After leaving interest rates unchanged for two straight meetings, the Bank of Canada on Wednesday announced it has decided to once again raise rates.
The Bank of Canada increased its target for the overnight rate by 25 basis points to 4.75 percent, citing stubbornly high inflation and stronger than expected economic growth.
Canada’s central bank said the rate hike reflects its view that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2 percent target.
The Bank of Canada also said it is continuing its policy of quantitative tightening, which it said is complementing the restrictive stance of monetary policy and normalizing the bank’s balance sheet.
The bank’s Governing Council said it will continue to assess the dynamics of core inflation and the outlook for consumer price inflation.
The Bank of Canada reiterated that it remains resolute in its commitment to restoring price stability for Canadians.
The Canadian market is down marginally around late morning on Wednesday, with investors digesting the Bank of Canada’s decision to raise interest rates by 25 basis points.
The Canadian central bank this morning increased its target for the overnight rate by 25 basis points to 4.75%, citing stubbornly high inflation and strong than expected economic growth.
The BoC, which had left interest rates unchanged for two straight meetings, said the rate hike reflects its view that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target. The central bank reiterated that it remains resolute in its commitment to restoring price stability for Canadians.
The bank’s Governing Council said it will continue to assess the dynamics of core inflation and the outlook for consumer price inflation.
Technology stocks are notably lower. Several stocks from healthcare, consumer staples and consumer discretionary sectors are also weak. Energy stocks are gaining, tracking higher crude oil prices.
The benchmark S&P/TSX Composite Index is down 37.00 points or 0.19% at 20,018.60 a few minutes before noon. The index, which climbed to 20,149.95 just before the announcement of the rate decision, dropped to 19,994.29 subsequently.
The Canadian market is down marginally around late morning on Wednesday, with investors digesting the Bank of Canada’s decision to raise interest rates by 25 basis points.
The Canadian central bank this morning increased its target for the overnight rate by 25 basis points to 4.75%, citing stubbornly high inflation and strong than expected economic growth.
The BoC, which had left interest rates unchanged for two straight meetings, said the rate hike reflects its view that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target. The central bank reiterated that it remains resolute in its commitment to restoring price stability for Canadians.
The bank’s Governing Council said it will continue to assess the dynamics of core inflation and the outlook for consumer price inflation.
Technology stocks are notably lower. Several stocks from healthcare, consumer staples and consumer discretionary sectors are also weak. Energy stocks are gaining, tracking higher crude oil prices.
The benchmark S&P/TSX Composite Index is down 37.00 points or 0.19% at 20,018.60 a few minutes before noon. The index, which climbed to 20,149.95 just before the announcement of the rate decision, dropped to 19,994.29 subsequently.
Among technology stocks, Hut 8 Mining Corp (HUT.TO) is down 3.7% and Shopify Inc (SHOP.TO) is lower by about 3.1%. BlackBerry (BB.TO), Quarterhill (QTRH.TO), Open Text Corp (OTEX.TO) and Descartes Systems Group (DSG.TO) are down 2 to 2.2%. Kinaxis (KXS.TO) and Converge Technology Solutions (CTS.TO) are also notably lower.
Healthcare stocks Tilray Inc (TLRY.TO) and Canopy Growth Corporation (WEED.TO) are down 2.5% and 2%, respectively. Bausch Health Companies (BHC.TO) is down 0.7%.
Consumer discretionary stocks Sleep Country Canada Holdings (GOOS.TO), Restaurant Brands International (QSR.TO) and MTY Food Group (MTY.TO) are down 2.4%, 2.2% and 1.9%, respectively.
Data from Statistics Canada showed, Canada posted a trade surplus of C$ 1.94 billion in April of 2023, wider than the downwardly revised surplus of C$ 0.23 billion in the previous month. Exports jumped by 2.5% to C$ 64.8 billion, while imports fell by 0.2% to C$ 62.9 billion.
Exports fell 7.5% in May from a year ago, far worse than the 0.4% decline predicted by a Reuters poll.
Imports for May dropped by 4.5% from a year ago — less than the 8% plunge forecast by Reuters.
The decline was so sharp that export volumes are below their levels at the start of the year, after accounting for seasonality and changes in export prices, Julian Evans-Pritchard, head of China Economics, at Capital Economics, said in a note.
Service sector activity in the U.S. saw only modest growth in the month of May, according to a report released by the Institute for Supply Management on Monday, with the index of activity in the sector falling by more than expected.
The ISM said its services PMI fell to 50.3 in May from 51.9 in April, although a reading above 50 still indicates growth in the sector. Economists had expected the index to edge down to 51.5.
The bigger than expected decrease by the headline index was partly due to a slowdown in the pace of growth in new orders, as the new orders index slid to 52.9 in May from 56.1 in April.
The employment index also dropped to 49.2 in May from 50.8 in April, indicating a decrease in service sector jobs following three consecutive months of growth.
The report also showed the business activity index edged down to 51.5 in May from 52.0 in the previous month.
“There has been a pullback in the rate of growth for the services sector,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee. “This is due mostly to the decrease in employment and continued improvements in delivery times (resulting in a decrease in the Supplier Deliveries Index) and capacity, which are in many ways a product of sluggish demand.”
The supplier deliveries index slipped to 47.7 in May from 48.6 in April, with a reading below 50 indicating faster deliveries.
Nieves added, “The majority of respondents indicate that business conditions are currently stable; however, there are concerns relative to the slowing economy.”
On the inflation front, the prices index fell to 56.2 in May from 59.6 in April, suggesting a slowdown in the pace of price growth.
The ISM released a separate report last Thursday showing U.S. manufacturing activity contracted at a slightly faster rate in the month of May.
The ISM said its manufacturing PMI slipped to 46.9 in May from 47.1 in April, with a reading below 50 indicating a contraction. Economists had expected the index to edge down to 47.0.
Gold prices were flat to slightly higher on Tuesday, as the dollar pulled back, and U.S. bond yields declined on hopes for a pause in Fed hikes at both June and July policy meetings.
Spot gold was virtually unchanged at $1,961.82 per ounce, while U.S. gold futures were up 0.2 percent at $1,977.85.
Data showed on Monday that the U.S. services sector barely grew in May and new orders for manufactured goods rose by slightly less than expected in April, rekindling concerns about inflation and a potential recession.
German factory orders data as well as Eurozone and British retail sales figures all disappointed today – denting appetite for riskier assets.
Geopolitical tensions also remained on investors’ radar after the Ukrainian government accused Russia of blowing up the Nova Kakhovka dam on the Dnipro River, which provides water to Crimea and the Zaporizhzhia Nuclear Power Plant (ZNPP).
The International Atomic Energy Agency (IAEA) is monitoring the situation closely.
Oil prices fell nearly 2 percent on Tuesday on concerns that a long-drawn recession in advanced economies brought on by interest-rate hikes may weigh on global demand.
Benchmark Brent crude futures fell 1.9 percent to $75.25 a barrel, while WTI crude futures were down a little over 2 percent at $70.69.
Bullish impetus from OPEC+ production cuts faded against a weaker-than-expected demand picture.
The U.S. services sector barely growth in May and new orders for manufactured goods rose by slightly less than expected in April, rekindling concerns about inflation and a potential recession.
Interest-rate concerns returned to the fore after the Reserve Bank of Australia unexpectedly raised rates again by 25 basis points and kept the door open to further hikes, saying inflation still remained too high.
German factory orders data as well as Eurozone and British retail sales figures all disappointed – adding to cautious market mood.
Amid increasing macroeconomic headwinds, traders shifted focus toward high-profile central bank meetings due next week, including the Fed and the ECB.
Market participants believe that the U.S. Federal Reserve may skip an interest-rate hike at the end of a policy meeting next week.
Key inflation reports will be in the spotlight next week, as the data could impact whether the Fed resumes its rate hikes next month.
ECB President Christine Lagarde has already reaffirmed that it was too early to call a peak in core inflation despite “signs of moderation
The private sector in Hong Kong continued to expand in May, albeit at a slower pace, the latest survey from S&P Global showed on Monday with a private sector PMI score of 50.6.
That’s down from 52.4 in April, although it remains above the boom-or-bust line of 50 that separates expansion from contraction.
Despite being driven by a surge in new business to Mainland China, new order growth slowed to the weakest since January. Lower new sales led to a softer rise in business activity and a reduction in inventory holdings. At the same time, staffing levels fell for the first time since November 2022.
That said, overall input cost inflation quickened as supplier performance deteriorated for the first time in seven months, thereby adding pressure to firms’ margins. Less robust demand conditions also weighed on business confidence.
The services sector in China continued to expand in May, and at a faster rate, the latest survey from Caixin revealed on Monday with a services PMI score of 57.1.
That’s up from 56.4 and it moves further above the boom-or-bust line of 50 that separates expansion from contraction.
The steeper upturn in activity coincided with a stronger rise in overall new business received by Chinese service providers in May. The rate of growth was likewise the second-sharpest since November 2020, with panel members citing continued improvements in demand conditions and customer numbers since the rollback of pandemic restrictions. Increased amounts of new work and rising business requirements led firms to expand their staffing levels for the fourth successive month.
The survey also showed that the composite index climbed to 55.6 in May from 53.6 in April.
May survey data also pointed to a steeper upturn in composite new orders, which expanded at the quickest pace for just over two years and solidly overall. Growth in new export work remained marginal, however. Turning to employment, a faster reduction in manufacturing headcounts offset a mild increase in the service economy, leading overall workforce numbers to fall slightly. Prices data meanwhile indicated only a marginal rise in costs that was the joint-slowest for three years. Output charges fell for the second month in a row.
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