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Canada’s main stock index rose on Thursday, closing at the highest in two months as higher oil prices bolstered energy shares, but an uncertain economic environment threw doubt on whether it would be plain sailing ahead for the commodity-linked market.

The Toronto Stock Exchange’s S&P/TSX composite index ended up 105.94 points, or 0.5 per cent, at 19,991.88, adding to this week’s rally and posting its highest closing level since June 10.

“We have had a pretty good week … we have seen a lot of the commodities hang in,” said Michael Sprung, president at Sprung Investment Management.

“I am not sure if this is going to be a long-term trend or not. If anything, I think the fears of inflation and possible recession are likely to resurface again.”

Canada’s inverted yield curve signals the Bank of Canada may raise interest rates to a level that triggers a recession, placing the central bank in a tough spot as it aims to tame high inflation and engineer a “soft landing” for the economy.

The energy sector climbed 3.9 per cent, as crude oil futures settled 2.6 per cent higher at $94.34 a barrel after the International Energy Agency raised its oil demand growth forecast for this year.

Suncor Energy added 3.3 per cent as it considers spinning off its Petro-Canada gas business that accounts for 13 per cent of Canada’s retail fuel market.

Energy accounts for nearly 19 per cent of the TSX’s market capitalization.

Among other companies that stood out was Element Fleet Management Corp. Shares of the fleet management company jumped 10.3 per cent after it beat earnings estimates, while manufacturing company Linamar Corp ended 10.6 per cent higher.

The Nasdaq and S&P 500 retreated to close lower on the realization the Federal Reserve still needs to aggressively boost interest rates to fully tame rising consumer prices despite fresh evidence of cooling inflation.

The S&P 500 closed a tad lower after earlier hitting fresh three-month highs following data that showed the U.S. producer price index (PPI) unexpectedly fell in July.

The drop in PPI raised bets in futures markets that the Fed would hike rates by 50 basis points in September instead of 75 basis points as was expected earlier in the week.

The S&P 500 and Nasdaq surged more than 2 per cent on Wednesday after a softer-than-expected read on consumer prices. But policy-makers have left little doubt they will tighten monetary policy until inflation pressures fully abate.

With the labor market showing signs of softness as the number of Americans filing new claims for unemployment benefits rose for the second straight week, the Nasdaq turned lower as investors questioned the economy’s strength.

“It was a better CPI print yesterday than expected and a better PPI print this morning than forecasted by analysts. So it fit that theme, that peak inflation has occurred as energy continues to decline,” said George Catrambone, head of Americas trading at DWS Group. “But I would be concerned about a head fake.”

The Dow Jones Industrial Average rose 27.16 points, or 0.08 per cent, to 33,336.67, while the S&P 500 slid 2.97 points, or 0.07 per cent, to 4,207.27 and the Nasdaq Composite dropped 74.89 points, or 0.58 per cent, to 12,779.91.

Volume on U.S. exchanges was 12.36 billion shares, compared with the 11.06 billion average for the full session over the past 20 trading days.

Six of the 11 major S&P 500 sectors declined, with health care leading. Energy rose 3.2 per cent to lead gainers and help value stocks advance 0.4 per cent as growth shares fell 0.5 per cent.

Banks extended their rally with Goldman Sachs and JPMorgan Chase & Co rising 1.1 per cent and 1.5 per cent, respectively.

Benchmark U.S. Treasury yields hit more than two-week highs as bond investors bet the Fed will press on with hiking rates as inflation is still hot, even though price pressures have eased a bit.

Demand, as seen by an almost 9 per cent increase in aggregate spending power, is still too strong and may lead the Fed to stay aggressive longer than many hope, said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions.

“We’re becoming a little more worried because the Fed might have to do a little bit more work to try to cool that excess demand side of the equation,” Janasiewicz said.

High-growth stocks that had rallied on Wednesday fell, Tesla Inc down 2.6 per cent and Inc off 1.5 per cent.

Despite its recent bounce of mid-June lows, the tech-heavy Nasdaq is down about 18 per cent so far this year as fears of an aggressive monetary policy have sapped appetite for equities, particularly high-growth stocks.

The U.S. central bank has raised its policy rate by 225 basis points since March as it battles to cool demand without sparking a sharp rise in layoffs.

In earnings-driven news, Walt Disney jumped 4.7 per cent as the media giant edged past rival Netflix Inc with 221 million streaming customers and announced it will increase prices for customers who want to watch Disney+ or Hulu without commercials.

Bumble Inc fell 8.6 per cent on cutting its full-year revenue forecast, taking a hit from the Ukraine war, while also grappling with competition from rival Match Group Inc in the online dating market.


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