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Equities
Canada’s main stock index started down slightly Tuesday while Wall Street’s key indexes also struggled as more signs of higher inflation emerged ahead of the Federal Reserve’s policy decision tomorrow.
At 9:36 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 65.78 points, or 0.32 per cent, at 20,682.67.
In the U.S., the Dow Jones Industrial Average fell 45.22 points, or 0.13 per cent, at the open to 35,605.73.
The S&P 500 opened lower by 25.98 points, or 0.56 per cent, at 4,642.99, while the Nasdaq Composite dropped 197.32 points, or 1.28 per cent, to 15,215.96 at the opening bell.
On Tuesday, the Fed begins its two-day policy meeting with economists widely expecting the central bank to speed up the pace of tapering its bond-buying program amid spiking inflation. The Fed’s decision is due Wednesday afternoon. A raft of other central banks also make policy announcements this week including the European Central Bank, the Bank of England and the Bank of Japan.
“Omicron has clearly added a huge cloud of uncertainty over the outlook for the economy in the coming months just as many countries were preparing for tighter monetary policy,” OANDA senior analyst Craig Erlam said.
“The question this week is whether central banks perceive inflation or Omicron to be the greater risk,” Mr. Erlam said. “The consensus view still appears to be that price pressures are driven by temporary factors that will largely correct over time but every month of inaction is a risk.”
Tuesday's analyst upgrades and downgrades
Ahead of the start of trading, U.S. markets got a higher-than-forecast reading on wholesale price pressures. The U.S. Labor Department said the producer price index for final demand rose 9.6 per cent year-over-year in November, the fastest pace on record. Economists had been expecting an increase of about 9.2 per cent.
In this country, investors will get the federal government’s economic and fiscal update from Financial Minister Chrystia Freeland. The update is due around 4 p.m. ET.
In a recent note, Bank of Montreal economists noted that the update comes against “a backdrop of rising COVID cases, heated inflation and a much better economic situation than envisioned when Budget 2021 was published.”
“In general, this mid-year update, which is often a venue for some meaningful policy moves, might be more of a standard fiscal update with bigger measures saved for Budget 2022,” they said.
On the corporate side, the Globe’s Susan Krashinsky Robertson reports Roots Corp. is seeing profit margins improve as the retailer continues to cut down on promotions. The Toronto-based retailer reported its gross profit margin increased to 65.2 per cent in the third quarter, up from 58.9 per cent in the same period two years ago. Roots shares were up 10 per cent in morning trading in Toronto.
Overseas, the pan-European STOXX 600 was off 0.34 per cent by afternoon. Britain’s FTSE 100 rose 0.18 per cent. Germany’s DAX and France’s CAC 40 lost 0.57 per cent and 0.31 per cent, respectively.
In Asia, Japan’s Nikkei fell 0.73 per cent after a weak handoff from Wall Street. Hong Kong’s Hang Seng ended down 1.33 per cent on weakness in tech shares.
Commodities
Crude prices were choppy with Omicron concerns continuing to dominate.
The day range on Brent is US$73.72 to US$75.16. The range on West Texas Intermediate is US$70.59 to US$72.03.
Traders have been closely watching the COVID-19 situation around the world for clues about the ultimate impact on demand.
Governments including Britain and Norway have tightened restrictions in a bid to stem the spread of the variant. Reuters reports that, in China, major manufacturing province Zhejiang is fighting its first COVID-19 cluster this year, with tens of thousands of citizens in quarantine and virus-hit areas suspending business operations, cutting flights and cancelling events.
“If the Omicron spread continues and eats away at the short-term crude demand outlook, it will likely trigger an immediate response from OPEC+ that would include the removal of the promised output increased given just a couple weeks ago,” OANDA’s Ed Moya said.
Right now, the OPEC+ group plans to gradually increase supply every month by 400,000 barrels per day (bpd) after cutting output last year.
In other commodities, gold prices slid as the U.S. dollar firmed ahead of the Fed’s next policy decision.
Spot gold fell 0.2 per cent to US$1,782.60 per ounce early Tuesday morning. U.S. gold futures dropped 0.2 per cent to US$1,784.60.
Currencies
The Canadian dollar was down slightly, trading around 78 US cents, in early going as its U.S. counterpart held near a one-week high against a basket of currencies on expectations of a more hawkish Fed.
The day range on the loonie is 77.95 US cents to 78.15 US cents.
“The CAD remains one of the most sensitive currencies to equity volatility among the majors with a negative correlation of nearly 80% versus the VIX index,” Shaun Osborne, chief FX strategist with Scotiabank, said in a note.
“That means the CAD will very likely struggle to make the sort of headway we think positive fundamentals — solid growth, central bank prospects — merit while broader market sentiment remains fragile around variant and central bank policy concerns.”
The federal government releases its latest economic and fiscal update later in the afternoon. Investors will get fresh Canadian inflation figures on Wednesday morning.
On world markets, the U.S. dollar index, which weighs the greenback against a group of currencies, flat at 96.304, having earlier risen to 96.493, the highest since Dec. 7.
The euro slipped 0.07 per cent to US$1.1278 after touching a one-week low of US$1.12605 overnight, according to figures from Reuters.
The U.S. dollar was little changed at 113.565 yen while Britain’s pound was flat, not far off the one-year low of $1.31615 reached last week.
In bonds, the yield on the U.S. 10-year note was up slightly at 1.431 per cent in the early predawn period.
More company news
Cannabis company Hexo Corp. says it lost $116.9-million in its latest quarter as the company announced a new strategic plan in a bid to reduce costs, streamline its organizational structure and help improve growth. The company says the loss amounted to 46 cents per diluted share for the quarter ended Oct. 31, compared with a loss of $4.2-million or four cents per share in the same period a year earlier. Net revenue in what was the first quarter of Hexo’s financial year totalled $50.2-million, up from $29.5-million in the same quarter last year.
Canadian miner Noront Resources Ltd said on Tuesday it plans to negotiate directly with Australian billionaire Andrew Forrest’s Wyloo Metals on raised buyout offer.
Tesla Inc chief Elon Musk said on Tuesday the electric carmaker will accept dogecoin for merchandise on a test basis. “Tesla will make some merch buyable with Doge & see how it goes,” Musk said in a tweet Dogecoin jumped 24% following the news.
Economic news
(8:30 a.m. ET) Canada’s industrial product price index for November.
(8:30 a.m. ET) U.S. PPI Final Demand for November.
With Reuters and The Canadian Press
Terry Weber