Stocks set for further gains as Fed moves to dismantle emergency lending

The Canadian Press ~ The News
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TORONTO - The Toronto stock market may be in for further gains this week as investors realize the U.S. Federal Reserve's decision to hike the interest rate it charges banks is not necessarily a bad thing.
During the week, investor attention will be directed at earnings reports from some of the big Canadian banks and U.S. consumer confidence and economic growth data.
"A month from now we may come back to this and say none of this is working, investors are skittish again on the ability of Greece to raise money - which also means the ability of Spain and Portugal and Hungary," said Andrew Pyle, investment adviser at ScotiaMcLeod in Peterborough, Ont.
"But for now, the market has the luxury or the freedom to look out the window at the other stuff that's going on . . . and that's why I think you see the markets perform the way they are - because they like what they see."
The TSX bounded ahead 239 points or 2.08 per cent last week. The showing left the TSX up a solid 5.35 per cent over eight consecutive sessions as investors took in bullish U.S. retail and manufacturing data and felt increasingly confident that Greece will get its huge deficit under control and avoid a default.
However, investors were taken aback at the end of last week when the U.S. Federal Reserve moved to increase its discount rate - the rate charged to banks - a quarter point to 0.75 per cent.
The initial reaction was worry that the Fed would move to increase interest rates for consumers and businesses. But, a tame January inflation reading calmed nerves. And investors realized that the move actually represents a positive development.
"Tightening moves at this stage are a sign of strengthening," observed Colin Cieszynski, market analyst at CMC Capital Markets.
He said investors realize the Fed has to bring interest rates back to normal "but at least they're not going to be pressured by a faster pace than the economy would warrant at this point."
Meanwhile, CIBC (TSX:CM) and National Bank (TSX:NA) kick off the quarterly earnings season for Canada's banks.
"I think it would be a big surprise to see anything dramatically negative on the bank earnings front," Pyle said.
"Keep in mind also that the last half of the year, especially the last quarter, most banks also enjoyed a margin boost in terms of the spreads that were being charged on lines of credit."
And although there has been considerable debate over whether Canada is in the midst of a housing bubble, there is no doubt that the market is hot - a good thing for the banks and other mortgage lenders.
"More home sales means more mortgages," added Pyle.
"So I think the quarter was probably a pretty good quarter for the banks and there is probably some speculation that some of the banks will take this improvement in earnings and deliver some dividend increases."
Beyond the financial sector, food company George Weston (TSX:WN), pipeline company TransCanada Corp. (TSX:TRP), Maple Leaf Foods (TSX:MFI), miner Sherritt International (TSX:S) and conglomerate Onex Corp. (TSX:OCX) are to report earnings.

On the U.S. economic calendar, investors will take in the latest reading on U.S. consumer confidence on Tuesday. New home sales data comes in Wednesday while the latest reading on U.S. economic growth during the fourth quarter will be released on Friday.

Organizations: U.S. Federal Reserve, TSX, CMC Capital Markets CIBC National Bank George Weston TransCanada Corp. Maple Leaf Foods Onex Corp.

Geographic location: U.S., TORONTO, Greece Spain Portugal Hungary Peterborough Canada

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