Canada’s main stock index rose on Friday, tracking stronger crude and gold prices even as global equity markets came under pressure after alarming U.S. inflation data raised fears of a more hawkish Federal Reserve.
At 09:38 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 31.21 points, or 0.14%, at 21,562.93.
Wall Street’s main indexes opened slightly higher on Friday after a sharp selloff in the previous session when the soaring inflation numbers raised fears about quicker interest rate hikes from the Federal Reserve.
The Dow Jones Industrial Average rose 26.30 points, or 0.07%, at the open to 35,267.89. The S&P 500 opened higher by 2.19 points, or 0.05%, at 4,506.27, while the Nasdaq Composite gained 27.98 points, or 0.20%, to 14,213.62 at the opening bell.
There are a handful of key Canadian earnings out today that investors are absorbing, including CAE, Cineplex, Enbridge, Fortis, and Magna International.
Enbridge reported a 3.7% jump in fourth-quarter profit, as a recovery in fuel demand boosted the Canadian pipeline operator’s transportation volumes. Shares of Enbridge are up nearly 1%.
Magna estimated full-year revenue of US$38.8 billion to US$40.4 billion, compared with the $36.24 billion it reported for 2021 on Friday. The Canadian auto parts maker also said the shutting of Canada’s Ambassador Bridge by anti-coronavirus mandate protests has started to have some initial impact in some areas of the company’s operations. Magna also announced a hike in its dividend. Shares are down more than 3%.
Cineplex reported quarterly revenues of $300 million, below the Street view of $305 million, and its quarterly loss per share of 34 cents was also worse than the analyst expectation of 18 cents. Shares opened flat.
Fortis reported adjusted earnings per share of 63 cents, which missed the analyst consensus of 71 cents. The company said its long-term outlook remains unchanged. Shares opened down 1.3%.
Fairfax Financial reported quarterly results after markets closed on Thursday and shares are up 2% at the open.
The latest Refinitiv TSX earnings scorecard, released on Thursday, found that 76% of the 50 TSX companies that had reported fourth-quarter results so far were above expectations for their bottom line. That’s inline with how earnings are coming in on Wall Street, but 187 stocks in the TSX Composite still hadn’t reported results as of the Thursday report. TSX earnings are tracking at about a 30% growth rate, and revenues 17%.
Wall Street ended sharply lower on Thursday after U.S. consumer prices data came in hotter than expected and subsequent comments from a Federal Reserve official raised fears the U.S. central bank will hike rates aggressively to fight inflation. U.S. 10-year Treasury yields hit 2% for the first time since August 2019 and Canada’s 5-year government bond yield - which has a heavy influence on fixed mortgage rates - rose to its highest level in three years. Bond prices, which move opposite to yields, were left with sharp losses.
The U.S. 10-year bond is hanging in right near the 2% mark this morning.
U.S. Labor Department data showed consumer prices surged 7.5% last month on a year-over-year basis, topping economists’ estimates of 7.3% and marking the biggest annual increase in inflation in 40 years.
U.S. stocks fell further after St. Louis Federal Reserve Bank President James Bullard said the data had made him “dramatically” more hawkish. Bullard, a voting member of the Fed’s rate-setting committee this year, said he now wanted a full percentage point of interest rate hikes by July 1.
Within minutes of Bullard comments, rate futures contracts were fully pricing an increase in the Fed’s target range for its policy rate to 1%-1.25% by the end of its policy meeting in June, with some bets on an even steeper rate hike path.
Today, Goldman Sachs said it expects seven 25 basis point interest rate rises from the U.S. Federal Reserve this year, up from its previous forecast of five.
“We were just starting to see confidence building in the markets, with investors seemingly coming to terms with the prospect of four or five rate hikes this year. But the relentless and broad-based price rises in the US delivered yet another hammer blow and ruined any momentum that had been building into the report,” said Craig Erlam, Senior Market Analyst, UK & EMEA, at OANDA, a forex trading firm. “We’re now entering into quite uncomfortable territory and the very real prospect of multiple rate hikes before the summer as well as a 50 basis point increase to kick things off in March.”
“Markets are not erring on the side of hope and are pricing in plenty more hikes in the second half of the year on the belief that the central banks will once again prove too optimistic. While that may lead to plenty more instability in the stock markets over the next couple of months, it could become a useful tailwind in the second half of the year if inflation does fall considerably after peaking and allow for some of the interest rate positioning to be unwound,” Mr. Erlam added.
Canadian bond yields followed U.S. Treasuries higher on Thursday, but have stabilized this morning. The five-year bond, influential on the direction of fixed mortgage rates, rose to as high as 1.828% on Thursday, and this morning was fetching just over 1.8%.
“Given that lenders benchmark fixed rates to bond yields, fixed mortgages will get more expensive,” said Robert McLister, a mortgage specialist and Globe and Mail columnist. He said 5-year fixed mortgage rates below 3% “could become fond memories within days.”
Market players are also keeping a close eye on tensions between Russia and Ukraine. U.S. Secretary of State Antony Blinken said on Friday that Russia is now massing yet more troops near Ukraine and an invasion could come at any time.
Equities
Commodities
Oil prices are higher this morning after the International Energy Agency (IEA) said oil markets were tight, but were still heading for weekly losses on inflation worries and U.S.-Iran which could boost global supplies.
Brent crude futures rose $1.01, or 1.1%, to $92.42 a barrel in the premarket hours, while U.S. West Texas Intermediate crude gained $1.15, or 1.3%, to $91.03 a barrel.
Prices are on track for their first weekly decline after seven consecutive weekly gains, however.
Saudi Arabia and the United Arab Emirates could help to calm volatile oil markets if they pumped more crude, the IEA said on Friday, adding that the OPEC+ alliance produced 900,000 barrels per day (bpd) below target in January.
The two OPEC+ producers have the most spare production capacity and could help to relieve dwindling global oil inventories that have been among factors pushing prices towards $100 a barrel, deepening inflation worldwide.
The IEA also raised its 2022 demand forecast by 800,000 bpd based on revisions to historical data. It expects global demand to expand by 3.2 million bpd this year reaching an all-time record 100.6 million bpd.
This comes after the Organization of the Petroleum Exporting Countries (OPEC) said that world oil demand might rise even more steeply this year amid a strong post-pandemic economic recovery.
The prospect of an aggressive U.S. Federal Reserve interest rate hike and ongoing talks between the United States and Iran on the latter’s nuclear programme capped further gains in prices, however.
Meanwhile, copper lurched lower this morning, hit by profit-taking and risk-off sentiment in wider financial markets on worries about surging inflation.
Benchmark copper on the London Metal Exchange (LME) had shed 2.3% to $10,020 a tonne in the pre-dawn hours after three days of gains that propelled the price to its highest in nearly four months.
Currencies and bonds
The Canadian dollar is steady this morning, with volatility in stock markets keeping the currency trading defensively against the U.S. currency. Further strength in crude oil prices is lending support.
Scotiabank forex strategists are warning of more short-term weakness in the currency.
“We remain bullish on the outlook for the CAD but near-term prospects have been clouded by the volatility in equity markets. Increasing focus on the impact of the truck blockade of the Windsor/Detroit bridge, which has forced some idling in the domestic auto sector and will tilt risks towards even softer Q1 GDP growth,” they said in a note. “While the issue is clearly on policy makers’ radar, we doubt the situation will impact on BoC policy thinking at this point.”
“Seasonal trends remain adverse for the CAD through the early part of the year but we continue to look for a combination of BoC policy tightening and generally firm commodity prices to lift the CAD broadly later this year. Seasonal trends typically turn more favourable for the CAD in late March/early April,” the strategists added.
Other corporate news
Online real-estate platform Zillow Group Inc jumped 13.3% after beating Wall Street estimates for quarterly sales, boosted by an 11-fold increase in revenue in its homes segment.
Gilead Sciences Inc’s drug, remdesivir, showed antiviral activity against Omicron, Delta and other variants of the coronavirus in laboratory studies, the company said on Friday.
Also see:
Friday’s analyst upgrades and downgrades
Friday’s small-cap stocks to watch
Economic news
The preliminary estimate of the index of U.S. consumer sentiment by the University of Michigan came in at 61.7 in February, down from 67.2 in January and missing the 67 consensus forecast. Sentiment is at its lowest level since October 2011.
With files from Reuters