prices were stable with the December bullion contract in New York inching up 40 cents (U.S.) to $739.30 an ounce and the TSX gold sector was off 0.24 per cent.

The strike might be on, but Wall Street doesn't believe that an agreement between GM and the UAW to create a new retiree health care fund is completely off.

GM stock held its own. GM closed at $34.74 Monday, down 20 cents a share. Ford Motor Co. closed at $8.48 a share, up 25 cents a share.

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GM has requested that the UAW take control of a new retiree health care fund to pay out future liabilities estimated at $50 billion in exchange for a one-time payment into the fund from the automaker.

Reportedly, the two sides have agreed in principle to the fund, known as a voluntary employee beneficiary association, or VEBA.

"This strike is in no way about VEBA discussions," said UAW President Ron Gettelfinger Monday.

And Wall Street analysts remained optimistic.

"We expect the eventual solution to include a VEBA deal in exchange for some job security," wrote Morgan Stanley analyst Jonathan Steinmetz.

Steinmetz said GM stock could initially trade up on investor enthusiasm about a "tough stand" on terms.

"A rally may fade, however, if a strike lingers," Steinmetz wrote.
Maryann Keller, an auto consultant in Stamford, Conn., said from Wall Street's view an agreement on the retiree health care fund would be a dramatic and beneficial shift for GM.

"If it didn't happen, then I'd be very concerned about the stock," Keller said.

Keller maintained that the biggest issue for the UAW is job guarantees. And North
American jobs are a worry because of GM's growing global reach.

Will the UAW be successful in getting job guarantees?

"I couldn't even speculate," Keller said.

David Sowerby, a Bloomfield Hills-based portfolio manager for Loomis, Sayles & Co., noted that GM stock had traded above $36 a share early Monday morning, but GM's stock price quickly fell after news of the national walkout had spread.

By 1:51 p.m., GM stock was trading at $34.99 a share ― up 5 cents from Friday. The stock fell further Monday afternoon.

Sowerby and others expressed hope for a short walkout. "The history of the last 20 years is that these strikes don't last very long," he said.

Keller estimated that the strike would last "days, not weeks, certainly not months."
Steinmetz concluded a strike could last longer than several days, but not months.

He said a short strike would not endanger GM's liquidity or competitive position.

"We would only seriously worrying about liquidity if the strike dragged on for more than a month," he wrote.

Brian Johnson, an analyst at Lehman Brothers, wrote that GM's cash position would not be hurt if the strike lasted two weeks or less. And GM's inventories would improve. But a longer strike would be more troublesome. He expressed concern about job security issues being a stumbling block.

"Job security may be a tougher issue leading to a longer deadlock," Johnson said.