Equities
Canada’s main stock index added to recent losses at Wednesday opening bell with energy stocks under pressure as traders weigh the implications of a better-than-expected reading on broad economic growth on interest rates. On Wall Street, key indexes were also down as markets await a vote in Congress on the weekend debt deal.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 94.95 points, or 0.48 per cent, at 19,644.75. Heading into May’s last session, the index was down roughly 4 per cent for the month.
The Dow Jones Industrial Average fell 94.07 points, or 0.28 per cent, at the open to 32,948.71. The S&P 500 opened lower by 14.78 points, or 0.35 per cent, at 4,190.74, while the Nasdaq Composite dropped 49.05 points, or 0.38 per cent, to 12,968.38 at the opening bell. The Nasdaq and S&P were both positive for the month heading into Wednesday’s session while the Dow was negative.
Markets continue to focus on the next steps in efforts to suspend the U.S. debt ceiling after a weekend deal was struck between U.S. President Joe Biden and House Leader Kevin McCarthy. On Tuesday night, the agreement cleared a key hurdle when it passed in the House Rules Committee. It is now expected to go to a vote in Congress this evening.
“It won’t take a lot to disrupt this debt deal, but optimism remains that Congress won’t mess with putting the economy at risk of an unnecessary catastrophe,” OANDA senior analyst Ed Moya said.
“Right now, it feels like we have a one run lead and are at the seventh-inning stretch. Once this debt ceiling deal gets to President Biden’s desk, then Wall Street can go back to focusing on potential downgrade risks, recession odds, and more Fed tightening.”
In Canada, Statistics Canada released its report on March and first-quarter gross domestic product.
The agency said the Canadian economy grew at an annual rate of 3.1 per cent in the first quarter of the year. That was better than the 2.5 per cent economists had been forecasting for the three-month period. On a monthly basis, GDP was essentially flat, versus forecasts of a contraction of 0.1 per cent. An early estimate for April suggests growth of 0.2 per cent for that month.
“Overall, the headline reading, composition of growth and handoff to Q2 were all slightly stronger than we had expected, raising the odds of another Bank of Canada rate hike,” CIBC senior economist Andrew Grantham said.
“However, we still expect that they will want to wait to see more data and revise their forecasts (in the July MPR) before making a final decision on whether to raise rates again, rather than hike next week.”
The Bank of Canada’s next rate announcement is June 7.
On the corporate side, National Bank capped Canada’s bank earnings season, releasing results for its latest quarter. The bulk of Canada’s banks delivered results last week that were largely disappointing amid rising interest rates and economic uncertainty.
The Globe’s Stefanie Marotta reports this morning that National Bank earned $847-million, or $2.38 per share, in the three months that ended April 30. That compared with $889-million, or $2.53 per share, in the same quarter last year. Adjusted to exclude certain items, the bank said it earned $2.38 per share. That slightly missed the $2.39 per share analysts expected, according to Refinitiv.
Overseas, the pan-European STOXX 600 was down 0.50 per cent by midday. Britain’s FTSE 100 lost 0.28 per cent. Germany’s DAX and France’s CAC 40 fell 0.61 per cent and 0.91 per cent, respectively.
In Asia, Japan’s Nikkei lost 1.41 per cent. Hong Kong’s Hang Seng slumped 1.94 per cent, hitting a new 2023 low and briefly entering bear market territory.
Commodities
Crude prices were lower and set for a monthly drop as weaker-than-expected economic data out of China, one of the world’s biggest consumers of oil, applied downward pressure.
The day range on Brent was US$72.89 to US$73.81 in the early premarket period. The range on West Texas Intermediate was US$68.68 to US$69.69.
Brent crude is down about 7 per cent for the month so far while WTI is off about 9 per cent.
New figures showed China’s manufacturing activity contracted faster than expected in May on weakening demand, with the official manufacturing purchasing managers’ index (PMI) down to 48.8 from 49.2 in April. The outcome lagged a forecast of 49.4, according to Reuters.
“Oil prices year-to-date continue to revolve around macro concerns and recessionary fears,” Stephen Innes, managing partner with SPI Asset Management, said in a note.
“And even though realized oil demand has generally proven resilient and global oil demand forecasts have been revised higher, macro investors are looking through oil analysts’ crystal balls.”
In other commodities, gold prices were treading water but looked set for the first monthly drop in three.
Spot gold held steady at US$1,960.79 per ounce by early Wednesday morning and was down more than 1 per cent for the month.
U.S. gold futures rose 0.2per cent to US$1,959.80.
Currencies
The Canadian dollar was lower, hit by weaker risk sentiment in broader markets and sagging crude prices, while its U.S. counterpart hit its best level since mid-March against a group of world currencies.
The day range on the loonie was 73.25 US cents to 73.54 US cents in the predawn period. The Canadian dollar was down about 0.17 per cent for the month ahead of Wednesday’s opening bell.
“The CAD is on the back foot again, reflecting broader USD gains, slightly softer stocks and further slippage in energy prices after yesterday’s hefty losses,” Shaun Osborne, chief FX strategist with Scotiabank, said.
On world markets, the U.S. dollar index, which measures the greenback against a basket of currencies, rose 0.51 per cent early Wednesday morning to 104.6, its highest since March 16.
The euro was last down 0.67 per cent at US$1.066, the lowest since March 20, according to figures from Reuters. New figures released Wednesday showed inflationary pressures easing in France and parts of Germany. Euro zone inflation figures are due tomorrow.
Britain’s pound was last down 0.42 per cent to US$1.236.
In bonds, the yield on the U.S. 10-year note was lower at 3.658 per cent in the predawn period.
More company news
Great-West Lifeco Inc. has signed a deal to sell U.S.-based asset manager Putnam Investments to Franklin Resources Inc. and agreed to a strategic partnership. Under the deal, the company that operates as Franklin Templeton will make a payment of US$950-million to US$1-billion, consisting of 33.33 million shares at closing and US$100 million in cash six months after closing. It will also pay up to US$375-million between three and seven years after the deal closes, tied to the growth of the partnership. -The Canadian Press
CAE Inc. reported its fourth-quarter profit rose compared with a year ago as its revenue climbed more than 30 per cent. The flight simulator company says it earned net income attributable to equity holders of $98.4 million or 31 cents per diluted share for the quarter that ended March 31, up from $55.1 million or 17 cents per diluted share a year earlier. -The Canadian Press
Revenue in the quarter totalled $1.26 billion, up from $955.0 million in the same quarter last year.
HP Inc missed Wall Street targets for second-quarter revenue on Tuesday as inflation-hit customers spent less on the company’s personal computers. Companies such as HP, Lenovo and Dell Technologies Inc have seen demand ease from peaks hit during the pandemic, when work-from-home trends had driven up sales of laptops and other electronic devices. Global PC shipments declined nearly 30% in the January-March period to levels lower than before the pandemic, according to data from research firm IDC. Shares were down more than 4 per cent in early trading in New York. -Reuters
American Airlines Group on Wednesday raised its outlook for second-quarter profit as it expects to pay lesser for jet fuel compared to its previous estimate. The company forecast profit in the range of $1.45 to 1.65 per share for the current quarter. -Reuters
Economic news
(8:30 a.m. ET) Canada’s real GDP for Q1.
(8:30 a.m. ET) Canada’s monthly real GDP for March.
(9:45 a.m. ET) U.S. Chicago PMI for May.
(10 a.m. ET) U.S. Job Openings and Labor Turnover Survey for April.
(2 p.m. ET) U.S. Beige Book released.
With Reuters and The Canadian Press