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Investors jump into commodities while keeping eye on recession risk

Investors are rushing to recalibrate their portfolios for a potentially extended period of elevated commodity prices, as Russia’s invasion of Ukraine sparks eye-popping moves in raw materials that threaten to exacerbate inflation and hurt growth.

Wild moves have been the norm in commodities over the last few weeks, as the war in Ukraine and subsequent sanctions on Russia helped lift oil prices to 14-year highs and natural gas prices near records. Prices for wheat and copper stand near all-time highs, while a doubling of the price of nickel earlier this week forced the London Metals Exchange to halt trading in the metal.

With the U.S. economy already feeling the stress of a broad, post-COVID-19 boost in demand and a quick resolution to the West’s standoff with Russia in doubt, some investors are betting high commodity prices are likely to remain for the foreseeable future.

Investors have sent $10.5 billion into commodities-focused ETFs and mutual funds since the start of the year, including a $2.8 billion gain in the week that ended March 2 that was the largest one-week positive inflow since July 2020, according to ICI data.

“This is a very unique environment that we’re in because you have both demand shocks and supply shocks to the system at the same time,” said Eric Marshall, a portfolio manager at Hodges Capital.

Marshall believes demand for commodities is likely to remain strong even if geopolitical tensions ebb, fueled by factors like electric car battery production, which requires metals such as copper and nickel. A $1 trillion U.S. infrastructure bill passed in November is increasing demand for steel, cement and other commodities, he said.

He is increasing his stake in steel producer Cleveland Cliffs Inc and agricultural companies Tyson Foods Inc and Archer Daniels Midland Co, while cutting positions in consumer companies most likely to feel the brunt of higher gas and materials costs.

Massive rallies in commodities have increased pressure on the Federal Reserve and other central banks to tighten monetary policy and fight inflation. This has ramped up worries that doing so will hurt economic growth as rising prices already weigh on consumers.

Investors widely expect the Fed to announce the first rate increase since 2018 at the end of its monetary policy meeting next week and have priced in 1.75 percentage points in tightening this year. Data this week showed consumer prices grew at their fastest pace last month in 40 years.

Matthew Schwab, portfolio manager of the Harbor Capital All-Weather Inflation Focus ETF, has increased his exposure to oil and metals futures. Prices for industrial metals are likely to stay high due to underproduction during the coronavirus pandemic, while oil companies appear content to trade lower production for higher prices, he said.

“You are able to see the signs of a commodity price rally in the lack of investment over the last decade,” Schwab said.

Mark Khalamayzer, lead manager of the Columbia Commodity Strategy Fund, has increased his exposure to oil and agricultural commodities to the highest limits allowed by his fund prospectus, betting that the conflict in Ukraine will lead to prices spiraling higher.

Brent crude settled at $112.67 a barrel on Friday and is up 44% since the start of the year.

Even as investors try to align their portfolios to expectations of higher raw materials prices, they are worried about how the rally in commodities could hurt growth.

The risk of a recession led by a sharp cutback in consumer spending rises the longer that oil prices stay high, said Robert Schein, chief investment officer, Blanke Schein Wealth Management.

“If oil prices stay well above $100 per barrel for a few months, the consumer and economy can withstand this, but if $100-plus oil prices last for more than six months, that’s when we will see recession risk surge,” he said.

Canadian Tire spending $3.4-billion over four years to expand products, bolster operations

Canadian Tire Corp. Ltd. CTC-T unchno change will spend $3.4-billion over the next four years to improve its e-commerce operations, launch thousands of products, expand its loyalty program and improve its supply-chain efficiency.

The Toronto-based retailer unveiled its growth strategy on Thursday, setting a goal to expand comparable sales by 4 per cent on average annually, not including fuel sales at its gas stations.

A major part of Canadian Tire’s planned investment is a $2.2-billion plan to build its digital operations. Of that, more than half will go toward stepping up digital services connected to its physical stores, including speeding up curbside pickup operations, rolling out lockers for automated pickup, and creating “connected stores” with digital appointments and more mobile-app features to help customers find what they are looking for.

“We made the strategic decision to have the core of our e-commerce strategy flow through the store,” chief executive officer Greg Hicks said in an interview Thursday, adding that the pandemic helped to demonstrate the appeal of click-and-collect pickups for online orders.

Relative to big pure-play e-commerce companies, “that’s where we were squarely advantaged,” he said.

The retailer also offers home delivery, the volume of which is now five times larger than it was in 2019.

“This is a big portion of the way we go to market in e-commerce, but it’s not really the way we’re going to differentiate. … Where we’re really advantaged is those touch-and-feel and need-it-now categories,” Mr. Hicks said, referring to the kinds of products that customers come to stores for, either because they want to see them before buying or do not want to wait for delivery.

Another $675-million of the investment will go toward improving the company’s supply chain. Canadian Tire will be adding 1.6 million square feet of warehouse space, will open a 1.3-million-square-foot facility dedicated to e-commerce fulfilment in the Greater Toronto Area and will introduce robotics into distribution centres to improve efficiency.

A big part of the investment in digital operations includes expanding the retailer’s Triangle Rewards loyalty program to encourage more repeat visits by shoppers. Canadian Tire wants to boost purchases by loyalty members – who tend to spend more – to 63 per cent of sales, from 58 per cent now.

The company has been testing an annual-fee-based program called Triangle Select that it will launch nationally this year. In exchange for the $89 fee, the program provides perks such as more Canadian Tire Money on purchases, and is designed to encourage shoppers to buy its more profitable private-label brands by attaching more attractive points offers to them.

The program will also help the company to send more personalized advertising to members, and to market its financial services business by encouraging customers to “stack” their membership with rewards from its credit cards.

Canadian Tire also plans to expand its private-label product lineup, which already draws $5.7-billion in annual retail sales with brands including Mastercraft, Paderno, Noma and Denver Hayes. The company plans to launch more than 12,000 products by 2025 across all its store chains, including Canadian Tire, Mark’s and Sport Chek.

The company’s goal is to expand its private-label brands to 43 per cent from 38 per cent of sales currently. The company’s outerwear brand, Helly Hansen, aims to triple its business in Canada and expand market share in international markets.

The significant investment in private-label brands gives Canadian Tire more visibility into supply-chain issues than some other retailers, because it works so closely with manufacturers.

Mr. Hicks added that some categories – such as those with raw materials containing oil-based products or steel – are affected more than others.

“Categories where there’s no inflation, maybe that’s where we can lean into a little bit more value for the customer,” he said. “… But inflation is real. And we for sure are going to have to pass some of it on to the customer.”

Wall Street lower as inflation hits 40-year high, inviting aggressive Fed tightening

Wall Street resumed its slide on Thursday, ending in the red as inflation hit a four-decade high, cementing expectations that the U.S. Federal Reserve would hike key interest rates at the conclusion of next week’s monetary policy meeting to prevent the economy from overheating.

Looming uncertainties surrounding Russia’s invasion of Ukraine also helped convince market participants to recommence their flight to safety.

While all three major U.S. indexes ended in the red, they pared their losses late in the day and closed well above session lows, as the U.S. equities market followed its best day in months on Wednesday by renewing a multi-session sell-off.

But the TSX managed to end higher, thanks again to a bounce in energy and materials stocks.

“It’s more of the same,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, noting that the equity market’s daily volatility is “being driven more by geopolitical than economic news.”

U.S. consumer prices surged in February to a 7.9% annual growth rate, according to the Labor Department, the hottest reading in forty years.

“The (CPI) print was not far off estimates,” Nolte added. “There will be more to come in the next month or two as some of the rising commodity prices get incorporated.”

While the market fully expects the central bank to raise the Fed funds target rate by 25 basis points at the conclusion of next week’s monetary policy meeting, the CPI data suggested the FOMC could move “more aggressively” to curb inflation in the upcoming year, as promised by Fed Chair Jerome Powell last week.

“It’s still expected the Fed will raise rates four to seven times in the next year or two to curb economic growth,” Nolte said, adding that “what complicates this, is the Fed has never raised rates with the yield curve this flat and volatility so high.”

“They’re trying to increase rates at a time when the market is in turmoil.”

Energy prices were the main culprit, with gasoline prices surging 6.6% in a single month, although the report did not reflect the entirety of spiking crude prices in the wake of Russia’s actions in Ukraine.

Those actions kept geopolitical jitters at a full boil, with peace talks showing little progress even as a humanitarian crisis unfolds and world oil supply pressures continued to weigh on global markets.

Amazon.com provided one of the day’s bright spots, its shares jumping 5.4% after the e-commerce giant announced a 20-for-1 stock split and a $10 billion share buyback.

The Dow Jones Industrial Average fell 112.18 points, or 0.34%, to 33,174.07, the S&P 500 lost 18.36 points, or 0.43%, to 4,259.52 and the Nasdaq Composite dropped 125.58 points, or 0.95%, to 13,129.96.

In contrast, the Toronto Stock Exchange’s S&P/TSX composite index ended up 88.47 points, or 0.4%, at 21,581.70, its highest closing level since Feb. 9.

“It’s the combination that it’s not yet a recession and we have commodity-driven inflation that I think has accounted for the TSX outperformance,” said Kurt Reiman, senior investment strategist for North America, BlackRock.

“Canada is a large exporter of many of the same exports that you see coming out of Russia and Ukraine.”

The TSX has gained 1.7% since the start of 2021, compared with a 10.6% decline for U.S. benchmark the S&P 500.

The TSX energy sector rose 1.7% even as oil prices declined.

The TSX materials group, which includes precious and base metals miners and fertilizer companies, added 2.3%, but technology shares were unable to build on the pervious day’s rally, losing 2.1%. Heavily weighted financials ended 0.1% lower.

In the U.S., six the 11 major sectors in the S&P 500 closed in negative territory with tech suffered the biggest percentage drop, while energy shares saw the largest gain.

The NYSE FANG+ index of market leading tech and tech-adjacent megacaps fell 2.1%.

Goldman Sachs Group Inc became the first major U.S. investment bank to announce it was closing operations in Russia. Its shares dropped 1.1%.

The S&P 500 banking index slid 1.0%.

Oracle Corp dipped nearly 6% in after-hours trading after the business software and cloud computing firm posted quarterly results.

Declining issues outnumbered advancing ones on the NYSE by a 1.62-to-1 ratio; on Nasdaq, a 1.72-to-1 ratio favored decliners. The S&P 500 posted 5 new 52-week highs and 12 new lows; the Nasdaq Composite recorded 28 new highs and 163 new lows. Volume on U.S. exchanges was 12.50 billion shares, compared with the 13.65 billion average over the last 20 trading days.

In the bond market, the benchmark U.S. 10-year Treasury yield rose on Thursday and topped 2% for the first time in two weeks after U.S. inflation data confirmed rapidly rising prices.

Expectations that the Fed will raise its benchmark overnight interest rate by at least 25 basis points on March 16 stand at 94%, according to CME’s FedWatch Tool.

The yield on 10-year Treasury notes was up 6.3 basis points to 2.011% after hitting 2.021%, its highest level since Feb. 17. The 10-year yield is on track to climb for a fourth straight day, its longest streak of gains in a month.

Oil prices settled lower after a volatile session, a day after its biggest daily dive in two years, as Russia pledged to fulfil contractual obligations and some traders said supply disruption concerns were overdone.

Since Russia’s Feb. 24 invasion of Ukraine, oil markets have been the most volatile in two years. On Wednesday, global benchmark Brent crude posted its biggest daily decline since April, 2020. Two days earlier, it hit a 14-year high at over $139 a barrel.

Brent futures fell $1.81, or 1.6%, to settle at $109.33 a barrel after gaining as much as 6.5% earlier in the session. U.S. West Texas Intermediate (WTI) crude fell $2.68, or 2.5%, to settle at $106.02 a barrel, giving up over 5.7% of intraday gains.

“I think some of the ‘war angst’ is coming out of the market,” said John Kilduff, partner at Again Capital in New York. “We rejected $130 twice this week. People are beginning to ask if there really is too much of a supply problem. There’s still plenty of Russian supply,” he said.

Russian President Vladimir Putin told a meeting that the country, a major energy producer which supplies a third of Europe’s gas and 7% of global oil, would continue to meet its contractual obligations on energy supplies.

However, oil from the world’s second-largest crude exporter is being shunned over its invasion of Ukraine, and many are uncertain where replacement supply will come from. Comments from United Arab Emirates (UAE) officials sent conflicting signals, adding to the volatility.

On Wednesday, Brent slumped 13% after the UAE’s ambassador to Washington said his country would encourage the Organization of the Petroleum Exporting Countries to consider higher output.

UAE Energy Minister Suhail al-Mazrouei backtracked on the ambassador’s statement and said the OPEC member is committed to existing agreements with the group to boost output by only 400,000 barrels per day (bpd) each month.

While the UAE and Saudi Arabia have spare capacity, some other producers in the OPEC+ alliance are struggling to meet output targets because of infrastructure underinvestment in recent years.

The United States made moves to ease sanctions on Venezuelan oil and efforts to seal a nuclear deal with Tehran, which could lead to increased oil supply. The market also anticipates further stockpile releases coordinated by the International Energy Agency and growing U.S. output.

“With some goodwill, co-ordination and luck, the supply shock can greatly be mitigated but probably not neutralised,” PVM oil market analyst Tamas Varga said.

Still, traders refused to call the oil rally over. Some said the recent slump could be due partly to profit-taking, noting oil remained up over 15% since the Ukraine invasion.

“We will probably have more speculation and some people who want to sell to take advantage, but we’re just in new territory here,” said Thomas Saal, senior vice president for energy at StoneX Financial Inc.

“The pattern does not look like we are at the top yet. Just when you think we are, the market finds new energy to go higher,” he said.

Inflation rose 7.9% in February, as food and energy costs push prices to highest in more than 40 years

Inflation grew worse in February amid the escalating crisis in Ukraine and price pressures that became more entrenched.

The consumer price index, which measures a wide-ranging basket of goods and services, increased 7.9% over the past 12 months, a fresh 40-year high for the closely followed gauge.

The February acceleration was the fastest pace since January1982, back when the U.S. economy confronted the twin threat of higher inflation and reduced economic growth.

On a month-over-month basis, the CPI gain was 0.8%. Economists surveyed by Dow Jones had expected headline inflation to increase 7.8% for the year and 0.7% for the month.

Food prices rose 1% and food at home jumped 1.4%, both the fastest monthly gains since April 2020, in the early days of the Covid-19 pandemic.

Energy also was at the forefront of ballooning prices, up 3.5% for February and accounting for about one-third of the headline gain. Shelter costs, which account for about one-third of the CPI weighting, accelerated another 0.5%, for a 12-month gain of 4.7%.

Excluding volatile food and energy prices, so-called core inflation rose 6.4%, in line with estimates and the highest since August 1982. On a monthly basis, core CPI was up 0.5, also consistent with Wall Street expectations.

The inflation surge is in keeping with price gains over the past year. Inflation has roared higher amid an unprecedented government spending blitz coupled with persistent supply-chain disruptions that have been unable to keep up with stimulus-fueled demand, particularly for goods over services.

Vehicle costs have been a powerful force, but showed signs of easing in February. Used car and truck prices actually declined 0.2%, their first negative showing since September, but are still up 41.2% over the past year. New car prices rise 0.3% for the month and 12.4% over the 12-month period.

A raging crisis in Europe has only fed into the price pressures, as sanctions against Russia have coincided with surging gasoline costs. Prices at the pump are up about 24% over just the past month and 53% in the past year, according to AAA.

Moreover, business are raising costs to keep up with the price of raw goods and increasing pay in a historically tight labor market in which there are about 4.8 million more job openings than there are available workers.

Recent surveys, including one this week from the National Federation for Independent Business, show a record level of smaller companies are raising prices to cope with surging costs.

To try to stem the trend, the Federal Reserve is expected next week to announce the first of a series of interest rate hikes aimed at slowing inflation. It will be the first time the central bank has raised rates in more than three years, and mark a reversal of a zero-interest-rate policy and unprecedented levels of cash injections for an economy that in 2021 grew at its fastest pace in 37 years.

However, inflation is not a U.S.-centric story.

Global prices are subject to many of the same factors hitting the domestic economy, and central banks are responding in kind. On Thursday, the European Central Bank said it was not moving its benchmark interest rate but would end its own asset purchase program sooner than planned.

Consumer inflation was likely high in February, and rising fuel prices will turn up the pressure

February’s consumer price index is the last important look at inflation before Federal Reserve officials meet next week, and it’s going to be a scorcher.

Economists expect headline inflation rose 0.7% last month, or 7.8% on an annualized basis, according to estimates from Dow Jones. That’s compared to January’s increase of 0.6% or 7.5% year over year. Excluding energy and food, core CPI was expected to be up 0.5%, below January’s 0.6% gain. Core inflation is expected to be 6.4% year over year, up from 6%. CPI is released Thursday at 8:30 a.m. ET.WATCH NOWVIDEO03:17Neuberger Berman’s Jamie Iselin says investors can get competitive return despite inflation

The data is especially important to markets because it is the last major economic report for the Fed to consider before it begins its two-day meeting, starting Tuesday. Regardless of what the data shows, the central bank is widely expected to raise interest rates by a quarter point from zero, the first in a series of expected rate hikes.

The producer price index will be released on Tuesday, but the Fed is more concerned with the consumer price number.https://datawrapper.dwcdn.net/4GMfo/1/

“We think the market will be a little more reactive to an upside miss than a downside miss, but it is the last big data point before the Fed so you can’t ignore it,” said Wells Fargo’s Michael Schumacher.

Higher gas prices begin to trickle in

Some of the recent spike in gasoline prices should be included in the data, but more of the run-up should appear in March and April. Economists had expected inflation to peak in March, but now they say it could be later in the spring before it tops out. The national average price for a gallon of unleaded gasoline Wednesday was a record $4.25, up 60 cents in a week and up nearly 80 cents over the past month, according to AAA.

“Gasoline prices moved somewhat higher in the last days of February, enough to nudge my headline CPI forecast up by a tenth to +0.8%, but the bulk of the pain will be felt in March and April,” said Stephen Stanley, chief economist at Amherst Pierpont.

Stanley forecasts February’s headline CPI will be up 7.9% year over year. He expects March’s CPI will be at least a percentage point higher, just under 9%.

“I expect the energy price spike to prove mostly temporary, so that we may see some relief by midyear, depending on how long it takes for the war in Ukraine to be resolved and how long it takes other oil and gas suppliers to step in and backfill Russia’s sanctioned exports,” Stanley added in a report.

Kevin Cummins, NatWest Markets chief U.S. economist, said he had expected inflation to be driven by the service sector this year, but now it looks like it will be energy, at least in the near term.

Oil has been on a tear, topping $130 per barrel earlier this week. On Wednesday, West Texas Intermediate crude futures were trading at about $109 per barrel.

Oil prices were sharply lower Wednesday on a report that the United Arab Emirates, an OPEC member, was open to production increases. But even so, as long as the Ukraine conflict continues, Russian oil will be impaired and that is likely to keep prices high, according to oil analysts.

The Fed and inflation

Cummins said the Fed should move forward with its March rate hike and could do several more before summer. “I think they’re more worried about the inflation side of their mandate than they are about growth right now. The economy can sustain higher rates,” he said.

He said CPI could get very hot quickly if oil prices were to move sharply higher. For instance, if oil hits $200 per barrel, CPI could be at 9.7% by April, and that is not considering how much higher oil prices could affect the price of other goods. At $125 per barrel, Cummins said inflation could be 8%.

The important number to watch in the November report is the core month-over-month increase. If it is weaker than last month, that is a positive, but if some elements of core inflation are pushing it higher, that could be worrisome for the Fed.

“The last two months were 0.6% on the core, but if they get a 0.4% that’s probably a win,” Cummins said. He expects the Fed to forecast four to five hikes in its new economic projections, expected to be released Wednesday.

A slower pace of core inflation could mean that some of the supply chain issues that helped push inflation higher are ebbing, Cummins said. If the semiconductor shortage eases, for example, that would help vehicle prices steady. Elsewhere, the cost of services and rents are still expected to rise.

“Rents are not going to go down. We’ve got them up 0.4%. If anything, you have lags. You have exceptionally strong home prices. The rental vacancy rate is low, and you have a strong labor market. That’s probably the biggest thing,” he said.

BEFORE THE BELL: MARCH 10, 2022 AM

Equities

Wall Street futures were down early Thursday after the previous session’s sharp rally with investors awaiting the latest reading on U.S. inflation. Major European markets also gave back some of yesterday’s gains with the Russia-Ukraine war still in focus. TSX futures were down modestly with crude prices rising.

Futures tied to the three major U.S. indexes were all in the red in the early premarket period. On Wednesday, all three spiked with the Nasdaq finishing up 3.6 per cent while the S&P 500 saw its best day since mid-2020.

“I’d be surprised if it [this week’s rally] is sustained for any significant period of time unless we see actual progress towards a ceasefire and Russian exit,” OANDA senior analyst Craig Erlam said in a note.

He said Wednesday’s gains may have been “a hopeful rally rather than one built on solid foundations but it’s the first glimmer of hope we’ve had in weeks.”

In the U.S., traders will be keeping a close eye on the inflationary picture in the United States. February CPI data is due before the bell and economists are forecasting the annual rate of inflation will spike to 7.9 per cent.

“Given the actual circumstances, it is of course very well possible that we see an unpleasant surprise, which would send the U.S. inflation above the 8-per-cent psychological mark,” Swissquote senior analyst Ipek Ozkardeskaya said.

“The question is, by how much the rise in inflation could change the Federal Reserve (Fed) expectations.”

The Federal Reserve makes its next policy decision next week. Economists are still expecting a quarter point increase despite current global uncertainty.

STORY CONTINUES BELOW ADVERTISEMENT

In this country, investors will get results from travel company Transat AT ahead of the start of trading. Earlier this week, Air Transat and Porter Airlines announced they have signed a code-sharing agreement they hope will draw customers to a wider range of connecting flights in Canada and abroad.

Overseas, the pan-European STOXX 600 was down 1.28 per cent, reversing at least of some of the previous session’s gains. Markets are awaiting the European Central Bank’s next policy announcement early Thursday. Economists are expecting few policy commitments amid the escalating Russia-Ukraine crisis.

Britain’s FTSE 100 fell 1.12 per cent. Germany’s DAX and France’s CAC 40 were down 2 per cent and 2.14 per cent, respectively.

In Asia, Japan’s Nikkei spiked 3.94 per cent in the wake of the previous session’s rally on Wall Street. Hong Kong’s Hang Seng rose 1.27 per cent.

Commodities

Crude prices gained in a choppy session as traders weigh the possibility of world producers moving to hike output in the wake of sanctions on Russian crude.

The day range on Brent is US$110.20 to US$117.37. The range on West Texas Intermediate US$107.01 to US$113.48. On Wednesday, Brent fell 13 per cent, its biggest drop in two years. WTI lost 12.5 per cent.

“Volatility continues to be the winner overnight, particularly in the commodity space as the street engaged in its latest grasping at straws attempt to price in ‘peak-Ukraine’,” OANDA senior analyst Jeffrey Halley said.

Reuters reports that markets got conflicting signals on whether producers would step up production.

UAE Energy Minister Suhail al-Mazrouei said on Twitter late on Wednesday his country is committed to the existing agreement by the Organization of the Petroleum Exporting Countries and allies to ramp up oil supply by 400,000 barrels per day monthly following sharp cuts in 2020.

Hours earlier, prices fell on comments from UAE’s ambassador to Washington saying his country will be encouraging OPEC to consider higher output to fill the supply gap due to sanctions on Russia, Reuters reported.

“To suggest the oil market is confused would be an understatement as we are in an unprecedented situation,” Stephen Innes, managing partner at SPI Asset Management, said.

Gold prices, meanwhile, were down.

Spot gold were off 0.5 per cent at US$1,981.96 per ounce by early Thursday morning after dropping as much as 1 per cent. U.S. gold futures were unchanged at US$1,988.60. Gold fell about 3 per cent on Wednesday, seeing its worst intraday drop in more than a year.

Currencies

The Canadian dollar was weaker while its U.S. counterpart edged higher against a basket of currencies.

The day range on the loonie is 77.86 US cents to 78.18 US cents.

On global markets, the U.S. dollar index was up 0.2 per cent ahead of the latest U.S. inflation figures. The index, which weighs the greenback against a selection of world currencies, lost 1.17 per cent on Wednesday.

The euro was trading at US$1.10489, down 0.32 per cent after jumping 1.6 per cent on Wednesday, its best day since June 2016, according to figures from Reuters.

Britain’s pound was down 0.2 per cent at US$1.3159 after jumping 0.65 per cent overnight.

More company news

Amazon.com Inc said its board approved a 20-for-1 split of the e-commerce giant’s common stock and authorized a US$10-billion buyback plan. This is the first stock split by Amazon since 1999 and will give investors 19 additional shares for every share they hold. Trading based on the new share price will begin on June 6. Shares were up nearly 6 per cent in premarket trading. The news was announced after Wednesday’s close.

Economic news

ECB Monetary Policy meeting

(8:30 a.m. ET) U.S. initial jobless claims for week of March 5.

(8:30 a.m. ET) U.S. CPI for February.

With Reuters and The Canadian Press

Which Canadian stocks are facing turmoil because of war in Ukraine?

While Canada’s resource sectors are acting as powerful shock absorbers to the financial reverberations of Russia’s war on Ukraine, there are heavy losses just beneath the surface.

Since bombs started dropping about two weeks ago, stocks on a global basis have swung wildly, taking the MSCI All Country World Index into correction territory before hopes of a diplomatic end to the conflict generated a strong bounce-back on Wednesday.

And while Canadian stocks have certainly been roiled, the volatility at an index level has been mostly to the upside, with the S&P/TSX Composite Index gaining 3.6 per cent since the invasion began.

With about 30 per cent of the Canadian benchmark index weighted in resource stocks, soaring commodity prices have translated to double-digit gains in the energy and materials sectors over just the past two weeks.

But the selloff is happening here, too. It’s just less visible.

“The boom in commodity prices is masking a lot of pain in the rest of the market,” said Jason Mann, chief investment officer at Toronto-based EdgeHill Partners.

Here are the stocks, sectors and styles that have proven most vulnerable to the recent market turmoil.

Auto parts

Even before the invasion, the auto sector globally was struggling with a critical shortage of semi-conductors, which are used in a range of components and sensors in modern vehicles.

Several automakers were forced to cut production, while consumers on a global spending spree increasingly encountered empty dealership lots.

The economic isolation of Russia has put the supply of microchips into even greater uncertainty by tying up key raw materials used in their manufacture. Russia produces roughly 40 per cent of the world’s palladium, while up to 70 per cent of the global supply of neon comes from Ukraine.

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Commodities rallies pause as markets digest Russia supply shock

Market-research estimates peg a cut to global auto production of 1.5 million to three million units this year as a result, which is clearly bad news for parts companies such as Magna International Inc. MG-T +3.95%increase, Linamar Corp. LNR-T +1.47%increase and Martinrea International Inc. MRE-T +3.59%increase

Those three stocks have been among the biggest losers on the TSX, having dropped by a range of 12 per cent to 22 per cent in just two weeks. Magna is now down by 26 per cent year to date.

“The problem is not that these stocks aren’t cheap or they aren’t high quality,” Mr. Mann said. “The problem is that they’re in a downtrend. We have to wait for that to stabilize.”

Consumer stocks

The TSX isn’t exactly teeming with powerful global consumer brands. But many of the retail names that are in the composite are among the biggest recent laggards.

One reason for that is runaway inflation, which appears to be weighing on consumer sentiment. Crude oil prices well in excess of US$100 a barrel will exacerbate the upward pressure on prices, not least of which is those at the gas pump.

“This is a tax on the economy globally, and it’s a pretty big one,” said Craig Basinger, chief market strategist at Purpose Investments. “That changes behaviours and where money is going pretty quickly.”

Canadian consumer stocks that are down by at least 5 per cent over the past two weeks include Aritzia Inc. ATZ-T +8.07%increase, Premium Brands Holdings Corp. PBH-T -0.89%decrease, Canada Goose Holdings Inc. GOOS-T +4.09%increase, Sleep Country Canada Holdings Inc. ZZZ-T +3.51%increase and Gildan Activewear Inc. GIL-T +3.82%increase

Growth stocks

The rotation out of growth stocks and into value was under way well before Russia ignited a geopolitical firestorm.

The main target for this shift was the U.S. tech sector, which dominated pandemic-era stock trading. But a slowdown in global growth combined with the shift in monetary policy toward rate hikes and stimulus withdrawal sparked a retreat from Big Tech.

The Canadian stock market is heavily skewed toward value stocks, but the relatively few high-growth names here have been hit hard – Shopify Inc. SHOP-T +13.59%increase chief among them. Even after a 14-per-cent single-day gain in Wednesday’s trading, the company’s market capitalization is still down by 65 per cent from its peak four months ago.

“I would really warn against buying the dip in unprofitable companies,” Mr. Mann said. “They look a lot like the cannabis trade, which continue to grind lower and find fresh lows two years after the peak.”

Oil drops 12% for worst day since November as wild ride triggered by Russia disruption continues

Oil prices dropped in a sudden move on Wednesday, giving back some of the rally this month amid supply disruptions stemming from Russia’s invasion of Ukraine.

WTI crude oil tumbled more than 12%, or $15, to settle at $108.7 per barrel, registering its worst day since Nov. 26. Earlier this week, WTI topped $130 per barrel briefly — a 13-year high — during escalated geopolitical tensions.

Brent crude oil, the international benchmark, fell a similar 13%, or $16.8 to $111.1, for its biggest one-day drop since April 2020. Brent has just hit $139 on Monday, its highest since 2008.

The move in oil lower came amid indications of possible progress by the U.S. in encouraging more oil production from other sources. Reuters reported that Iraq said it could increase output if OPEC+ asks. Secretary of State Antony Blinken also signaled that UAE would support increased production by OPEC+.

A general view of oil tanks in the Transneft-Kozmino Port near the far eastern town of Nakhodka, Russia.Yuri Maltsev | Reuters

“That $130 price point was factoring in the absolute siege mentality in the oil market, where we were staring down potentially losing all Russian output, OPEC not budging and the Ukraine situation just worsening,” John Kilduff of Again Capital said on CNBC’s “The Exchange.” “Now we’ve reversed all of that, seemingly, to a degree at least. I don’t want to get ahead of myself.”

Last week, the International Energy Agency released 60 million barrels of oil reserves to compensate for supply disruptions following Russia’s invasion, and the agency called the move “an initial response” and said more could be released if needed.

Still, oil prices have surged this month with WTI crude oil up roughly 15% as Russia, the world’s second-largest crude exporter, invaded Ukraine.

“The world is working together to tackle surging oil prices and that has put a short-term top for crude,” Ed Moya, senior market analyst at Oanda, said in a note.

The United Kingdom announced its own restrictions on buying Russian oil imports, saying it will phase out the country’s imports by the end of the year. The European Union also unveiled a plan to wean itself off of Russian fossil fuels.

The close: S&P 500 posts biggest one-day rally since June 2020 as oil prices dive

U.S. stocks surged on Wednesday led by financial and tech shares, rebounding from several down days as oil prices pulled back sharply after fanning inflationary fears and investors gauged developments in the Ukraine crisis.

The S&P 500 posted its biggest one-day percentage gain since June 2020, while the Nasdaq tallied its biggest rise since March 2021.

Global oil prices posted their biggest plunge since the early pandemic days nearly two years ago, after the United Arab Emirates said the OPEC member would support increasing output into a market in disarray because of supply disruptions caused by sanctions imposed on Russia over its conflict with Ukraine.

A steep rise in oil and other commodities has sparked concerns about a further jolt to rising inflation and the potential for slowing economic growth.

“I think it is an oversold rally on cooling in commodities,” said Walter Todd, chief investment officer at Greenwood Capital. “Stocks have been sold pretty aggressively for a few days. I don’t know that it permanently changes the direction of things.”

The Dow Jones Industrial Average rose 653.61 points, or 2%, to 33,286.25, the S&P 500 gained 107.18 points, or 2.57%, to 4,277.88 and the Nasdaq Composite added 460.00 points, or 3.59%, to 13,255.55.

The heavyweight technology group and financials were the top-gaining S&P 500 sectors, rising 4% and 3.6% respectively.

Energy, which has been the standout sector performer in 2022, fell 3.2% as benchmark Brent crude slid to around $110 a barrel from over $130 earlier in the week.

Travel and leisure stocks, which have been hit hard recently, also soared, with shares of Carnival Corp rising 8.8% and United Airlines Holdings up 8.3%.

“The market is taking a break, consolidating from this downtrend that has seen a lot of stocks getting really, really hammered, especially on the growth side of the market,” said Anu Gaggar, global investment strategist for Commonwealth Financial Network.

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In the latest developments, Ukraine accused Russia of bombing a children’s hospital in the besieged port of Mariupol during an agreed ceasefire to enable civilians trapped in the city to escape.

Ukraine’s Foreign Minister Dmytro Kuleba was due to meet Russian foreign minister Sergei Lavrov in Turkey on Thursday.

Stocks have struggled as concerns about the Russia-Ukraine crisis have deepened a sell-off initially fueled by worries over higher bond yields as the Federal Reserve is expected to tighten monetary policy this year to fight inflation.

On Monday, the Nasdaq confirmed it was in a bear market, falling over 20% from its record high, while the Dow Jones Industrial Average confirmed it was in a correction as it closed more than 10% lower from its record peak.

Investors were awaiting Thursday’s report on U.S. consumer prices as a key data release ahead of the Fed’s March 15-16 meeting.

Advancing issues outnumbered declining ones on the NYSE by a 2.75-to-1 ratio; on Nasdaq, a 3.66-to-1 ratio favored advancers.

The S&P 500 posted two new 52-week highs and three new lows; the Nasdaq Composite recorded 32 new highs and 53 new lows.

About 14 billion shares changed hands in U.S. exchanges, compared with the 13.6 billion daily average over the last 20 sessions.