Canada’s main stock index slid at Tuesday’s opening bell after a new report showed the country’s annual rate of inflation unexpectedly ticked higher in April. On Wall Street, key indexes were also down with traders awaiting further talks on the debt ceiling later in the day.
The S&P/TSX Composite Index fell 87.76 points, or 0.43 per cent, to 20,452.21 at 9:30 a.m. ET.
In the U.S., the Dow Jones Industrial Average fell 73.23 points, or 0.22 per cent, at the open to 33,275.37.
The S&P 500 opened lower by 8.33 points, or 0.20 per cent, at 4,127.95, while the Nasdaq Composite dropped 38.16 points, or 0.31 per cent, to 12,327.05 at the opening bell.
On Tuesday, Canadian investors got a hotter-than-expected reading on inflation in April.
Statistics Canada says the annual rate of inflation last month was 4.4 per cent. That’s up from 4.3 per cent in March and higher than the 4.1 per cent markets had been forecasting. On a monthly basis, the consumer price index rose 0.7 per cent in April. Excluding food and energy, prices rose 4.4 per cent in April compared with of 4.5 per cent in March.
The average of two of the Bank of Canada’s core measures of underlying inflation, CPI-median and CPI-trim, came in at 4.2 per cent compared with 4.5 per cent in March.
“Headline inflation took a breather on it’s trek down the mountain in April thanks to surging gasoline prices. We expect the pause will be temporary and inflation will resume heading lower in the months ahead,” TD senior economist Leslie Preston said.
The Globe’s Darcy Keith reports this morning that interest rate probabilities based on trading in swaps markets have now completely priced out Bank of Canada rate cuts this year. Prior to the data, they were giving about even odds of a 25 basis point cut and no rate moves at all this year.
The Bank of Canada’s next interest rate announcement is due June 7. Earlier this year, the central bank moved to the sidelines, indicating a pause after a campaign of rate hikes aimed at bringing down spiking inflationary pressures.
On Wall Street, traders are keeping a close eye on continuing negotiations to raise the debt ceiling and avert a defaults. U.S. President Joe Biden is scheduled to discuss the debt limit with congressional leaders at the White House on Tuesday afternoon. Talks scheduled for last Friday were postponed in a move some observers suggested offered hope of progress.
“Even though investors bought hope of a possible breakthrough on U.S. debt ceiling impasse when Biden and [House speaker Kevin] McCarthy meet today, McCarthy warned that they ‘are nowhere near reaching a conclusion’,” Swissquote senior analyst Ipek Ozkardeskaya said in an early note.
“The negotiations will likely remain tight as Republicans ask [for] decent spending cuts to accept a debt ceiling relief, while Biden is not willing to compromise on spending into the election year. Therefore, even if Biden was to blink, he’d better do it at the last minute – to show his electors that he did his best to avoid an otherwise unavoidable default.”
Treasury Secretary Janet Yellen said Monday that agency estimates are unchanged on the possible X-date when the U.S. could run out of cash — perhaps as early as June 1, according to the Associated Press. However, Ms. Yellen, in a letter to the House and Senate, also left some opening for a possible time extension, saying that “the actual date Treasury exhausts extraordinary measures could be a number of days or weeks later than these estimates,” the news agency said.
On the corporate side, U.S. home renovation giant Home Depot cut its full-year sales forecast early Tuesday as inflationary pressures take a toll on consumer spending. Home Depot now expects comparable sales to decline between 2 per cent and 5 per cent in fiscal 2023, compared to its previous outlook for sales to remain nearly flat. Analysts were expecting comparable sales to decline 0.9% this year, according to Refinitiv IBES data.
Home Depot shares were lower shortly after the opening bell in New York.
Other big U.S. retailers like Walmart and Target are scheduled to report later in the week.
Overseas, the pan-European STOXX 600 was down 0.09 per cent by midday. Britain’s FTSE 100 added 0.02 per cent. Germany’s DAX gained 0.17 per cent. France’s CAC 40 advanced 0.05 per cent.
In Asia, Japan’s Nikkei closed up 0.73 per cent. Hong Kong’s Hang Seng rose 0.04 per cent.
Crude prices were treading water in early trading with disappointing economic news out of China offsetting a move by the U.S. to refill its Strategic Petroleum Reserve.
The day range on Brent was US$75.02 to US$75.95 in the early premarket period. The range on West Texas Intermediate was US$70.88 to US$71.79.
Both benchmarks rose about 1 per cent on Monday, ending a three-day losing streak.
Sentiment was underpinned by news the U.S. Department of Energy would buy 3 million barrels of crude oil for the SPR for delivery in August, and asked that offers be submitted by May 31, Reuters reports. That announcement came on Monday.
That was offset somewhat by reports that China’s April industrial output and retail sales fell short of forecasts, clouding the outlook for economic growth in one of the world’s top consumers of crude oil.
Still, in a forecast issued early Tuesday, the Paris-based International Energy Agency raised its outlook for global oil demand by 200,000 barrels per day and suggested that recent price declines were at odds with strong demand and lower supply.
In other commodities, gold prices pulled back as the U.S. dollar firmed.
Spot gold was down 0.7per cent at US$2,006.39 per ounce early Tuesday morning, while U.S. gold futures shed 0.5 per cent to US$2,011.70.
The Canadian dollar was mostly steady while its U.S. counterpart traded near its five-week high against a group of currencies.
The day range on the loonie was 74.10 US cents to 74.37 US cents in the predawn period. For the year to date, the Canadian dollar is up 0.68 per cent.
On world markets, the U.S. dollar index, which weighs the greenback against a selection of world currencies, rose to 102.57 early Tuesday, just short of Monday’s five-week top of 102.75.
Britain’s pound fell as much as 0.5 per cent against the greenback to US$1.2467 and also slid to 87.17 pence per euro after Britain’s unemployment rate unexpectedly rose to 3.9 per cent in the three months to March, according to figures from Reuters.
In bonds, the yield on the U.S. 10-year note was lower at 3.466 per cent in the predawn period.
More company news
Wells Fargo & Co has agreed to pay $1-billion to settle a lawsuit accusing it of defrauding shareholders about its progress in recovering from a series of scandals over its treatment of customers. A preliminary settlement of the proposed class action was filed late Monday night with the federal court in Manhattan, and requires a judge’s approval. The dollar amount was suggested by a mediator, court papers show. Wells Fargo has operated since 2018 under consent orders from the Federal Reserve and two other financial regulators requiring that it improve governance and oversight. -Reuters
Tesla Inc CEO Elon Musk has said that the company can make no new hires unless he personally approves them, including contractors, according to a copy of the email seen by Reuters. According to the e-mail, Musk told executives to send him a list of hiring requests on a weekly basis, while also cautioning them to “think carefully” before submitting such requests. “No one can join Tesla, even as a contractor, until you receive my email approval”, Musk said in the email on Monday. -Reuters
(8:30 a.m. ET) Canadian CPI for April.
(8:30 a.m. ET) Canadian manufacturing sales and new orders for March.
(8:30 a.m. ET) U.S. retail sales for April.
(9:15 a.m. ET) U.S. industrial production for April.
(10 a.m. ET) U.S. NAHB Housing Market Index for May.
(10 a.m. ET) U.S. business inventories for March.
With Reuters and The Canadian Press