Equities
Canada’s main stock index started higher Wednesday as investors await the Bank of Canada’s rate announcement later in the morning. On Wall Street, key indexes were up at the opening bell after new figures showed further easing of inflationary pressures in the U.S. economy.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 157.29 points, or 0.79 per cent, at 20,035.85.
In the U.S., the Dow Jones Industrial Average rose 133.86 points, or 0.39 per cent, at the open to 34,395.28.
The S&P 500 opened higher by 28.43 points, or 0.64 per cent, at 4,467.69, while the Nasdaq Composite gained 154.94 points, or 1.13 per cent, to 13,915.64 at the opening bell.
Canadian investors will get the Bank of Canada’s rate decision at 10 a.m. ET, with markets pricing in about a 70-per-cent chance of another increase.
The central bank moved to the sidelines early this year after an aggressive tightening campaign, but surprised last month with a quarter-point increase. Wall Street brokerages Wall Street brokerages J.P.Morgan and Citigroup both expect a quarter-percentage-point rate increase today bringing the bank’s key rate to 5 per cent, but Bank of America said in a report that it expects the central bank to hold steady.
“We expect the Bank of Canada to again raise rates by 25 basis points on Wednesday, although risks around a hike or a pause are somewhat more balanced than in June,” Citi economist Veronica Clark said in a note.
“Most, but not all, data received in the weeks since the June decision have pointed towards another hike as warranted, with forecasts in the July monetary policy report likely to show upward revisions to both growth and inflation.”
She said, while Citi doesn’t expect an explicit mention of future hikes in today’s statement, the risk is still tilted toward policy rates rising beyond 5 per cent.
In the U.S., meanwhile, new figures released Wednesday morning showed the annual rate of inflation in the United States eased to 3 per cent in June, from 4 per cent in May. The annual rate in June was the lowest in more than two years. Economists had expected a reading closer to 3.1 per cent in the latest report. On a monthly basis, consumer prices rose 0.2 per cent, compared with market expectations for a 0.3-per-cent increase.
“This is the lowest number since the pandemic, and this is certainly good news for the economy, but it is important to keep in mind that this is still a transitory situation,” Naeem Aslam, chief investment officer with Zaye Capital Markets, said.
“Overall, we think this is the best news for the markets so far this year when it comes to the U.S. CPI data,” he said.
The numbers come ahead of the Federal Reserve’s latest policy decision later this month. Markets are expecting a quarter point increase although several Fed officials this week have also suggested the central bank may be near an end to its tightening cycle.
On the corporate side, The Globe reports Laurentian Bank of Canada is up for sale, with larger rivals now circling the country’s ninth-largest lender in pursuit of a deal that would continue a trend toward consolidation in financial services, sources say. Laurentian Bank confirmed in a press release that it is “conducting a review of strategic options” after The Globe and Mail revealed the lender is exploring a sale.
In earnings, The Globe’s Susan Krashinsky Robertson reports that Vancouver-based retailer Aritzia Inc. reported slowing revenue growth and a 47.5-per-cent drop in profit in the first quarter, and downgraded its sales forecast for this fiscal year as the popular clothing retailer has begun to see consumer traffic slow down amid continuing inflation. Net income fell to $17.5-million or 15 cents a share, compared with $33.3-million or 29 cents a share in the prior year. Aritzia reported that inflationary pressures led to higher product costs, among other factors affecting profitability.
Overseas, the pan-European STOXX 600 was up 0.87 per cent by midday. Britain’s FTSE 100 added 1.35 per cent. Germany’s DAX and France’s CAC 40 rose 0.77 per cent and 0.67 per cent, respectively.
In Asia, Japan’s Nikkei fell 0.81 per cent, falling below 32,000 for the first time in more than a month. Hong Kong’s gained 1.08 per cent.
Commodities
Crude prices edged up in early trading as traders weigh continuing economic concerns against supply cuts from key producers.
The day range on Brent was US$79.21 to US$79.75 in the early premarket period. The range on West Texas Intermediate was US$74.67 to US$75.17. Both benchmarks added about 2 per cent on Tuesday, helped by a weaker U.S. dollar.
“Trend and momentum indicators remain positive, and we are not in overbought territory just yet, meaning that this rally could further develop,” Swissquote senior analyst Ipek Ozkardeskaya said.
“The next natural target for the oil bulls [for WTI] stands at the 200-day moving average, at $77-per-barrel level.
Later Wednesday morning, traders will get new weekly U.S. inventory figures from the U.S. Energy Information Administration. Late Tuesday, the American Petroleum Institute’s report showed crude stocks rose about 3 million barrels in the week ended July 7. Analysts polled by Reuters were looking for a 500,000 barrel decline.
Elsewhere, spot gold gained 0.1 per cent to US$1,934.48 per ounce by early Wednesday morning, while U.S. gold futures added 0.2 per cent to US$1,939.90.
Currencies
The Canadian dollar was higher ahead of the Bank of Canada rate decision while its U.S. counterpart slid to a two-month low against a basket of world currencies.
The day range on the loonie was 75.52 US cents to 75.76 US cents in the predawn period. The dollar is up 0.55 per cent against the greenback over the last five days.
On world markets, the U.S. dollar index, which weighs the currency against a group of world counterparts, fell to a two-month low and was down 0.23 per cent at 101.50 in the early premarket period. The index is down 1.8 per cent over the past five days.
Against the yen, the U.S. dollar fell by as much as 0.76% to a one-month low of 139.32, Reuters reported.
The euro rose 0.2 per cent to US$1.1027, nudging at two-month highs, while the Swiss franc rose 0.3 per cent to a 2-1/2 year high of 0.8765, the news agency said.
In bonds, the yield on the U.S. 10-year note was lower at 3.942 per cent ahead of the North American open.
More company news
U.S. chip maker Broadcom secured EU antitrust approval on Wednesday for its $61-billion proposed acquisition of cloud computing firm VMware after offering remedies to help rival Marvell Technology. The deal, Broadcom’s largest ever, will help the chip maker diversify into enterprise software. Broadcom offered Marvell and other rivals interoperability commitments related to its Fibre Channel Host-Bus Adapters (FC HBAs), a kind of storage adapters, the European Commission said, confirming a Reuters story last month.
Economic news
(8:30 a.m. ET) U.S. CPI for June.
(10 a.m. ET) Bank of Canada policy announcement and Monetary Policy Report with governor Tiff Macklem’s press conference to follow.
(2 p.m. ET) U.S. Fed Beige Book is released.
With Reuters and The Canadian Press