Canada’s commodity-heavy main stock index opened higher on Wednesday, as energy shares tracked stronger crude prices, while investors took in the Bank of Canada’s first hike in interest rates since 2018.
In early morning trade, the Toronto Stock Exchange’s S&P/TSX composite index was up 117.07 points, or 0.56%, at 21,121.58.
U.S. stock indexes opened higher as well after a bruising start to the week, as Federal Reserve Chair Jerome Powell signaled the central bank would start raising rates this month despite uncertainties stemming from the Ukraine crisis.
The Dow Jones Industrial Average rose 84.56 points, or 0.25%, at the open to 33,379.51. The S&P 500 opened higher by 16.30 points, or 0.38%, at 4,322.56, while the Nasdaq Composite gained 65.07 points, or 0.48%, to 13,597.53 at the opening bell.
Despite the early day tentative gains, the mood remained dour across global stock markets as Brent crude jumped to near eight-year highs and metal prices rallied after Western sanctions disrupted transport of commodities exported by Russia.
The Bank of Canada this morning raised interest rates by 25-basis-points to 0.50% - a move that was widely expected - and said it would continue with the reinvestment phase of its bond buying program.
The central bank also said Russia’s invasion of Ukraine “is a major new source of uncertainty,” noting commodity prices had risen sharply and would fuel further inflation, while new supply disruptions could weigh on global growth.
The bank now expects inflation to be higher in the near term than in its January projection. It said Canada’s rebound from the Omicron variant was “well in train,” and that first-quarter growth now looked more solid than previously projected.
Governor Tiff Macklem will deliver an economic progress report on Thursday to fully flesh out the Bank’s view.
“The Bank made no mention of the potential benefits to the Canadian economy from higher commodity prices, but its concern about the inflationary impact as well as its concluding statement, that ‘the Governing Council expects interest rates will need to rise further,’ suggests it will raise interest rates again before long,” Capital Economics said in a note following the rate hike. “We anticipate another 25 basis point hike at the next meeting in April.”
Meanwhile, Powell is testifying before the U.S. House of Representatives Financial Services Committee. His comments on the economy will confront a situation that has become markedly more complex since January.
In prepared remarks already released, Powell said the Federal Reserve will move forward with plans to raise interest rates this month to try to tame high inflation, but the outbreak of war in Ukraine has made the outlook “highly uncertain” for U.S. central bank policymakers as they plan their next steps.
Powell reiterated the core Fed narrative that high inflation and an “extremely tight” labor market warrant higher interest rates.
“We expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month,” Powell said, and that the Fed will follow that later this year with reductions to its roughly $8.5 trillion portfolio of government securities.
But in his opening statement to lawmakers Powell gave no hint about how far or how fast the Fed may need to go in its policy tightening, said Fed officials still expect inflation to ease later this year, and framed the start and conclusion of his remarks with the events unfolding in Ukraine.
Russia today said its forces took control the first sizable city, seizing Kherson, in south Ukraine, as fighting raged around the country. The Kremlin said its delegations are ready to hold a second round of talks with Ukraine.
Companies around the world announced they were severing ties with Russia - Boeing Co suspended maintenance and technical support for Russian airlines, Apple Inc stopped sales of iPhones and other products and oil major Exxon Mobil said it would exit the country.
European stocks are choppy this morning. The STOXX 600 index of European equities was down earlier this morning but was trading modestly positive as North American markets open.
Commodities
Oil prices surged on Wednesday as supply disruptions mounted following sanctions on Russian banks amid the intensifying Ukraine conflict, while traders scrambled to seek alternative oil sources in an already tight market.
Brent crude futures rose by more than $8, touching a peak of $113.02 a barrel, the highest since June 2014, before easing to $111.53, up by $6.56 or 6.3% by 0950 GMT.
U.S. West Texas Intermediate (WTI) crude futures also jumped more than $8 a barrel, hitting the highest since August 2013 before losing some steam to trade up $6.39 or 6.2% to $109.80 a barrel.
“Due to limited diversification options, any disruption to Russia’s energy exports will result in another energy crisis in Europe,” said Kaho Yu, principal Asia analyst at risk consultancy Verisk Maplecroft.
“Although the U.S. has called for a global oil reserve release, oil prices are likely to remain above $100 unless significant alternative supplies enter the market.”
Trade in Russian oil was in disarray as producers postponed sales, importers rejected Russian ships and buyers worldwide searched elsewhere for crude as Western sanctions and pullouts by private companies squeezed Russia.
Currencies and bonds
The Canadian dollar was up about about a quarter of a U.S. cent in early trading, finding support from stronger crude prices.
The loonie spiked very briefly after the Bank of Canada rate decision, but overall there was little reaction to the move in currency markets given it had been largely priced into markets.
The U.S. 10-year Treasury note rose to a session high of 1.789% after the release of Powell’s comments.
Other corporate news
Nordstrom Inc surged 30.9% after the department store chain forecast upbeat full-year revenue and profit.
Hewlett Packard Enterprise gained 5.8% after the IT and hardware firm raised its FY22 profit outlook due to robust demand and profitability.
Earnings include: Best Buy Co. Inc.; Descartes Systems Group Inc.; Denison Mines Corp.; Dentalcorp Holdings Ltd.; Dollar Tree Inc.; ECN Capital Corp.; E-L Financial Corp. Ltd.; Laurentian Bank of Canada; NFI Group Inc.; Secure Energy Services Inc.; Tourmaline Oil Corp.; Winpak Ltd.
Economic news
U.S. private employers hired more workers than expected in February and data for the prior month was revised sharply higher as the labor market recovery gathers steam. Private payrolls increased by 475,000 jobs last month, the ADP National Employment Report showed on Wednesday. Data for January was revised higher to show 509,000 jobs were added instead of 301,000 lost as initially reported. Economists polled by Reuters had forecast private payrolls would increase by 388,000 jobs.
2pm U.S. Federal Reserve Beige Book
With files from Reuters