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Canadian Stocks Tumble On Recession Fears; TSX Falls To New 52-week Low (June 23)
Canadian stocks tumbled on Thursday, pushing the benchmark S&P/TSX Composite Index to a new 52-week low, as rising possibility of a recession weighed on sentiment.
Energy stocks were under pressure as crude oil prices fell sharply on concerns about outlook for energy demand. Materials shares fell as well on weak bullion prices.
Several stocks from the financial sector declined sharply, while healthcare and technology stocks posted strong gains. Consumer staples and utilities stocks had a good outing as well.
The S&P/TSX Composite Index ended with a loss of 286.92 points or 1.51% at 18,717.12, after hitting a low of 18,661.52.
The Energy Capped Index tanked nearly 7%. MEG Energy (MEG.TO), Baytex Energy (BTE.TO), Crescent Point Energy (CPG.TO), Arc Resources (ARX.TO) and Nuvista Energy (NVA.TO) lost 10 to 12.5%. Whitecap Resources (WCP.TO), Enerplus Corp (ERF.TO), Vermilion Energy (VET.TO), Tourmaline Oil Corp (TOU.TO) and Cenovus Energy (CVE.TO) lost more than 8%.
The Materials Capped Index shed more than 5%. First Quantum Minerals (FM.TO) tanked more than 12%. Teck Resources (TECK.B.TO), Hudbay Minerals (HBM.TO), Capstone Mining (CS.TO), Nutrien (NTR.TO), Lundin Mining Corp (LUN.TO), Ero Copper (ERO.TO) and Interfor Corp (IFP.TO) were among the other major losers.
National Bank of Canada (NA.TO), Fairfax Financial Holdings (FFH.TO), Toronto-Dominion Bank (TD.TO), CDN Western Bank (CWB.TO), Canadian Imperial Bank of Commerce (CM.TO), Bank of Nova Scotia (BNS.TO), Bank of Montreal (BMO.TO) and Laurentian Bank (LB.TO) lost 2 to 4%.
The Health Care Capped Index climbed 5.1%. Tilray Inc (TLRY.TO) soared 12%. Aurora Cannabis (ACB.TO) climbed 8.8%, Canopy Growth Corp (WEED.TO) zoomed 7.3% and Cronos Group (CRON.TO) surged 6.35%. Bausch Health Companies (BHC.TO) ended stronger by nearly 3.5%.
The Information Technology Capped Index surged up 4.12%. Lightspeed Commerce (LSPD.TO) and Shopify Inc (SHOP.TO) gained 7.8% and 7.7%, respectively. Evertz Technologies (ET.TO), Hut 8 Mining (HUT.TO), Magnet Forensics (MAGT.TO) and Desartes Systems Group (DSG.TO) ended higher by 5.3 to 6.4%. Nuvei Corp (NVEI.TO), Telus International (TIXT.TO), Absolute Software (ABST.TO) and Kinaxis Inc (KXS.TO) also posted strong gains.
In economic news, manufacturing sales in Canada fell 2.5% month-over-month in May of 2022, following a 1.7% rise in April, preliminary estimates showed. Wholesale sales in Canada likely rose by 2% from a month earlier in May of 2022, following a 0.5% fall in the previous month.
Oil up more than $1 but set for second weekly drop on recession fears
Oil rose by more than $1 a barrel on Friday supported by tight supply, although crude was heading for a second weekly fall on concern that rising interest rates could push the world economy into recession.
U.S. Federal Reserve Chair Jerome Powell said on Thursday the central bank’s focus on curbing inflation was “unconditional”, adding to fears about more interest rate hikes that have weighed on financial markets.
Brent crude was up $1.42, or 1.3%, at $111.47 a barrel by 0952 GMT, while U.S. West Texas Intermediate (WTI) crude gained $1.29, or 1.2%, to $105.56. Both benchmarks were heading for a second weekly decline.
“Increasing recession fears appear to be prompting a culling of heavy speculative long positioning in both contracts, even as in the real world, energy tightness is as real as ever,” said Jeffrey Halley, analyst at brokerage OANDA.
Oil came close this year to an all-time high of $147 reached in 2008 as Russia’s invasion of Ukraine exacerbated tight supplies just as demand has been recovering from the COVID pandemic.
Crude has gained support from the almost total shutdown of output in OPEC member Libya due to unrest. The Libyan oil minister said on Thursday the National Oil Corporation chairman was withholding production data from him, raising doubts over figures he issued last week.
Stephen Brennock of oil broker PVM said recession fears dominated sentiment, adding: “That being said, the consensus remains that the oil market will see high demand and tight supply over the summer months, thereby limiting the downside.”
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, meet on June 30 and are expected to stick to an earlier plan to accelerate slightly hikes in oil production in July and August, rather than provide more oil.
The latest U.S. oil inventory figures, which will give a snapshot of supply tightness in the top consumer, have been delayed to next week.
Saudi crown prince’s visit to Turkey signals an ‘utterly remarkable’ posture change for Erdogan
Powell acknowledges Fed rate hikes could cause unemployment to climb
Powell – who was testifying before the House Financial Services Committee as part of a regular, semi-annual update on monetary policy – said it is “certainly possible” to control inflation without causing unemployment to rise, but suggested that may not be the case.
“There is a risk that unemployment will move up, from what is a historically low level though,” the Fed head said.
Economic projections from the Fed’s June meeting show that officials expect the national unemployment rate to climb slightly over the next two years, rising from the current rate of 3.6% to 3.9% at the end of 2023 and 4.1% at the end of 2024. Powell said that an unemployment rate of that level would “still be very strong,” though it means some workers could be laid off.
More than 22 million housing units needed in Canada by 2030 to solve affordability crisis: CMHC
Canada would need to more than double the number of homes it is projected to build by 2030 to restore housing affordability, the national housing agency said on Thursday.
The Canada Mortgage and Housing Corporation (CMHC)said 3.5 million more houses would be needed, on top of the 2.3 million housing units Canada is projected to add to the housing pool by 2030.
The agency said the provinces of Ontario and British Columbia are going to contribute two-thirds of the housing supply gap by 2030, while Quebec would also need more houses.
Home prices in Canada soared during the coronavirus pandemic, making housing unaffordable for many people in large cities like Toronto and Vancouver.
“Canada’s approach to housing supply needs to be rethought and done differently,” said Aled ab Iorwerth, CMHC’s deputy chief economist.
“There must be a drastic transformation of the housing sector, including government policies and processes, and an ‘all-hands-on-deck’ approach to increasing the supply of housing to meet demand,” Iorwerth added.
Canada has an ambitious plan to double the pace of homebuilding within a decade but finding enough skilled workers could be challenging due to a tight labor market.
CMHC said alternative approaches to construction could be tapped and more homes could also be added to the pool by increasing co-living arrangements and redeveloping existing properties.
Building more homes is a key peg of C$9.5 billion ($7.3 billion) in housing spending outlined by Prime Minister Justin Trudeau’s Liberal government in their 2022 budget.
At midday (June 23): Resource stocks send TSX lower
Canada’s main stock index fell on Thursday, led by weakness in resource stocks and on concerns over a global recession due to aggressive interest rate hikes.
At 10:39 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 60.38 points, or 0.32%, at 18,943.66.
Meanwhile, U.S. stock indexes inched higher as easing government bond yields lifted high-valued growth stocks.
“This is more a continuation of what we saw yesterday, i.e the sense that even though (Fed Chair Jerome) Powell reiterated he would be coming down strongly on inflation at the possible risk of growth, stocks took some comfort from that as rampant inflation is just as negative for equity valuations as is lower growth,” said Stuart Cole, head macro economist at Equiti Capital.
“But uncertainty is still the name of the game, and this is why we are seeing asset price moves that don’t always seem to make too much sense.”
Powell said on Wednesday the U.S. Federal Reserve is “strongly committed” to bringing down inflation that is running at a 40-year high while policymakers are not trying to cause a recession in the process.
Bombardier Inc jumped 4% to the top of the index after it said on Wednesday that workers on a key program for the business jet maker ratified a new labor contract that will deliver pay hikes of up to 18.5% over five years.
The broader industrial sector rose 0.4%, while the energy sector slid 1.7% as oil prices edged higher on Thursday after earlier falls as investors weighed the risks of recession and how fuel demand will be affected by rising interest rates and tight supplies.
Brent crude futures rose by 50 cents, or 0.5%, to $112.24, having dropped to as low as $108.04 earlier in the session.
U.S. West Texas Intermediate (WTI) crude futures were up 35 cents, or 0.3%, at $106.54 after touching a session low of $102.32.
In Toronto, the materials sector, which includes precious and base metals miners and fertilizer companies, lost 1.4%, weighed down by weakness in copper prices.
In the previous session, the benchmark index slipped after data showed that domestic inflation accelerated to 7.7% in May, the highest since January 1983.
Meanwhile, Bank of Canada Senior Deputy Governor Carolyn Rogers said on Wednesday that inflation in Canada was much too high and did not rule out a 75-basis-point increase at the central bank’s July decision
Stocks rose in morning trading on Wall Street Thursday and added to gains for the week as investors remain focused on inflation and rising interest rates.
The S&P 500 rose 0.5%. The Dow Jones Industrial Average rose 101 points, or 0.3%, to 30,580 and the Nasdaq rose 0.7%.
Big technology and health care companies did much of the heavy lifting. Microsoft rose 1.2% and Johnson & Johnson rose 1.5%.
Energy stocks fell as oil prices edged lower. Valero fell 2.6%.
Bond yields fell significantly. The yield on the 10-year Treasury fell to 3.03% from 3.15% late Wednesday.
Major indexes are on track for weekly gains amid turbulent trading and a broader slump that has kept the benchmark S&P 500 in the red for 10 of the last 11 weeks. Stocks have swung between sharp gains and losses as investors try to determine whether a recession is looming.
The central bank is attempting to temper inflation’s impact with higher interest rates, but Wall Street is worried that it could go too far in slowing economic growth and actually bring on a recession.
Investors are monitoring Fed Chair Jerome Powell’s second day of testimony to Congress. He is testifying to a House committee Thursday, a day after testifying to a Senate committee.
On Wednesday Powell said a recession was “certainly a possibility” as the U.S. central bank tries to rein in inflation. He is speaking to Congress a week after the Fed raised its benchmark interest rate by three quarters of a percentage point, its biggest hike in nearly three decades. Fed policymakers also forecast a more accelerated pace of rate hikes this year and next than they had predicted three months ago, with its key rate to reach 3.8% by the end of 2023. That would be its highest level in 15 years.
Earlier Thursday the Labor Department said fewer Americans applied for jobless benefits last week as the U.S. job market remains robust despite four-decade high inflation. The solid job market is a bright point in an otherwise weakening economy, with consumer sentiment and retail sales showing increasing damage from inflation.
Stubbornly high inflation and weak data from other sectors of the economy remain a key concern for Wall Street. High prices on everything from food to clothing have pressured consumers to shift spending from big ticket items like electronics to necessities. The pressure has been worsened by record-high gasoline prices that show no sign of abating amid a supply and demand disconnect.
Reuters and The Associated Press
Canada’s inflation rate spikes to 7.7% in May, highest since 1983
Canadian inflation accelerated to the highest rate in nearly four decades in May as calls broaden for policy makers to find new ways of curbing runaway price growth.
The consumer price index (CPI) rose 7.7 per cent in May from a year earlier, rising from April’s 6.8-per-cent pace, Statistics Canada said on Wednesday. It was the highest inflation rate since 1983 and part of a broader surge in prices that’s taken hold in advanced economies.
The recent jump in energy prices, stoked by the Russia-Ukraine war, is having a tangible effect on the numbers. Gasoline prices rose 12 per cent in May alone and were up 48 per cent from a year earlier; the national average price for regular unleaded remains north of $2 a litre.
Super savers are fighting rising grocery costs – and inflation – one deal at a time
Still, consumers are feeling the pressure on several fronts – from surging costs in the grocery aisle and at furniture stores, to pricey hotel rates and escalating rents.
“Price pressures continued to be broad-based, pinching the pocketbooks of Canadians and in some cases affecting their ability to meet day-to-day expenses,” Statscan said in its report.
To tamp down inflation, central bankers have embarked on their quickest pace of interest rate hikes in decades. The Bank of Canada has raised its benchmark interest rate at three successive meetings, taking it to 1.5 per cent from a pandemic low of 0.25 per cent. Last week, the U.S. Federal Reserve hiked its key rate by three-quarters of a percentage point, bringing the target range to between 1.5 per cent and 1.75 per cent. Central bankers have indicated that several more rate hikes are coming in order to bring inflation to heel.
The Bank of Canada will make its next rate decision on July 13. Several financial analysts expect the central bank to match the Fed with its own outsized hike of 75 basis points.
“The Bank of Canada needs to get a handle on prices soon,” Royce Mendes, macro strategist at Desjardins Securities, wrote in a note to clients. “The acceleration in inflation will likely force the Bank of Canada to raise rates a further 75 [basis points], a jumbo-sized move central bankers should have made earlier this month.”
Global markets have plunged recently as investors sour on the state of the economy. Central bankers are trying to tame inflation via higher interest rates, but without sending the economy into a recession – an outcome that is dimming as lofty inflation persists.
Of late, there have been growing calls for governments to find new ways of easing the financial pressures that households are under. On Sunday, Bank of Nova Scotia published a report that called on the federal Liberal Party to do more to tackle inflation, largely via less government spending. “It is fair to say that fiscal policy authorities in Canada are doing nothing of any significance to slow inflation at the moment,” the report said.
Speaking to a Bay Street audience last week, Deputy Prime Minister Chrystia Freeland pointed to $8.9-billion in previously announced measures that will help various Canadians with their living expenses, including a 10-per-cent increase in Old Age Security for seniors over 75 and increased funding for child care and rent support. Ms. Freeland did not announce any new measures that day.
U.S. Treasury Secretary Janet Yellen, who met with Ms. Freeland in Toronto on Monday, said the White House was considering a range of policy options to tackle inflation, including a gas tax cut. Ms. Freeland would not rule anything out, but said a reduction in gas taxes would hamper efforts to shrink the deficit, and she pointed to carbon tax rebates that households receive.
On both sides of the border, consumers are growing more pessimistic about the economy. Thus far, their spending is holding up well, helped by the hordes of cash that many households accumulated during the pandemic, when spending options were limited. But those savings are being eroded by high inflation, and waning confidence could translate into weaker spending.
Empire Reports Fourth Quarter and Fiscal 2022 Results
Empire Company Limited (“Empire” or the “Company”) (TSX:EMP-A.TO) today announced its financial results for the fourth quarter and full year ended May 7, 2022. For the quarter, the Company recorded net earnings of $178.5 million ($0.68 per share) compared to $171.9 million ($0.64 per share) last year.
Empire Reports Fourth Quarter and Fiscal 2022 Results (newswire.ca)
