Trader Gregory Rowe, centre, works on the floor of the New York Stock Exchange May 24.Richard Drew/The Associated Press
Canadian stocks rose on Wednesday to the highest level since October, as Bank of Montreal's results added to a rally among lenders and higher crude prices bolstered the nation's energy producers.
The S&P/TSX Composite Index added 0.72 per cent, or 100.89 points, to 14,053.74 in Toronto, a level last seen on Oct. 9. The gauge hadn't closed above 14,000 since August. The index has climbed 8 per cent this year, second most among developed-market nations tracked by Bloomberg.
Global shares jumped, as European and American financial firms paced gains on growing conviction the Federal Reserve will raise interest rates this summer and Britain will vote to remain in the European Union.
In Canada, the central bank kept its key interest rate unchanged, signalling the economy will contract this quarter as Alberta wildfires cut oil production. Governor Stephen Poloz held the benchmark interest rate at 0.5 percent, where it's been since July. Higher U.S. rates weakens the Canadian dollar, making Canada more attractive for foreign investment.
Bank of Montreal rose 1.25 per cent for a third day of gains that have put the stock at its highest since September 2014. The lender said second-quarter fiscal profit fell 2.6 per cent as soured oil-and-gas loans soared and the firm took a restructuring charge. The lender raised its dividend 2.4 per cent to 86 cents a share.
Manulife Financial Corp. and Bank of Nova Scotia added at least 0.5 per cent as financial firms in the Canadian benchmark climbed to the highest level in a year.
Eight of 10 industries in the S&P/TSX advanced. The S&P/TSX now trades at 21.4 times earnings, about 11 per cent higher than the 19.2 times valuation of the S&P 500.
Suncor Energy Inc. rose 0.9 per cent. Energy producers added 2.3 per cent, rising a second day. Oil rose to the highest level in more than seven months in New York after a government report showed that U.S. crude inventories and production declined, easing a glut.
Gold producers sank to the lowest level in a month as the metal continued to pare this year's gains on prospects for a rate rise in June or July that boosted the dollar. That's dented a year-long rally in raw-materials producers, which have been the best performer in the index with a rally of more than 30 per cent.
Commodities producers make up about a third of the S&P/TSX by market capitalization Resource prices came under pressure last week as the Fed's April meeting minutes increased speculation an interest-rate hike could come as soon as June, driving the dollar higher.
Wall Street rose robustly for a second straight session on Wednesday, helped by higher oil prices and investors becoming more comfortable with the prospect of an interest rate hike as early as next month.
The Dow Jones industrial average rose 145.05 points, or 0.82 per cent, to 17,851.1, the S&P 500 gained 14.46 points, or 0.7 per cent, to 2,090.52 and the Nasdaq Composite added 33.84 points, or 0.7 per cent, to 4,894.89.
Banks in the benchmark led Wednesday's move, headed toward their highest level since Jan. 6 amid bets that higher rates will boost profits. Bank of America Corp. and Citigroup Inc. rallied more than 1.6 per cent. Energy producers followed oil higher, helped by a retreating dollar that also bolstered gains in raw-materials companies.
"Yesterday was certainly a big day, and with the breadth in the market and some of the key groups rallying with bank stocks and semiconductor stocks, there are things telling us that we might be able to hold the rally this time," Matt Maley, an equity strategist at New York-based Miller Tabak & Co LLC, said. "We've gone from mixed signals from the Fed to a unified chorus that we're going to hike, but the markets are not pricing in a June hike."
Hawkish commentary from Federal Reserve officials on the back of last week's policy-meeting minutes, along with improving economic figures, led to speculation the central bank may increase rates as early as June. Three regional Fed bank presidents are slated for remarks today, and Fed Chair Janet Yellen is scheduled to speak on Friday. Her comments will follow readings on durable goods orders, pending home sales, gross domestic product and consumer sentiment.
Traders are now pricing in a better than one-in-three chance of a June rate increase, from 4 per cent at the start of last week. Bets for a July move have jumped to 55 per cent from 19 per cent.
Equities are breaking out of a torpor that's left markets struggling for direction as investors sought more clarity on the Fed's rate intentions. The S&P 500 had alternated between daily gains and losses in the prior seven sessions, while trading in a roughly 50-point range in May. A Goldman Sachs Group Inc. basket of most shorted stocks rose for a fourth day. The measure is up 5 per cent over the span, its best such move in five weeks.
After the benchmark index surged 15 per cent from a 22-month low in February, stocks ran out of steam in late April amid mixed earnings reports and signs of lukewarm growth. The S&P 500 climbed back within 2 per cent of the record it reached last year.
The CBOE Volatility Index fell 2.9 per cent Wednesday to 14, continuing a retreat from a two-month high reached last Thursday. The measure of market turbulence known as the VIX is down 12 per cent in two sessions.
Crude stockpiles dropped 4.23 million barrels, according to the Energy Information Administration, more than twice what was projected by analysts in a Bloomberg survey. Production slipped an 11th week to the lowest level since September 2014. Prices dipped from the session highs after the report showed that gasoline supplies unexpectedly rose.
"It's nice to see a draw of that size," said Matt Sallee, who helps manage $14.1-billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kan. "Overall U.S. supplies should show a steady decline through the late summer. The data should be pretty bullish going forward."
Oil has surged more than 80 per cent from a 12-year low in New York earlier this year on signs the global glut will ease. While some of the world's biggest producers continue to pump crude at near-record levels, the Organization of Petroleum Exporting Countries is unlikely to set an output target when it meets June 2 as it sticks with Saudi Arabia's strategy of squeezing out rivals, according to all but one of 27 analysts surveyed by Bloomberg.
West Texas Intermediate for July delivery rose 94 cents to settle at $49.56 a barrel on the New York Mercantile Exchange. It's the highest close since since Oct. 9. Total volume traded was 18 per cent below the 100-day average.
Brent for July settlement increased $1.13, or 2.3 per cent, to $49.74 a barrel on the London-based ICE Futures Europe exchange. It's the highest close since Nov. 3. The global benchmark crude ended the session at an 18-cent premium to WTI.
The U.S. supply decline comes after prices have already climbed this month amid outbreaks of violence in Nigeria, export troubles in a divided Libya and wildfires across the Canadian oil sands.
"We've had a move up in the vulnerability of oil supplies to disruption," Kevin Norrish, managing director for commodities research at Barclays Plc in London, said. "Predicting, forecasting and anticipating future supply I think is much more difficult now and sets the base for a much more volatile price."
Nationwide crude supplies fell to 537.1 million barrels in the week ended May 20, according to the EIA. Stockpiles climbed to an 87-year high of 543.4 million barrels in the last week of April, EIA data show. Analysts had projected a 2 million-barrel decline.
Crude production slipped 24,000 barrels a day to 8.77 million, EIA data show. The number of active oil rigs in the U.S. was unchanged at 318 last week, the least since October 2009, according to data compiled by Baker Hughes Inc.
"The market wants to see a sustained number of inventory declines before crossing the $50 inflection point," said Adam Wise, who helps run a $7 billion oil and natural gas bond and private equity portfolio at John Hancock in Boston. "The drop in the rig count is starting to be reflected in inventories."
The industry-funded American Petroleum Institute reported on Tuesday that crude inventories fell 5.14 million barrels.
With a file from Reuters