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Equities

Canada’s main stock index opened flat on Wednesday, as investors adopted a wait-and-see approach ahead of the U.S. Federal Reserve’s policy statement that could open the door to future interest rate cuts.

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At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 5.3 points, or 0.03 per cent, at 16,508.65.

In Canadian economic news, the annual pace of inflation picked up in May as the consumer price index rose 2.4 per cent compared with a year ago, its largest increase since October last year, Statistics Canada said Wednesday. The move compared with a 2.0 per cent increase in April and was the fourth straight month of rising year-over-year increases. Economists had expected an increase of 2.1 per cent for May, according to Thomson Reuters Eikon.

Health care stocks were the biggest gainers, up 0.8 per cent. CannTrust rose 6.6 per cent after it said it is establishing operations in the U.S. as it signed a $20-million deal with California-based Elk Grove Farming to gain access to more than 3,000 acres of farmland for hemp production.

Financial stocks gained 0.5 per cent ahead of the Fed announcement. Power Financial was up 1.5 per cent, Onex gained 1.5 per cent and Manulife was up 1.2 per cent.

Energy stocks fell 0.7 per cent after the Federal Liberal government reapproved late Tuesday the Trans Mountain pipeline expansion. The contentious crude-oil export project has pitted Alberta against the British Columbia government and oil industry supporters against environmentalists and Indigenous opponents.

U.S. stocks eked out gains at open on Wednesday ahead of the Federal Reserve’s policy statement.

The Dow Jones Industrial Average rose 24.62 points, or 0.09 per cent, at the open to 26,490.16. The S&P 500 opened higher by 2.80 points, or 0.10 per cent, at 2,920.55. The Nasdaq Composite gained 16.37 points, or 0.21 per cent, to 7,970.26 at the opening bell.

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Bets of a rate cut have helped markets climb in June, with the S&P 500 index gaining 6 per cent so far and about 1 per cent away from its all-time high hit in early May.

The Fed’s statement and new economic projections are to be released at 2 p.m. ET, giving investors an idea on how a prolonged U.S.-China trade conflict, President Donald Trump’s demands for a rate cut and softer-than-expected economic data have impacted monetary policy thinking.

Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET.

“Expectations remain elevated over a rate cut in July and investors will be closely scrutinizing the statement for confirmation of a cut next month,” said Lukman Otunuga, a research analyst at ForexTime Limited in London.

“Should the Fed sound less dovish than expected or completely omit any hints about taking action next month, it could send equity markets sliding.”

Global financial markets have been fired up by European Central Bank President Mario Draghi’s Tuesday volte-face on policy easing and as investors bet on a worldwide wave of central bank stimulus.

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Sentiment was also buoyed by hopes of progress on U.S.-China trade dispute, with Beijing hinting that positive outcomes were possible in negotiations with Washington, after the world’s two largest economies agreed to revive their troubled talks at a G20 meeting this month.

Trade-sensitive industrial giants Boeing Co and Caterpillar Inc rose in premarket trading, while semiconductor companies, which source and supply products to China, also moved higher.

Boeing shares fell 0.6 per cent even as the planemaker secured orders from Taiwan’s China Airlines and Qatar Airways at the Paris Airshow, a day after IAG placed a lifeline order for the grounded 737 MAX jet.

Among other stocks, Adobe Inc jumped 4 per cent after the Photoshop software provider beat analysts’ estimates for quarterly profit and revenue.

TripAdvisor Inc gained 2.2 per cent after SunTrust Robinson upgraded the company’s stock to “buy.”

Overseas, Britain’s FTSE was down 0.27 per cent, Germany’s DAX was off 0.17 per cent and France’s CAC was up 0.11 per cent.

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MSCI’s global equity index rose 0.24 per cent, adding to Tuesday’s 1 per cent gain, as Asian shares excluding Japan followed the lead of their European and U.S. counterparts to jump almost 2 per cent – their biggest one-day rally since January. Tokyo and Shanghai too climbed almost 2 per cent.

Commodities

Oil prices ticked down on Wednesday as data suggesting a smaller-than-expected fall in U.S. crude inventories countered support from hopes for a U.S.-China trade deal.

Brent crude futures were down 46 cents at US$61.68 a barrel.

U.S. West Texas Intermediate crude fell 3 cents to US$53.87 a barrel. On Tuesday, it had recorded its biggest daily rise since early January.

After weeks of swelling, U.S. crude stocks fell by 812,000 barrels last week to 482 million, industry group the American Petroleum Institute said on Tuesday, a smaller fall than the 1.1 million barrel drop analysts had expected.

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PVM said a price rally had run out of steam “as concerns over bulging U.S. oil stockpiles return to the fore.”

Estimates on U.S. crude stockpiles from the U.S. Energy Information Administration are due on Wednesday.

Gold prices fell on Wednesday as optimism over Sino-U.S. trade talks and hopes of rate cut from central banks hit demand for bullion ahead of the U.S. Federal Reserve’s monetary policy decision later in the day.

Spot gold fell 0.3 per cent to US$1,341.67 per ounce. U.S. gold futures slipped 0.4 per cent to US$1,345.70 per ounce.

“Tonight though there won’t be a rate cut (by the Fed), there will be ground work for future rate cuts. Markets are focusing on that too,” said Jigar Trivedi, a commodities analyst at Mumbai-based Anand Rathi Shares & Stock Brokers, adding gold was seeing some profit booking ahead of the event.

Currencies and bonds

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The Canadian dollar was up slightly at 74.7 cents US ahead of the Fed decision and on renewed hopes for the end of the China-U.S. trade war.

“That eases the anxiety that was surrounding trade,” said Alfonso Esparza, a senior currency analyst at OANDA. “Growth forecasts are going to be less pressured by the trade war narrative.”

Canada exports many commodities, including oil, so its economy could benefit from improved prospects for global trade.

The price of oil was boosted Tuesday by the trade talks news. U.S. crude oil futures settled 3.8 per cent higher at US$53.90 a barrel.

The dollar traded near two-week highs against the euro on Wednesday as investors waited to see whether the U.S. Federal Reserve would sound as dovish on future interest rate cuts and stimulus as the European Central Bank.

ECB President Mario Draghi’s about-face on easing on Tuesday fuelled talk of a worldwide wave of central bank stimulus, firing up stocks, bonds and commodities and weakening the euro, although currency moves were relatively small.

Futures markets have almost fully priced in a quarter-point easing by the Fed in July and imply more than 60 basis points of cuts by Christmas.

The euro gained 0.1 per cent to US$1.1203, having fallen to a two-week low of US$1.1181 on Tuesday after Mr. Draghi spoke and German government bond yields dropped to new record lows.

The dollar, measured against other currencies, fell 0.1 per cent to 97.561 from Tuesday’s two-week high.

The dollar had been under pressure in late May as global trade tensions and economic weakness led investors to bet on Fed rate cuts. Expectations other central banks will follow suit have since helped the dollar recover.

“Relative to what the market is priced for, it’s hard to see how they (the Fed) will surprise the market on the dovish side. The risks are the other way,” said Adam Cole, a currencies strategist at RBC Capital Markets.

Cole said he believed the market was “underplaying” the spread between Europe and the United States, and even if the Fed cuts, investors will still be paying to hold euros while earning a relatively good yield with dollars.

That should support the U.S. currency, with Cole predicting a low for the euro of $1.10 this year.

Other corporate news

Southwest Airlines Co. trimmed its forecasts for second quarter capacity and fuel efficiency on Wednesday to reflect the impact of the grounding of all 737 MAX 8 aircraft in its fleet. The airline said in a regulatory filing it now expects second quarter fuel efficiency to decrease in the 1 per cent to 2 per cent range, compared with its previous forecast of flat to down 1 per cent, reflecting the impact of the grounding of its Boeing 737 MAX 8 aircraft through Aug. 5. Southwest last week joined larger rival American Airlines in extending its removal of Boeing’s currently grounded MAX planes from its schedules until the start of September. Its shares fell 0.9 per cent.

Recreational vehicle maker Winnebago reported earnings of US$1.14 per share, higher than the consensus of 99 cents a share. However, revenue missed estimates but its stocks gained 3.6 per cent.

The European Union’s second highest court ruled on Wednesday that adidas’s three-stripe branding was invalid as a trademark as it lacked a distinctive character. The General Court of the European Union said it upheld a decision of the European Intellectual Property Office (EUIPO) in 2016 to annul a previous decision to accept the mark.

The new head of SNC-Lavalin Group Inc. has named a senior executive to oversee big-ticket contracts in an effort to keep a lid on costs at the beleaguered company, which announced further streamlining late Tuesday. Interim chief executive Ian Edwards has appointed Nigel White as executive vice-president of a newly created oversight project office in the United Kingdom that reports directly to the chief executive officer. Its shares were down 0.2 per cent.

Earnings include: Oracle Corp., Winnebago.

Economic news

The annual pace of inflation picked up in May as the consumer price index rose 2.4 per cent compared with a year ago, its largest increase since October last year, Statistics Canada said Wednesday. The move compared with a 2.0 per cent increase in April and was the fourth straight month of rising year-over-year increases. Economists had expected an increase of 2.1 per cent for May, according to Thomson Reuters Eikon. Broad-based gains helped boost prices in all eight of major components of the index compared with a year ago. Food prices rose 3.5 per cent as fresh vegetable prices climbed 16.7 per cent, the largest year-over-year increase since February 2016. Transportation prices gained 3.1 per cent as the cost of air transportation added 8.9 per cent and the cost of passenger vehicles rose 4.2 per cent. Passenger vehicle insurance premiums rose 8.1 per cent. However, drivers paid 3.7 per cent less for gasoline compared with a year ago. Excluding gasoline, the consumer price index increases 2.7 per cent compared with a year ago, compared with a 2.3 per cent increase in April.

(2 p.m. ET) U.S. Fed announcement and summary of economic projections. Chair Jerome Powell’s press briefing to follow.

With files from Reuters

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