Aug 16: At midday: TSX hits near 10-week high on boost from financials
Canada’s main stock index hit a near 10-week high on Tuesday, boosted by financial stocks after data showed elevated core price pressures, spurring bets of another big rate hike by the Bank of Canada next month.
Canadian inflation slowed to 7.6% in July, matching analysts’ forecasts and down from 8.1% in June, Statistics Canada data showed, but economists said hot core measures suggest another outsized interest rate hike was still to come.
The central bank raised its main interest rate by 100 basis points in July in a bid to tame inflation, becoming the first G7 country to make such an aggressive hike in this economic cycle.
Traders now see 70% odds of 50 basis points rate hike at the BoC’s September meeting.
The financial sector rose 0.5% on bets of rising rates, while high-growth stocks of technology and weed companies slid as yields gained ground.
“The Canadian market is very commodity and interest rate sensitive and while these things (cooling inflation) are wonderful for the world, they are not conducive to outperformance of the TSX,” said Barry Schwartz, portfolio manager at Baskin Financial Services.
At 10:59 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 23.34 points, or 0.12 percent, at 20,203.94.
Brent crude futures and U.S. West Texas Intermediate crude extended losses from the previous session when China’s central bank cut lending rates to revive a surprise slowdown in the economy.
Canada’s energy index slipped, adding to 1.6% decline a day earlier.
Stocks edged lower in morning trading on Wall Street Tuesday as investors cautiously reviewed mostly encouraging financial results from major retailers.
The S&P 500 fell 0.2%. The Dow Jones Industrial Average rose 79 points, or 0.2%, to 33,991 and the Nasdaq fell 0.9%.
Walmart jumped 5.7% and after the nation’s largest retailer reported strong results that easily topped analysts’ forecasts. Home Depot rose 3.2% after also reporting better-than-expected results. The gains from both companies did much of the heavy lifting for the Dow.
Retailers and consumer product makers made solid gains, but those were in kept in check by broad losses in technology stocks. Chipmaker Nvidia fell 1.7%.
Bond yields gained ground. The yield on the 10-year Treasury rose to 2.86% from 2.79% late Monday.
European markets were slightly higher and Asian markets closed mixed overnight.
Consumers are facing hottest inflation in 40 years and the latest results from retailers show that spending remains solid. Wall Street has been concerned that higher prices on everything from food to clothing could eventually stunt the economy’s main engine of growth, consumer spending. Investors will get more updates on the retail sector this week, when Target reports its results on Wednesday.
The Commerce Department releases its July retail sales report on Wednesday. Economists surveyed by FactSet expect modest 0.2% growth from June, when sales rose 1%.
The retail reports are capping off the latest round of corporate earnings, which have been closely watched by investors trying to determine inflation’s impact on businesses and consumers, while trying to gauge how Federal Reserve will react. The central bank is raising interest rates in an effort to slow down economic growth and rein in inflation, though it risks hitting the brakes too hard and veering the economy into a recession.
Investors are looking for any signs that inflation is peaking or cooling in the hopes that the Fed could ease its aggressive rate hike policy.
Stocks had their best month in a year-and-a-half in July and the winning streak has been continuing into August partially on hopes that inflation is easing. The latest government report on consumer prices showed that inflation essentially stalled from June to July.
Still, trading has been choppy, with major indexes swaying between gains and losses throughout each day.
Reuters and The Associated Press