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Canada’s main stock index fell on Friday but was still up for the week, as investors weighed prospects of a global recession and domestic jobs data supported expectations for an outsized interest rate hike next week by the Bank of Canada.

Wall Street indexes were little changed after a volatile session as investors tried to comprehend how a robust U.S. jobs report would influence the Federal Reserve and its plans to aggressively hike interest rates. For the week, which was shortened by the Independence Day holiday, the Dow, S&P 500 and Nasdaq all finished solidly up.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 40.31 points, or 0.2%, at 19,022.86. For the week, the index was up 0.9%.

“The TSX has made a modest advance this week, but in the face of recent volatility, we’ll take it,” said Elvis Picardo, portfolio manager at Luft Financial, iA Private Wealth. “I think investors can expect continued volatility in the summer months as fears of a potential recession ebb and flow.”

Recession worries have battered equity markets globally in recent months, as central banks take aggressive measures to control inflation.

Expectations rose that the Bank of Canada would raise interest rates by three-quarters of a percentage point next week after data Friday showed that Canada’s unemployment rate fell to a new record low of 4.9% in June and that wages accelerated sharply.

The Federal Reserve has already hiked by that increment in the current tightening cycle and could do so again after data on Friday showed stronger-than-expected U.S. jobs growth.

“The (Canadian) data suggests an extremely tight labour market, and seems to reinforce traders’ perception that the Bank of Canada will follow in the Fed’s footsteps,” Picardo said.

The TSX energy sector gave back some of the previous day’s strong gains, falling 1.1%, even as crude oil settled 2% higher at $104.79 a barrel.

The materials group, which includes precious and base metals miners and fertilizer companies, lost 1.3%.

Among sectors that gained ground on Bay Street was consumer discretionary. It ended 0.8% higher, helped by a gain of 4.2% for Aritzia Inc as the fashion retailer beat quarterly earnings estimates.

The U.S. Labor Department’s closely awaited data showed nonfarm payrolls rose by 372,000 jobs in June, higher than the estimated rise of 268,000 jobs, according to a Reuters poll of economists.

The report also showed the jobless rate remained near pre-pandemic lows at 3.6% and average hourly earnings rose 0.3%, after gaining 0.4% in May.

After a brutal first half of the year, U.S. stock markets started July on a solid footing as investors took relief from easing commodity prices and the Fed hinting at a more tempered program of rate hikes amid concerns of a recession.

“We think the market has right-sized itself, somewhat, and will continue to adjust around the edges as we see macro data and as we work our way through earnings season,” said Mike Loukas, chief executive of TrueMark Investments.

“Now it’s a matter of people trying to figure out where the entry point is, and where the bottom is or if we are close to it.”

Investors remain nervy though, sifting through each new piece of data and commentary from Fed governors to see how this might influence the U.S. central bank’s plans to dramatically shift rates higher.

This resulted in see-saw trading on Friday, with all three main benchmarks experiencing periods in positive and negative territory.

“In the last couple of days, some people are starting to see signs that the inflation environment is looking better and that will give the Fed reason to back off the rate increases,” said Derek Izuel, chief investment officer at Shelton Capital Management.

“The market suspects when you start to see truly strong signs of the Fed relaxing its path of rate increases and leading indicators picking up, we’ll probably get a pretty good upward movement in the market, and no one wants to miss that.

“So we’re going to have this volatility as we have all these false starts along the way.”

With the earnings season around the corner, investors will focus on company forecasts as well as key inflation data expected next week to gauge the health of the economy.

Atlanta Fed President Raphael Bostic, until recently among the central bank’s most dovish policymakers, said on Friday he “fully” supports another 75-basis-point rate rise later this month.

Speaking later on Friday, New York Federal Reserve President John Williams did not specify if he favours a half point or three-quarter point increase at the Fed’s upcoming July meeting, but acknowledged rising interest rates were affecting the economy.

The Dow Jones Industrial Average fell 46.4 points, or 0.15%, to 31,338.15, the S&P 500 lost 3.24 points, or 0.08%, to 3,899.38 and the Nasdaq Composite added 13.96 points, or 0.12%, to 11,635.31.

For the week, the Nasdaq gained 4.5%, while the S&P and Dow advanced 1.9% and 0.8%, respectively.

Volume on U.S. exchanges was 9.60 billion shares, compared with the 13.03 billion average for the full session over the last 20 trading days.

The S&P 500 posted two new 52-week highs and 29 new lows; the Nasdaq Composite recorded 21 new highs and 52 new lows.

Benchmark U.S. 10-year Treasury yields rose to 3.099%, up from around 2.989% before the nonfarm payrolls data. Two-year yields - which are more sensitive to central bank policy actions - jumped to 3.115%, from around 3.001%.

The 10-year Canadian bond yield touched its highest since June 30 at 3.317% before dipping slightly to 3.302%, up 8.4 basis points on the day.

The loonie advanced 0.1% to 1.2955 per U.S. dollar, or 77.19 U.S. cents, after trading in a range of 1.2937 to 1.3034. For the week, it was down 0.6% as investors worried about the risk of a global recession.

Reuters, Globe staff

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