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Equities
Canada’s main stock index rebounded in early trading Wednesday with gains in industrial and consumer staple stocks offsetting weakness in the energy sector. On Wall Street, the Nasdaq saw morning gains after posting its worst day since March during the previous session.
At 9:35 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 23.76 points, or 0.12 per cent, at 20,197.9.
In the U.S., the Dow Jones Industrial Average rose 60.09 points, or 0.18%, at the open to 34,360.08.
The S&P 500 opened higher by 9.78 points, or 0.22%, at 4,362.41, while the Nasdaq Composite gained 68.20 points, or 0.47%, to 14,614.88 at the opening bell.
“What we got here is a stock market that finally looks vulnerable as Treasury yields surge, oil prices look like they could easily hit US$90 a barrel, and as supply chain issues show no signs of easing,” OANDA senior analyst Ed Moya said.
“This surge in Treasury yields is kryptonite for the Nasdaq and will ultimately drag down growth forecasts,” he said. “The Fed was willing to tolerate a little inflation overshoot, but the current energy crunch could force a major pivot before the end of the year.”
In remarks on Tuesday, Federal Reserve chair Jerome Powell said pressures linked to the reopening of the economy and supply chain issues could result in a longer-than-expected period of higher inflation. Mr. Powell as well as other world central bankers are scheduled to speak on Wednesday morning at an ECB forum.
The yield on the 10-year U.S. Treasury note rose to 1.54 per cent on Tuesday, up from 1.48 per cent late Monday and 1.32 per cent a week ago. Early Wednesday, the yield on the 10-year note had pulled back somewhat to 1.508 per cent.
Canada’s five-year bond yield, influential in the pricing of fixed-term mortgages, continued to track higher as well, climbing to near 1.1 per cent on Tuesday. That was its highest level since before the North American pandemic-induced lockdowns early last year.
In this country, Canada’s Millennial Lithium Corp said Chinese battery maker Contemporary Amperex Technology Co Ltd (CATL) has agreed to buy the miner for $376.8-million, after outbidding compatriot Ganfeng Lithium . CATL had proposed an offer of $3.85 per share in cash earlier this month, Millennial Lithium said, outbidding the $3.60 per share offer made in July by Ganfeng, one of the world’s biggest producers of lithium chemicals used in electric vehicle (EV) batteries.
Overseas, the pan-European STOXX 600 was up 0.75 per cent by midday.
Britain’s FTSE 100 rose 0.81 per cent. Germany’s DAX gained 0.78 per cent while France’s CAC 40 advanced 1.06 per cent.
In Asia, Japan’s Nikkei ended down 2.12 per cent after Wall Street’s weak handoff. Hong Kong’s Hang Seng closed up 0.67 per cent. The Hang Seng benefited from a jump in shares of China Evergrande Group after the debt-laden company said it would sell a US$1.5-billion stake in Shengjing Bank to state-owned enterprise involved in capital and asset management.
Commodities
Crude prices added to the previous session’s declines after new figures showed a surprise rise in weekly U.S. inventories.
The day range on Brent is US$76.77 to US$77.94. The range on West Texas Intermediate is US$73.74 to US$74.87. Brent slid by nearly US$2 on Tuesday after breaching US$80 a barrel to hit its highest level in almost three years. WTI finished yesterday’s session off about 1.8 per cent.
Prices took a hit after weekly figures from the America Petroleum Association showed a drop in crude, gasoline and distillate inventories. Markets had been expecting to see a decline.
More official figures are due later this morning from the U.S. Energy Information Administration. Traders polled by Reuters are expecting to see a drop in crude stockpiles.
OANDA’s Ed Moya said crude’s declines, after a string of recent gains, also reflected some profit-taking as well as a higher U.S. dollar resulting from rising Treasury yields. However, he noted, that “oil’s fundamentals continue to support much higher prices, so today’s weakness might not last too long.”
In other commodities, gold prices edged higher, helped by a slight dip in U.S. bond yields.
Spot gold rose 0.3 per cent to US$1,739.36 per ounce, recovering from a one-month low hit on Tuesday.
U.S. gold futures edged 0.2 per cent higher to US$1,741.00.
Currencies
The Canadian dollar was steady as its U.S. counterpart holds near its best levels of the year against a group of currencies.
The day range on the loonie is 78.73 US cents to 78.95 US cents.
“The Canadian dollar is unchanged through overnight trading on the balance of lower crude oil prices against gains in equity market,” Shaun Osborne, chief FX strategist with Scotiabank, said.
“This week, the Canadian dollar has generally followed its fundamentals backdrop of higher oil prices and supportive yields against the risk-off bid for the U.S. dollar, while managing to hold at the top of the majors leaderboard for the week (down only 0.2 per cent since Friday).”
Mr. Osborne also noted that the relatively hawkish path charged by the Bank of Canada “should insulate the Canadian dollar from larger losses against the U.S. dollar compared to its peers.”
On world markets, the U.S. dollar index, which weighs the greenback against a selection of global currencies, rose to an 11-month high of 93.891.
“The [U.S.] dollar has enjoyed a period of significant outperformance, with the prospect of tighter monetary policy at the Fed and stock market weakness driving the dollar index,” IG senior market analyst Joshua Mahony said in an early note.
The euro fell to $1.1657, its lowest since November 2020, according to figures from Reuters.
The yen touched an 18-month low of 111.685 per U.S. dollar, before rebounding somewhat to 111.47. The yen showed little reaction to the election of Fumio Kishida as leader of Japan’s ruling Liberal Democratic Party.
Britain’s pound, which was hit on Tuesday amid concerns over the potential economic fallout over the recent fuel shortage, extended losses to its lowest since January at US$1.3505.
More company news
Enbridge Inc said on Wednesday it is starting to fill its expanded Line 3 pipeline with oil, marking the completion of a long-delayed replacement project that will increase the capacity of crude deliveries from Canada to U.S. refineries.
Micron Technology Inc forecast first-quarter revenue below Wall Street estimates, as shortages in chip-making materials appeared to be catching up with the memory chip maker. The company forecast current-quarter revenue of US$7.65 billion, plus or minus US$200-million, while analysts on average were expecting US$8.57-billion, according to IBES data from Refinitiv. Shares fell more than 3 per cent in premarket trading on Wednesday.
Netflix has bought video game creator Night School Studio and rolled out five mobile gaming titles in select European markets, the company said on Tuesday, as it looks to diversify revenue sources amid intensifying competition in the streaming space. Night School Studio, the company’s first gaming studio purchase, is best known for its debut game, “Oxenfree”, a supernatural teen thriller with an eerie soundtrack.
Economic news
(8:30 a.m. ET) Canada’s industrial product price index and raw materials price index for August.
(10 a.m. ET) U.S. pending home sales for August.
(11:45 a.m. ET) U.S. Fed Chair Jerome Powell at ECB Forum.
With Reuters and The Canadian Press
Terry Weber