Equities
Canada’s main stock index opened up Tuesday advanced early Wednesday on gains in material and healthcare stocks. Wall Street’s key indexes also started higher as traders await the after rate decision from the Federal Reserve.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 35.75 points, or 0.18%, at 20,254.64.
In the U.S., the Dow Jones Industrial Average rose 57.77 points, or 0.17%, at the open to 34,575.50. The S&P 500 opened higher by 8.86 points, or 0.20%, at 4,452.81, while the Nasdaq Composite gained 32.07 points, or 0.23%, to 13,710.26 at the opening bell.
Wednesday’s key event for markets will be the afternoon policy announcement from the Fed, due at 2 p.m. ET. A news conference with Fed chair Jerome Powell follows at 2:30 p.m. ET. Markets are expecting the Fed to hold rates steady but traders will be watching closely for hints about what lies ahead.
“Inflation has come down a lot, but the Fed’s inflation isn’t quite over yet,” OANDA senior analyst Ed Moya said.
“The market is assuming that inflation will come down all the way down to the Fed’s 2-per-cent target and that rate cuts will happen before next summer starts. The risks for headline inflation to heat up over the next couple of months are rising and that should complicate what the Fed does.”
In Canada, the Bank of Canada releases its deliberations from the most recent policy announcement, where the central bank left its key rate unchanged. On Tuesday, Statistics Canada reported that the annual rate of inflation jumped to 4 per cent in August, fuelled in part by rising energy costs.
Interest-rate swap markets, which capture market expectations about future Bank of Canada decisions, are now pricing in around a 40-per-cent chance of another quarter-point rate hike in October, according to Refinitiv data. The probability had been about one in five ahead of the latest inflation report. BoC deputy governor Sharon Kozicki, speaking in Regina on Tuesday, said the bank was prepared to raise interest rates again if necessary to temper inflationary pressures.
On the corporate side, The Globe’s Eric Atkins reports a last-ditch deal between Ford Motor Co. of Canada and the Unifor union has staved off a strike and yielded an agreement expected to set the template for automotive labour in the electric age. The three-year contract that covers 5,680 workers was reached around 9 p.m. on Tuesday, just before the midnight strike deadline. In the U.S., targetted labour action by the United Auto Workers continues against the Detroit Three. The union has said the strike could expand by Friday if no deal is reached.
On Wall Street, FedEx Corp. reports reports results after the close of trading.
Overseas, the pan-European STOXX 600 was up 0.56 per cent in morning trading. Britain’s FTSE 100 gained 0.59 per cent. Germany’s DAX added 0.65 per cent and France’s CAC 40 advanced 0.34 per cent.
In Asia, Japan’s Nikkei closed down 0.66 per cent. Hong Kong’s Hang Seng lost 0.62 per cent.
Commodities
Crude prices pulled back from recent highs as traders await this afternoon’s Fed rate decision.
The day range on Brent was US$92.54 to US$94.54 in the early premarket period. The range on West Texas Intermediate was US$89.90 to US$91.20. Both benchmarks were down more than 1 per cent early Wednesday morning after trading near 10-month highs in recent days.
“The oil rally is taking a little break as every trader awaits a pivotal Fed decision that might tilt the scales of whether the U.S. economy has a soft or hard landing,” OANDA’s Ed Moya said.
Prices have been underpinned by a move by Russia and Saudi Arabia to continue voluntary production cuts through to the end of the year. However, early Wednesday, the head of Russian oil firm Gazprom Neft said the OPEC+ group will act if the global oil market faces a shortage.
“If a situation emerges with an oil shortage, then, accordingly, there is OPEC+, which can react to this and increase the volume of oil supply to the market,” Gazprom head Alexander Dyukov said.
Wednesday’s decline in prices came despite a drop in U.S. crude inventories. Figures from the American Petroleum Institute showed crude stocks fell about 5.25 million barrels last week. Analysts had been expecting a drop closer to 2 million barrels. More official U.S. government numbers are due later this morning.
In other commodities, gold prices were treading water.
Spot gold was steady at US$1,930.19 per ounce by early Wednesday, holding below its highest level since Sept. 5 reached on Tuesday. U.S. gold futures eased 0.1 per cent to US$1,950.90.
“The question now for gold traders is whether the Fed is willing to acknowledge that it’s probably done with rate hikes, as we heard from the ECB last week, or continue to insist another is likely,” OANDA senior analyst Craig Erlam said.
“The dot plot will be key to this but as always, traders will hang on Powell’s every word. A hawkish tone from the Fed could put US$1,900 in jeopardy.”
Currencies
The Canadian dollar was steady after hitting a six-week high during the previous session as a hotter-than-expected inflation reading renewed uncertainty about the path ahead for interest rates.
The day range on the loonie was 74.26 US cents to 74.41 US cents in the predawn period. The Canadian dollar is down more than 2 per cent against the greenback over the last three months but up 0.79 per cent for the year to date.
“The [inflation] data gave an already strengthening CAD an additional lift as US/Canada yield spreads compressed quite significantly across the curve,” Shaun Osborne, chief FX strategist with Scotiabank, said.
“The bar to another rate hike here now looks quite a lot lower than we previously thought and swaps pricing may have to adjust to the risk of earlier and/or more aggressive tightening yet.”
On world markets, the U.S. dollar index, which measures the currency against a basket of rivals, stood firm at 105.10 with traders awaiting the Fed’s rate decision, according to figures from Reuters.
Britain’s pound was volatile, last down 0.26 per cent to US$1.2360 after touching its lowest in almost four months following data showing U.K. inflation slowed more than expected in August, the news agency reported. The Bank of England is set to make its next policy decision on Thursday and is expected to again raise interest rates.
The euro rose 0.1 per cent at US$1.0692.
In bonds, the yield on the U.S. 10-year note was lower at 4.345 per cent early Wednesday morning.
More company news
General Mills exceeded analysts’ expectations for quarterly sales on Wednesday, as price hikes on its breakfast cereals, snack bars and pet food products helped cushion a blow from slowing demand. The Cheerios cereal maker reported net sales $4.9-billion in the first quarter compared with $4.72-billion a year earlier. Analysts had expected sales of $4.88-billion, according to LSEG data. -Reuters
Economic news
130 pm ET: Bank of Canada Summary of Deliberations for the Sept. 6 policy decision
2 pm ET: FOMC policy announcement and Summary of Economic Projections
230 pm ET: Fed Chair Jerome Powell’s press briefing
With Reuters and The Canadian Press