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Inside the Market What every Canadian investor needs to know today: S&P 500 hits 3,000 for first time

Equities

Markets on both sides of the border opened higher Wednesday after Federal Reserve chair Jerome Powell bolstered expectations of a coming U.S. rate cut by citing trade and global growth concerns as continued risks for the United States. On Bay Street, investors were also weighing the Bank of Canada’s latest policy announcement, which kept rates on hold for the time being.

The S&P/TSX Composite Index was trading up 0.5 per cent, or 76 points, at 16,621 in the first half hour of trade.

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Shortly after the open, the S&P added to early gains, breaching the 3,000-mark for the first time. Just prior to 10am, it was trading up 21.27 points at 3000.90, a gain of 0.7 per cent.

South of the border, Mr. Powell, in prepared remarks ahead of his semi-annual monetary policy testimony before Congress, factors like uncertainty around trade and world growth “continue to weigh on the U.S. economic outlook.” He also the Fed stands ready to “act as appropriate” to underpin U.S. growth.

The Fed’s next rate announcement comes a the end of this month. While markets have priced in a quarter point cut, some analysts have started questioning the Fed’s commitment to easing in the wake of stronger-than-expected jobs figures last week.

“The Fed chair had a chance to disabuse markets of the notion that a July rate cut is sure thing, and he didn’t take that opportunity,” CIBC World Markets chief economist Avery Shenfeld said. “The key sentences in the statement, the ones that focussed on what has happened since the Fed last met, says that ‘it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.’”

On the domestic front, the loonie lost about a half a cent as the Bank of Canada left its overnight rate unchanged, saying positive signs in the Canadian economy were mostly offset by global trade tensions, including China’s restrictions on Canadian canola and meat.

A healthy labour market and solid business and consumer confidence led the central bank to give a slight bump to its 2019 growth forecast, which now stands at 1.3 per cent, up from the 1.2 per cent in its April projection.

The overnight rate remains at 1.75 per cent, where it has stayed since the Bank announced an interest rate increase in October 2018.

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The focus on trade risks may have traders trimming bets the loonie has further upside potential.

Take a pass on this type of ETF that tries to outsmart the big indexes

Overnight, Atlanta Fed President Raphael Bostic said the Fed has been debating the risks of letting the U.S. economy run a “little hotter.”

On the corporate side, Bombardier Inc. shares were down slightly in early trading following reports that the company plans to cut as much as half the work force at its Thunder Bay rail-car plant. The Globe reports this morning that the company plans to cut 550 jobs. The plan employs about 1,100 workers. The announcement could come as soon as today.

Hudbay Minerals Inc. said Wednesday that Alan Hair has stepped down as the company’s president and chief executive. Industry veteran Peter Kukielski has been named interim CEO. Hudbay shares rose nearly 4 per cent in Toronto shortly after the open.

In earnings, results are due from Cogeco Inc. and Cogeco Communications Inc. On Wall Street, Bed Bath & Beyond and PriceSmart report after the close of trading.

Wednesday’s analyst upgrades and downgrades

Overseas, European markets remained mixed immediately after the release of Mr. Powell’s prepared testimony. The pan-European STOXX 600 was down 0.14 per cent in morning trading. Britain’s FTSE 100 was off 0.13 per cent. Germany’s DAX fell 0.54 per cent. France’s CAC 40 was flat.

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In Asia, markets were also in a holding pattern. Japan’s Nikkei ended down 0.15 per cent. The Shanghai Composite Index slid 0.44 per cent. Hong Kong’s Hang Seng added 0.31 per cent.

Commodities

Crude prices were higher helped by a bigger-than-expected drop in U.S. inventories and the evacuation of rigs in the Gulf of Mexico ahead of an expected storm.

West Texas Intermediate added as much as 2 per cent in early going and had a day range of US$58.35 to US$59.18. The range on Brent crude is US$64.63 to US$65.47.

Prices got a lift from a report late Tuesday from the American Petroleum Institute showing that U.S. crude stocks fell by 8.1 million barrels last week to 461.4 million barrels. Analysts had been looking for a decline closer to 3 million barrels. The U.S. Energy Information Administration releases its weekly report later Wednesday morning. Analysts are expecting to see a decline in oil inventories by about 3.56 million barrels.

“Prices are finely balanced right now as investors await fresh stimulus,” Fawad Razaqzada, technical analyst at FOREX.com, told Reuters. “The stimulus could come in the form of a sharp change in U.S. crude oil inventories.”

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U.S. oil was also drew support from news that major producers had started evacuating and shutting in production in the Gulf of Mexico as a tropical disturbance may become a storm later on Wednesday or Thursday.

In other commodities, gold prices slid as the U.S. dollar found its footing ahead of Mr. Powell’s remarks.

Spot gold was down 0.5 per cent at US$1,391.35 per ounce. U.S. gold futures, too, slipped 0.5 per cent to $1,393.50 an ounce.

“Given the impressive rally the metal underwent in June, it isn’t a major surprise that gold has pulled back a bit,” CMC Markets’ David Madden said in a note. “Should the commodity drift lower, it might find support in the US$1,380 region, and a break below that region might put the US$1,360 on the radar.”

Currencies

The Canadian dollar rose as its U.S. counterpart slid following the morning remarks from Fed chair Jerome Powell. Markets are now awaiting the Bank of Canada decision at 10 a.m. ET.

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After Mr. Powell’s remarks, which underpinned expectations of a U.S. rate cut later this month, the loonie moved to the top end of the day range of 76.12 US cents to 76.40 US cents.

The Bank of Canada is widely expected to hold its key rate at 1.75 per cent. RBC chief currency strategist Adam Cole says it’s unlikely the central bank will introduce any easing bias.

“Instead, we expect GovCo to maintain that the current accommodative stance is appropriate and re-assert their data dependence,” Mr. Cole said. “A solid string of indicators suggests upgrades to the BoC’s April MPR GDP growth forecasts for Q2 and 2019 as a whole. The BoC’s April global and U.S. growth forecasts are already below the consensus so a major downgrade there is not necessary at this stage.”

On world currency markets, the U.S. dollar weakened after Mr. Powell’s comments raised expectations of a late-month rate cut.

“Treasury yields and U.S. dollar tanked on the release of the Powell’s statement,” OANDA senior market analyst Edward Moya said. “The prepared testimony release have expectations running high for Powell to go full dove today.”

Other company news

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WestJet Airlines says proxy adviser firms Institutional Shareholder Services Inc. and Glass, Lewis & Co. are recommending that WestJet shareholders vote for the proposed acquisition of the carrier by Onex Corp. The deal will be put to a vote at a meeting on July 23.

U.S. online retailer Amazon does not have to provide a helpline phone number to consumers, Europe’s top court said on Wednesday in a ruling that could boost e-commerce merchants. Amazon found itself in the dock after the German Federal Union of Consumer Organisations and Associations said its German website breached the country’s consumer protection laws by not informing consumers in a clear and comprehensible manner about its telephone and fax numbers.

American Airlines Group Inc said on Wednesday its second-quarter profit would be reduced by about US$185-million as the No.1 U.S. airline had to cancel thousands of flights due to the grounding of Boeing Co’s 737 MAX jets. The airline, which has already pulled MAX off its flying schedule through Sept. 3, had in April cut its annual profit forecast, blaming an estimated US$350-million hit due to the groundings.

Alimentation Couche-Tard Inc. missed expectations as its net income attributable to shareholders decreased 25 per cent to US$293.1-million in the fourth quarter of its fiscal year on a dip in revenues. The Laval, Que.-based convenience store chain says it earned 52 US cents per share for the period ended April 28, down from 69 US cents per share or US$391-million a year earlier. The company received a net tax benefit of US$69.7-million in the fourth-quarter of fiscal 2018 from U.S. tax cuts. Adjusted profit of 52 US cents per share compared with 59 US cents per share in the fourth quarter of 2018. Revenue fell 3.7 per cent to US$13.1-billion from US$13.6-billion. The results were released after Tuesday’s close.

The District of Columbia sued Marriott International Inc on Tuesday, claiming that mandatory resort fees at its hotels are illegal and deceptive, the attorney general’s office said. “Marriott reaped hundreds of millions of dollars in profit by deceiving consumers about the true price of its hotel rooms,” said District of Columbia Attorney General Karl Racine. “Bait-and-switch advertising and deceptive pricing practices are illegal.” Marriott declined to comment on pending litigation. The lawsuit said that 189 Marriott properties worldwide impose fees ranging from $9 to $95 a day.

Economic news

(10 a.m. ET) Bank of Canada Monetary Policy Report and policy announcement.

(10 a.m. ET) U.S. wholesale trade for May. Consensus is a rise of 0.4 per cent from April.

(10 a.m. ET) U.S. Fed's Semi-Annual Monetary Policy Report to the House Financial Services Committee.

(2 p.m. ET) U.S. Fed minutes released

With Reuters and The Canadian Press

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