At midday: Stocks fall as hot U.S. jobs report sparks rate hike jitters
Canada’s resource-heavy main stock index fell on Friday and was set to end the week lower, as energy stocks posted steep weekly losses, while fears of an aggressive policy tightening path by central banks weighed on global sentiment.
In morning trade, the Toronto Stock Exchange’s S&P/TSX composite index was down 15.14 points, or 0.08%, at 19,561.9.
The index took cues from the global markets as U.S. and European stocks declined after stronger-than-expected U.S. jobs data fueled expectations for a 75-basis-point rate hike at the Federal Reserve’s September meeting.
Meanwhile, Canada’s economy unexpectedly lost jobs for the second month in a row in July after a year-long boom, but analysts predicted that this would not stop the Bank of Canada from hiking interest rates to fight inflation.
“While today’s figures muddy the waters further for policymakers, the Bank of Canada will likely focus on the historic low unemployment rate and still strong wage growth to justify another non-standard rate hike at its next meeting,” said Andrew Grantham, senior economist at CIBC Capital Markets.
The Canadian central bank raised rates by a hefty 100 basis-points last month in a bid to tackle soaring prices and said more hikes would be needed.
Weighing on the index, the rate-sensitive technology stocks fell 0.7%.
The materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.3% as gold futures fell 1.0% to $1,769.9 an ounce.
The resource-heavy Toronto benchmark index was set to end the week 0.8% lower dragged down by an 8.1% weekly drop in energy stocks, as oil prices pulled back on concerns over a possible recession and a fall in fuel demand.
Among individual movers, Canopy Growth Corp slumped 6.8% on posting another core loss, denting investor hopes that the cannabis producer would turn profitable anytime soon.
TC Energy Corp fell 4.8% after saying on Thursday it had struck a deal with a Mexican state utility to develop a $4.5 billion natural gas pipeline.
On Wall Street, technology stocks were bearing the brunt of the selloff.
U.S. employers hired far more workers than expected in July, the 19th straight month of payrolls expansion, with the unemployment rate falling to a pre-pandemic low of 3.5%.
The report provided the strongest evidence yet that the economy was not in recession.
“It is a blockbuster number, clears the path for the Fed to continue with the hawkish viewpoints that have been expressed recently. I think a 75 basis points hike in September is most likely,” said Dean Smith, chief strategist at FolioBeyond.
“There was such a strong urge for people to call the all clear on inflation and we are just not there. Inflation is becoming more embedded and it is actually accelerating, not decelerating.”
The growth index, which houses technology and related stocks, fell as U.S. Treasury yields extended their rise after the report. Shares of Tesla Inc and Amazon.com were down 2.2% and 1.3%, respectively.
Several policymakers have this week said the central bank remained determined to stick to its aggressive policy tightening stance until it saw strong and long-lasting evidence that inflation was trending toward the Fed’s 2% goal.
Markets are now pricing in a 65.5% chance of a 75 basis point rate hike in September, up from 40% before the data. The central bank has already increased rates by 2.25 percentage points so far this year.
Worries about a surge in borrowing costs, the war in Ukraine, Europe’s energy crisis and COVID-19 flare-ups in China have rattled equities this year and prompted analysts to adjust their earnings expectations for corporate America.
However, a largely upbeat second-quarter earnings season, coupled with a strong batch of economic data, has helped the S&P 500 bounce back nearly 13.6% from its mid-June lows after a rough first-half performance.
“(Today’s data) is another solid reminder that we are not in a recession and likely recession isn’t anywhere,” Ryan Detrick chief market strategist at Carson Group said.
“That’s probably still more of a positive thing than not, no matter what Fed policy is … that’s still a major tailwind eventually for equities to continue to bounce back this year.”
At 9:45 a.m. ET, the Dow Jones Industrial Average was down 134.01 points, or 0.41%, at 32,592.81, the S&P 500 was down 27.03 points, or 0.65%, at 4,124.91, and the Nasdaq Composite was down 135.90 points, or 1.07%, at 12,584.68.
Lyft Inc rose 4.6% as the ride-hailing firm forecast an adjusted operating profit of $1 billion for 2024 after posting record quarterly earnings.
Block Inc fell 2.8% as the digital payments company reported a loss in quarterly results on waning interest in cryptocurrencies.
Declining issues outnumbered advancers for a 3.25-to-1 ratio on the NYSE and for a 2.30-to-1 ratio on the Nasdaq.
The S&P index recorded three new 52-week highs and 30 new lows, while the Nasdaq recorded 11 new highs and 28 new lows.