Equities
Canada’s main stock index opened lower Monday, tracking weakness in commodities prices. On Wall Street, key indexes were also in the red after a Federal Reserve official tempered market optimism that the aggressive course of rate hikes could be winding down.
The Toronto Stock Exchange’s S&P/TSX composite index fell 54.00 points, or 0.27 per cent, to 20,057.51, after hitting an 11-week closing high on Friday.
In the U.S., the Dow Jones Industrial Average fell 85.8 points, or 0.25 per cent, at the open to 33662.05. The S&P 500 fell 15.0 points, or 0.37 per cent, at the open to 3977.97, while the Nasdaq Composite dropped 89.4 points, or 0.79 per cent, to 11233.904 at the opening bell.
Sentiment got a boost last week when October U.S. inflation numbers came in lower than expected. However, Fed Governor Christopher Waller suggested on the weekend that, while the central bank may consider hiking at a slower pace, a single report isn’t enough to soften its position on fighting price pressures.
“The main reason that we saw the U.S. equity markets soaring last week was that investors became overly enthusiastic about the US inflation reading, which did show a significant drop from its 40-year high,”AviTrade chief market analyst Naeem Aslam said.
“However, we believe that a lot of that reaction was actually overly enthusiastic. This is because a large number of fundamentals are still very much concerning.”
Monday's analyst upgrades and downgrades
In this country, traders are looking ahead new inflation figures from Statistics Canada on Wednesday. In September, the annual rate of inflation edged lower to 6.9 per cent from 7 per cent in August.
Later in the week, retail earnings come into focus with results due from grocers Loblaw Cos. Ltd. and Metro Inc. Both are scheduled to release earnings on Wednesday morning.
“While the U.S. report came in softer-than-expected, we’re not anticipating that will be the case for Canada with a 1-per-cent monthly increase forecast,” Benjamin Reitzes, managing director, Canadian rates and macro strategist with BMO, said.
“Higher gasoline, mortgage interest and food costs were likely big contributors to the increase, which is expected to push inflation back above 7 per cent after dipping below that level in the prior month.”
South of the border, major retailers including Walmart, Home Depot and Lowe’s are also scheduled to report later in the week.
Overseas, the pan-European STOXX 600 was up 0.21 per cent. Britain’s FTSE 100 gained 0.42 per cent. Germany’s DAX and France’s CAC 40 rose 0.26 per cent and 0.25 per cent, respectively.
In Asia, Japan’s Nikkei lost 1.06 per cent. Hong Kong’s Hang Seng rose 1.7 per cent helped by property stocks after reports that regulators could ask financial institutions to extend more support for the sector.
Commodities
Crude prices fell in a choppy early session with rising COVID-19 cases in China and a firmer U.S. dollar weighing on sentiment.
The day range on Brent was US$95.21 to US$96.95 in the early premarket period. The range on West Texas Intermediate was US$88.09 to US$89.84. Both benchmarks ended Friday’s session higher and saw early premarket gains on Monday before slipping into the red.
Last week, markets got a boost after China’s health officials eased some COVID-19 restrictions, including reducing quarantine times for inbound travellers. However, COVID cases climbed in China over the weekend, with Beijing and other big cities reporting record infections on Monday, according to a Reuters report.
“The prospect of looser restrictions has boosted the price of oil recently and yet Brent still finds itself trading around the middle of its $90-$100 range,” OANDA senior analyst Craig Erlam said.
“The U.S. inflation data last week gave crude another boost as traders were left to dream again about a possible soft landing if the data continues that way and the Fed raises rates less.”
Crude was also tempered early Monday by an advance in the U.S. dollar after a Fed official on the weekend suggested the market is getting ahead of itself after last week’s tamer-than-forecast reading on U.S. inflation. A higher dollar makes crude more expensive for holders of other currencies.
In other commodities, gold prices were weaker.
Spot gold fell 0.6 per cent to US$1,760.49 per ounce early Monday morning. U.S. gold futures eased 0.3% to $1,763.50. Gold posted its best weekly advance last week since March 2020.
“It’s been quite the ride, fueled by signals from the central bank that the next hike could be less aggressive and then that inflation report,” Mr. Erlam said.
“Can gold hold onto this momentum and break $1,800, taking it into territory that it hasn’t traded within since late-Spring, early-summer? It’s a big ask but if the data is generous and the dollar continues to give back some of its enormous gains from the past year, there’s every chance gold could build momentum from here.”
Currencies
The Canadian dollar was weaker while its U.S. counterpart advanced against a basket of world currencies on the latest Fed comments on inflation and rates.
The day range on the loonie was 75.12 US cents to 75.53 US cents in the premarket period.
Canadian investors get factory sales figures on Tuesday ahead of Wednesday’s inflation data.
“The CAD has taken full advantage of the softer USD tone and firmer equity markets to advance over the past couple of sessions,” Shaun Osborne, chief FX strategist with Scotiabank, said in an early note.
“The CAD’s moves reflect external factors almost exclusively,” he said.
The U.S. dollar index, which gauges the greenback against a basket of six other major currencies including the yen, euro and sterling, edged up 0.1 per cent to 106.85, edging off the nearly three month low of 106.27 touched on Friday, according to figures from Reuters.
Britain’s pound fell ahead of the British Chancellor’s Autumn Statement on Thursday, where he is expected to set out tax rises and spending cuts. The pound was down 0.4 per cent at US$1.1787, having risen 4 per cent in the previous two sessions, the agency said.
In bonds, the yield on the U.S. 10-year note was up at 3.88 per cent in the predawn period.
More company news
SpaceX has bought an advertising package on Twitter for its satellite internet service Starlink, said Elon Musk, who owns both the rocket company and the social media platform, in a tweet on Monday. “SpaceX Starlink bought a tiny – not large – ad package to test effectiveness of Twitter advertising in Australia & Spain. Did same for FB/Insta/Google,” Musk tweeted. The move comes at a time when Twitter, which generated more than 90 per cent of its second-quarter revenue from ad sales, is seeing an exodus of advertisers on fears that Musk would bring changes to the company’s content moderation rules. -Reuters
Economic news
(8:45 a.m. ET) Bank of Canada Governor Tiff Macklem makes the opening remarks in Ottawa at the Conference on Diversity and Inclusion in Economics, Finance and Central Banking.
Also: Ontario’s fiscal update.
With Reuters and The Canadian Press
Terry Weber