Canada Stocks May Fall on Home Depot, Higher Interest Rates

By John Kipphof (Bloomberg)

Canadian stocks may fall for the first time in four days, after Home Depot Inc. said profit will fall and the Bank of Canada raised borrowing costs, signs that a slowing housing market, higher interest rates and a soaring Canadian dollar may hurt earnings.

Exporters of raw-materials including First Quantum Minerals Ltd. may decline after U.S. based Home Depot, the world's largest home improvement retailer, said earnings will drop between 15 percent and 18 percent in the fiscal year through Feb. 3, more than a previous forecast of a 9 percent decline.

Canada's central bank lifted its benchmark rate by one quarter point to 4.5 percent and signaled further action may be needed to slow inflation. That may weigh on interest-rate sensitive shares of such financial companies as Bank of Nova Scotia. The Standard & Poor's/TSX Composite Index rose 58.82, or 0.4 percent, to a record 14,177.52 yesterday in Toronto on optimism higher commodity prices will boost earnings and trigger more takeovers.

``Home Depot gave a negative outlook. People will be watching that,'' said Pierre Bernard, vice president of Canadian equities at Montreal-based Industrial Alliance Fund Management Inc., which manages about $13.6 billion. ``The economy is still strong and I'm still positive on the market. In the short term, Home Depot will be seen as a negative. There's also a perception that stocks won't do well with higher interest rates.''

Shares of First Quantum, a miner of copper in Africa, may slide from a record, losing C$1.56 to C$106, based on bids already submitted on the Toronto Stock Exchange.

Nickel Drops

Other metals producers, which have been leading the S&P/TSX higher recently on takeover such as Alcoa Inc.'s $27.7 billion hostile bid for Alcan Inc., may decline today as prices for some metals drop. Nickel declined in London to the lowest in almost six months as rising stockpiles of the metal indicated a slowdown in demand growth. Copper fell from a two-month high and zinc also dropped.

Metals and other commodities account for more than half of Canada's exports, of which 87 percent went to the U.S. last year.

Economists expect the central bank to raise borrowing costs again in September, according to the median of 18 estimates in a separate survey taken July 3. The Canadian dollar fell from a thirty-year high against its U.S. counterpart after the bank's decision.

``Some modest further increase in the overnight rate may be required to bring inflation back to the target over the medium term,'' the Ottawa-based central bank said today in a statement. The phrase differs from the last statement in May, when the central bank didn't use the word ``modest,'' and said an increase may be needed ``in the near term.''

Bank of Nova Scotia, Canada's second-largest lender by assets, may fall 5 cents to C$51.35, based on bids already submitted on the Toronto Stock Exchange. Manulife Financial Corp., the country's biggest insurer, may slip 4 cents to C$39.18, bids indicated.

U.S. Stock-Index Futures

U.S. stock-index futures fell after Home Depot Inc. lowered its profit forecast because of the slumping real-estate market and sale of a unit.

S&P 500 futures expiring in September dropped 7.60 to 1534.90 as of 9:16 a.m. in New York. Dow Jones Industrial Average futures decreased 42 to 13,698. Nasdaq-100 Index futures slid 11.50 to 1997.

The following shares may have unusual price changes. Prices are from the last close.

Alcan Inc. (AL CN): Rival aluminum producer Alcoa Inc. yesterday reported that second-quarter sales climbed 3.5 percent to $8.07 billion. That missed the $8.36 billion average estimate of analysts surveyed by Bloomberg. Alcoa said profit excluding some items was 81 cents a share, topping analysts' estimates by 1 cent. Alcoa, the world's second-biggest aluminum producer, extended its $27.7 billion hostile takeover bid for Alcan, the No. 3 producer, by one month to Aug. 10.

Separately, BHP Billiton Ltd., the world's largest mining company, declined to confirm or deny a report in the Times that it was in talks with private equity firms for a $40 billion bid for Alcoa.

Alcan shares added 15 cents, or 0.2 percent, to C$91.05.

Bank of Montreal (BMO CN): Canada's fourth-biggest bank, agreed to buy two Wisconsin banks to expand its U.S.-based Harris Bank unit into a third U.S. Midwestern state. Bank of Montreal, based in Toronto, said in a statement it agreed to buy Ozaukee Bank in a stock transaction worth $190 million and Merchants and Manufacturers Bancorporation for $137.2 million in cash. Ozaukee has eight branches and Merchants has 45 locations. Bank of Montreal shares added 37 cents, or 0.5 percent, to C$69.74

Canadian Apartment Properties Real Estate Investment Trust (CAR-U CN): The company, which manages apartments and townhouses, will buy two ``adult lifestyle'' communities near Bowmanville and in Grand Bend, Ontario for C$75 million ($71.5 million). The shares fell 24 cents to C$19.50.

Fort Chicago Energy Partners LP (FCE-U CN): The owner of interests in the natural-gas industry boosted its forecast of distributable cash to a range of C$1.05 to $1.15 per Class A unit. The company had previously forecast a range of 98 Canadian cents to C$1.10. The shares were unchanged at C$10.70.