More volatility ahead after wild week on Toronto's stock market

TORONTO - Investors are in for more volatility this week after swings of hundreds of points on Toronto's main index amid uncertainty in the U.S. financial markets and shifts in oil prices.

The TSX/S&P composite index ended last week at 12,769.58, up 134.75 points on the week.

But as the week came to an end uncertainty over the impact of hurricane Ike on the U.S. Gulf Coast refineries, as well as about the future of U.S. investment bank Lehman Brothers, had analysts predicting another week of big highs and lows.

"Hundred-point moves barely raise an eyebrow anymore, it almost takes 300 or 400-point moves to get some serious attention," said Bank of Montreal economist Doug Porter said.

"To some extent investors are becoming a little bit (used) to some of the volatility, and the important point is that the TSX was actually flirting heavily with official bear market territory sometime this (past) week. The market had dropped almost 20 per cent from its high before the late-week rebound."

In the past weeks, falling crude prices have driven down Canada's major stock market, which is heavily weighted to oil, gas and commodity companies, as higher prices contribute to demand destruction.

The energy sector ended the day up two per cent as light, sweet crude for October delivery rose 31 cents to settle at $101.18 a barrel on the New York Mercantile Exchange, after briefly sinking to $99.99.

Still, motorists across Canada were hit with sharply higher gasoline prices, with GasBuddy.com, a website that monitors North American fuel prices, reporting the average price Friday in Canada was nearly $1.33 a litre, compared with $1.05 a litre a year ago.

CIBC economist Avery Shenfeld said he expects gas prices to be up sharply in the coming week, as inventories plunge in the wake of disruptions from hurricanes Gustav and Ike.

"Whether that stretches into several weeks or months will depend on just how high the waters rise at Houston area refineries this weekend," Shenfeld said.

"But real consumption (in the U.S.) was already on track for a negative third quarter, and even a month of high gas prices will put a dent into fourth-quarter spending power."

Porer said the dominating factor for Toronto markets in recent weeks has been a darkening outlook for the global economy and what that's doing to commodity prices.

"It does look like on Friday commodity prices have finally broken a losing streak that stretched out for a little longer than two weeks but it still looks like commodity prices are going to remain under some pressure from weakening global growth."

Markets will also be watching the rate announcement in the United States to come out of the Federal reserve meeting on Tuesday.

"No one's looking for a rate move next week but it will be interesting to hear their commentary because - up until very recently - the market had ben assuming the next move by the Fed would be to raise interest rates, but now there's some talk that the Fed may actually to cut rates at some point again because of the deepening weakness in the U.S. economy," Porter said.

"So it'll be interesting to see if there's any hint at all along those lines in next week's Fed meeting."

Other economic news expected this week are new vehicle sales, manufacturing shipments and wholesale sales in Canada, as well as the U.S. consumer price index, housing starts and initial jobless claims.