|Globe Investor | May 6, 2016|
The close: TSX rises, pares weekly loss as gold jumps
Oil rise as Alberta wildfire disruptions battle oversupply
Canadian stocks rose on Friday, paring the first weekly loss in a month, as gold producers jumped after the U.S. added the fewest jobs in seven months and Canada unexpectedly lost jobs due to cutbacks linked to the struggling energy industry.
The benchmark S&P/TSX Composite Index climbed 0.51 per cent, or 69.46 points, to 13,701.47 in Toronto, reducing its weekly loss to 1.8 per cent. The gauge now trades at 20.8 times earnings, about 9.1 per cent higher than the 19 times earnings valuation of the S&P 500, data compiled by Bloomberg show.
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Canada’s employment declined by 2,100 positions in April, keeping the unemployment rate at 7.1 per cent, a reversal from expectations of a 1,000 job increase and a jobless rate of 7.2 per cent, according to a survey of economists. The surprise loss in jobs follows a 40,600 gain in March. U.S. employers added 160,000 workers in the month, the fewest in seven months as the jobless rate held steady.
“While not good news, the moderation in employment in April is far from surprising after the big gain in the prior month,” Doug Porter, chief economist at BMO Financial Group, said in a report, referring to the Canadian labour market data.
Mr. Porter also cut his estimate for Canada’s second-quarter economic growth to zero from 1.5 per cent “amid the severe disruptions to oil production due to the Fort McMurray wildfires”. The figure is a placeholder until further information on the impact of the disaster is known, he also said.
Barrick Gold Corp. and Kinross Gold Corp. rallied more than 3.6 per cent to lead raw-materials producers higher. Health-care stocks slid to offset gains.
Gold prices jumped after the jobs data release, with the disappointing numbers increasing speculation the Federal Reserve will delay raising interest rates. Traders are now pricing in a 4-per-cent probability of an interest rate hike at the Fed’s June meeting, down from 10 per cent before the payrolls data.
U.S. stocks rebounded from early losses to close higher on Friday as investors viewed the day’s jobs report as less disappointing than first thought.
The Dow Jones industrial average rose 79.79 points, or 0.45 per cent, to 17,740.5, the S&P 500 gained 6.55 points, or 0.32 per cent, to 2,057.18 and the Nasdaq Composite added 19.06 points, or 0.4 per cent, to 4,736.16.
April payrolls data showed employment gains hit a seven-month low, casting doubts about the health of the economy and the likelihood of an interest rate hike by the end of the year.
Nonfarm payrolls increased by 160,000 last month, far below the 202,000 that economists polled by Reuters had forecast on average. The number was lower than the first-quarter average monthly job growth of 200,000.
Mixed economic data and the slowing pace of global growth have weakened investors’ appetite for risk.
The U.S. economy grew just 0.5 per cent last quarter on an annualized basis and inflation has been below the Fed’s 2 percent target for years.
U.S. President Barack Obama said on Friday that Congress needs to take steps to help put the wind back in the U.S. economy.
Dismal April jobs data indicated that the weakness in overall economic activity was spilling over to the labor market.
“For those who had thought a June rate hike was in play, this was a nail in coffin,” said Phil Orlando, chief equity market strategist at Federated Investors in New York.
“The Fed is not going to change its policy statement in June at all. This raises question about a September rate hike. I would like to think the economy is in a better place at the end of year.”
Oil pared its first weekly decline in more than a month as oil-sands disruptions in Canada and lower U.S. output offset rising stockpiles and OPEC production.
A wildfire in Alberta has shut more than one million barrels a day of oil-sands output capacity after workers were evacuated, while production sites have so far escaped damage. U.S. crude inventories rose to the highest since 1929 while output dropped the most in eight months last week, a government report on Wednesday showed. OPEC output climbed in April amid gains from Iran and Iraq, according to data compiled by Bloomberg.
“The market is internalizing how much outage it may have in Canada versus the increases in production elsewhere,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London, said. “You have some of these unplanned outages being offset by increases in OPEC production.”
West Texas Intermediate for June delivery rose 34 cents to settle at $44.66 a barrel on the New York Mercantile Exchange after reaching an intraday high of $45.34 a barrel following a report that showed U.S. employers in April added the fewest workers in seven months. Prices declined 2.7 per cent this week, the first weekly drop since the week ended April 1.
Brent for July settlement climbed 36 cents, or 0.8 per cent, to end the session at $45.37 a barrel on the London-based ICE Futures Europe exchange. Prices dropped about 6 percent this week. The global benchmark was at a premium of 5 cents to WTI for July.
Prices remain about 60 percent below their peak in mid-2014 as the global oversupply persists. U.S. stockpiles swelled to 543.4 million barrels last week, according to the Energy Information Administration. Citigroup Inc. predicts inventories will expand further to a record before starting a seasonal slide. The Organization of Petroleum Exporting Countries pumped 33.22 million barrels a day last month, according to data compiled by Bloomberg. Iraq increased output by 160,000 barrels, while Iran boosted production by 300,000 barrels to the highest level since December 2011.
Suncor Energy Inc., Royal Dutch Shell Plc and Husky Energy Inc. are among companies that shut plants or reduced production due to the wildfires in Alberta. The fire has caused the evacuation of more than 80,000 people in Fort McMurray, the town at the heart of the Athabasca deposit, one of three large bitumen reserves that make up Alberta’s oil sands.
The number of active oil rigs fell to 328 this week, the least since October 2009, according to Baker Hughes Inc. U.S. production slid by 113,000 barrels a day to 8.83 million last week, the biggest weekly drop since August 2015, according to the EIA report released on Wednesday.
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