Canada’s main stock index opened lower on Wednesday, after domestic data showing the annual inflation rate accelerated in January raised fears of quicker interest rate hikes and as a dismal forecast by Shopify Inc dented sentiment.
U.S. stock indexes opened lower as well after stronger-than-expected retail sales data gave the Federal Reserve more ammunition to tighten policy, while geopolitical tensions over Russian and Ukraine added to caution.
While Russia said more of its forces surrounding Ukraine were withdrawing on Wednesday, NATO said it was yet to be convinced. And Kyiv has hinted at Russian involvement in a cyber attack on Ukraine’s defense ministry website.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 142.62 points, or 0.66%, at 21,359.93. The Dow Jones Industrial Average fell 37.01 points, or 0.11%, at the open to 34,951.83. The S&P 500 opened lower by 15.32 points, or 0.34%, at 4,455.75, while the Nasdaq Composite dropped 100.84 points, or 0.71%, to 14,038.92 at the opening bell.
The latest inflation reading for Canada came in hotter than expected but didn’t have any dramatic impact on currency and forex markets. Canada’s annual inflation rate accelerated to 5.1% in January, the highest since September 1991. Analysts polled by Reuters had expected the annual rate to remain at 4.8% in January, although some economists were expecting a slightly higher reading.
Still, economists note the report - which showed broad-based price gains - only applies further pressure on the Bank of Canada to get busy and tighten monetary conditions.
“The widespread nature of the price gains, including in many sectors that rarely see significant inflation, indicates that firms are readily able to pass on cost increases, especially at a time when consumer savings are relatively flush,” BMO’s top economist, Doug Porter, said in a note. “With commodity prices still rolling, supply issues persisting, home prices afire, and now wages stirring, it’s clear that the risks remain squarely to the upside on the inflation outlook.”
“We now believe CPI will rise 4.7% for all of this year and 3.0% next. Simply put, this is far too hot for comfort for the Bank of Canada, so expect a steady series of rate hikes in the coming meetings—we look for four in a row to start, and it may well require much more than that to bring inflation to heel,” Mr. Porter added.
The U.S. also released U.S. imports and exports figures this morning showing higher-than-expected price pressures. And it reported a 3.8% jump in retail sales in the country, surpassing the Street estimate for only a 2% rise.
Shopify, which has a major weighting in the TSX Composite Index, is under heavy pressure this morning, with shares down 16% at the open. It forecast a slowing pace in first-half revenue growth, indicating the e-commerce boom seen during the pandemic is cooling as retailers shift their focus back to brick-and-mortar stores from online. It expects revenue growth for 2022 to be lower than the 57% rise recorded in 2021. For the fourth quarter ended Dec. 31, revenue was $1.38 billion, compared with $977.7 million a year earlier. Analysts were expecting $1.33 billion, according to Refinitiv data. On an adjusted basis, it earned $1.36 per share compared with analysts estimate of $1.27.
Elsewhere, Barrick Gold Corp, this morning announced a share repurchase of up to $1 billion and a bigger dividend payout as the gold miner’s fourth-quarter results beat analysts’ estimates. Barrick shares were up just over 4% at the open. Revenues of $3.310 billion were up 17% from the previous quarter, beating analysts’ estimate of $3.147 billion, while net earnings more than doubled from the previous quarter to $726 million. Adjusted earnings per share for the quarter came in at $0.35, beating analysts’ expectations of $0.30.
Fed minutes are due at 2 p.m. ET and are likely to shed light on the central bank’s plans to trim its massive balance sheet and hike interest rates in 2022.
Traders priced in a 57.9% chance for a 50 basis point hike in March, down from 61.8% on Tuesday, while bets for a 25 bps hike rose to 42.1% from around 38% according to CME Group’s Fedwatch tool.
“So the game is not over yet for the March meeting: a more dovish than expected tone from the FOMC minutes could get the market re-focus on a 25-bp hike,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
Equities
Commodities
Oil prices recouped losses on Wednesday as investors weighed conflicting statements on the possible withdrawal of some Russian troops from around Ukraine amid tight global supplies and recovering fuel demand.
Brent crude was up $1.37, or 1.5%, at $94.65 a barrel in the early market hours, having slid 3.3% overnight after Russia announced a partial pullback of its troops near Ukraine.
U.S. West Texas Intermediate (WTI) crude was up $1.27, or 1.4%, at $93.34 after the contract ended Tuesday’s session with a 3.6% decline.
Both benchmarks hit their highest since September 2014 on Monday, with Brent touching $96.78 and WTI reaching $95.82.
Moscow announced a partial pullback of troops from Ukraine’s borders, but NATO Secretary-General Jens Stoltenberg said on Wednesday that the alliance had not seen any de-escalation and that Russia was continuing its military build-up. “The risk of a full scale invasion has receded a bit. But we are unlikely to move out of the current status quo,” said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.
Beyond Ukraine tensions, the oil market remains tight and prices could still be on course for a move towards $100 a barrel.
“The price action has been an incredibly bullish one-way street higher since just before Christmas. You don’t see this kind of price action unless the market is very tight,” Schieldrop added.
Investors were awaiting weekly U.S. oil inventory data from the Energy Information Administration at 10:30 a.m.
U.S. crude and distillates inventories could have fallen by 1.5 million to 1.6 million barrels last week, a Reuters poll showed.
Data from the American Petroleum Institute showed a drop in crude, gasoline and distillate stocks last week, according to market sources on Tuesday.
Currencies and bonds
The Canadian dollar is modestly firmer this morning, trading above the 78.74 cents resistance level that had held earlier this week amid the rise in oil and commodity prices.
Canadian bond and currency markets are absorbing the inflation numbers.
Scotiabank was expecting a CPI reading of 5% year over year - and the actual number slightly exceeded that, at 5.1%.
Bank of Canada Deputy Governor Timothy Lane is speaking later today , at 130 pm ET, on the topic of Decision Making in Turbulent Times. “Expect Lane to echo Governor Macklem’s recent remarks which warned that inflation was too high and that a “significant shift” in monetary policy would be required in order to get prices back under control,” Scotiabank strategists said in a note.
The yield on 10-year U.S. Treasuries this morning is hovering in at 2.036%, a tad lower on the day and just below multi-year highs.
Other corporate news
Moderna’s chief executive Stephane Bancel said in a CNBC interview on Wednesday that it is “reasonable” to assume that the final stages of the pandemic may be near as the evolution of the coronavirus may lead to less virulent viruses.
Shares of ViacomCBS Inc slumped 9.7% after it missed profit forecasts. The company announced it will change its name to Paramount and unveiled a broad range of new programming as it attempts to stay ahead in the crowded streaming space.
Roblox Corp tumbled 15.9% after the gaming platform missed analysts’ expectations for quarterly bookings as the pandemic-driven frenzy for its video games waned.
Airbnb Inc gained 3% after the short-term home rental company forecast better-than-expected first-quarter revenue on strong travel demand and longer stays.
Devon Energy Corp rose 2.3% after the oil producer reported fourth-quarter results above Wall Street estimates.
Earnings also include: Choice Properties Real Estate Investment Trust; Cisco Systems Inc.; goeasy Ltd.; iA Financial Corp. Inc.; Keyera Corp.; Killam Properties Inc.; Kinross Gold Corp.; Nutrien Ltd.; NVIDIA Corp.; Smart Real Estate Investment Trust; Summit Industrial Income Real Estate Investment Trust; Waste Connections Inc.
Economic news
Canada’s annual inflation rate accelerated to 5.1% in January, the highest since September 1991, Statistics Canada said on Wednesday. Analysts polled by Reuters had expected the annual rate to remain at 4.8% in January.
Canadian manufacturing sales rose 0.7% in December, mostly attributable to higher sales of plastic and rubber products, as well as motor vehicles. The Street was expecting a rise of 0.5%.
Canadian wholesale sales rose 0.6% in December to $76.2 billion. Gains in the automobile and automobile parts and accessories subsector, and in the machinery, equipment and supplies subsector were largely offset by lower sales in the food, beverage and tobacco subsector and in the miscellaneous subsector.
U.S. retail sales surged 3.8% last month, the Commerce Department said on Wednesday. Data for December was revised down to show sales declining 2.5% instead of 1.9% as previously reported. Economists polled by Reuters had forecast retail sales rising 2.0% with estimates ranging from as low as 0.7% to as high as 4.4%.
U.S. import prices rose 2% in January from December, higher than the 1.3% estimate. The January increase was the largest monthly rise since April 2011. Prices for U.S. imports advanced 10.8 percent over the past year, led by higher fuel and nonfuel prices. Export prices rose 2.9% following a 1.6% decline in December. Expectations was for a 1.3% increase
(9:15 a.m. ET) U.S. industrial production for January. The Street expects a rise of 0.4 per cent from December with capacity utilization rising 0.3 per cent to 76.8 per cent.
(10 a.m. ET) U.S. NAHB Housing Market Index for February.
(10 a.m. ET) U.S. business inventories for December.
(2 p.m. ET) U.S. Fed minutes from Jan. 25-26 meeting are released.
With files from Reuters