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Equities

Canada’s main stock index fell in early going Wednesday, hit by a sharp drop in crude prices and a higher-than-forecast reading on inflation. South of the border, key indexes were also weaker at the open with Fed chair Jerome Powell’s testimony before Congress in focus.

At 9:33 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 348.41 points, or 1.81 per cent, at 18,908.88.

The Dow Jones Industrial Average fell 177.68 points, or 0.58 per cent, at the open to 30,352.57.

The S&P 500 opened lower by 30.90 points, or 0.82 per cent, at 3,733.89, while the Nasdaq Composite dropped 127.35 points, or 1.15 per cent, to 10,941.95 at the opening bell.

On Wednesday, markets will have a close eye on an appearance by Mr. Powell on Capitol Hill, looking for indications of how aggressive the Fed will be in hiking rates as it looks to temper high inflation. In initial remarks, Mr. Powell said the Fed remains committed to bringing inflation under control.

“Jerome Powell’s semiannual testimony could turn the market mood sour again as the Fed chief is expected to reiterate his strong commitment to fighting inflation even if it means slower economy and a softer jobs market,” Swissquote senior analyst Ipek Ozkardeskaya said in an early note.

“Yesterday’s rally in stocks could be another dead cat bounce, and we may see the market painted in red in the following sessions,” she said.

In this country, inflation is front and centre with the release of the May consumer price index figures from Statistics Canada ahead of the start of trading.

The agency says the annual rate of inflation spiked to 7.7 per cent in May, the fastest pace since 1983. Economists had been expecting an increase, but most were looking for a number closer to 7.4 per cent. Statscan says higher gasoline prices were behind much of the increase although price pressures continued to be broad-based.

Economists are increasingly expecting the Bank of Canada to hike rates at its next policy meeting by 75 basis points following a similar move recently by the Fed.

“Inflation was already running well ahead of the Bank of Canada’s April projections prior to today’s release, and is now even further ahead,” CIBC senior economist Andrew Grantham said.

“The higher than expected inflation figure will have markets pricing an even greater probability of a 75-basis-point hike in July.”

On the corporate side, Canadian investors got results from Sobeys-parent Empire Co. Ltd. ahead of the start of trading. Empire Company Ltd. reported net earnings of $178.5-million or 68 cents per share in the quarter, compared to $171.9-million or 64 cents per share in the same period last year. The company announced a 10-per-cent increase to its quarterly dividend paid to shareholders, to 16.5 cents per share.

Overseas, the pan-European STOXX 600 fell 1.28 per cent just before midday. Britain’s FTSE 100 was down 1.11 per cent. Germany’s DAX and France’s CAC 40 were off 1.76 per cent and 1.58 per cent, respectively.

In Asia, Japan’s Nikkei finished down 0.37 per cent. Hong Kong’s Hang Seng dropped 2.56 per cent on weakness in tech stocks.

Commodities

Crude prices fell in early going with an expected move by U.S. President Joe Biden to ease costs for drivers tempering sentiment.

The day range on Brent is US$108.62 to US$114.45. The range on West Texas Intermediate is US$103.20 to US$109.76. Both benchmarks were down more than 4 per cent in the predawn period.

“There is a distinct lack of drivers behind this move, and certainly no headlines to justify it,” OANDA senior analyst Jeffrey Halley said.

“I surmise that President Biden’s expected announcement of a temporary suspension of Federal fuel taxes [on Wednesday] has prompted the selling, and I do note the U.S.-centric WTI contract is leading the charge lower.”

Later in the day, Mr. Biden is expected to call for a temporary suspension of the U.S. federal tax on gasoline, according to a report by Reuters. The move is aimed at addressing high costs for consumers and soaring inflationary pressures.

Later Wednesday, traders will also got the first of two weekly U.S. inventory reports, with new figures from the American Petroleum Institute. More official government figures will follow on Thursday morning.

In other commodities, gold prices slid alongside a firmer U.S. dollar.

Spot gold fell 0.3 per cent to US$1,826.41 per ounce by early Wednesday morning, extending losses to a fourth straight session. U.S. gold futures dropped 0.6 per cent to US$1,827.40.

“Although gold’s interminable range-trading continued overnight, the falls of the past three sessions hint that any upward momentum for the yellow metal is doing an Elvis and is leaving the building,” Mr. Halley said.

“Gold has been grinding lower, even as U.S. yields and the U.S. dollar trade sideways,” Mr. Halley said.

Currencies

The Canadian dollar was weaker, hit by uncertain risk sentiment and lower commodities prices, while its U.S. counterpart advanced against a basket of world currencies.

The day range on the loonie is 76.94 US cents to 77.43 US cents.

“The CAD has softened overnight, with price action driven by the weaker risk backdrop and a slump in energy prices,” Shaun Osborne, chief FX strategist with Scotiabank, said. “The CAD retains an unfortunately strong, negative correlation with US equities (-83 per cent by our measure) so the gravitational pull of sliding S&P 500 futures is hard to escape from.”

Canadian investors will get inflation figures ahead of the start of trading with economists expecting to see another spike in price pressures.

On world markets, the U.S. dollar index, which weighs the greenback against a group of currencies, was up 0.33 per cent at 104.8, according to figures from Reuters.

The euro fell 0.4 per cent to US$1.0497.

The yen slid 0.3 per cent to 136.3 per U.S. dollar, having hit 136.71 in early trade, its lowest since October 1998, Reuters reports.

Other commodities-linked currencies were also lower. The Norwegian krone fell 1.3 per cent against the U.S. dollar. The Australian dollar slid 1.1 per cent to US$0.6898 by early Wednesday.

In bonds, the yield on the U.S. 10-year note was lower at 3.222 per cent.

More company news

The Globe’s Susan Krashinsky Robertson reports that Canada’s largest retailer is getting into the increasingly competitive rapid grocery-delivery field through a partnership with San Francisco-based DoorDash Inc. Starting in August, Loblaw Cos. Ltd. will offer customers delivery in roughly 30 minutes or less, beginning in Toronto and Winnipeg before expanding to 10 locations across the country within that month. Within a few years, Loblaw expects to have 40 to 50 PC Express Rapid Delivery locations.

Brookfield Asset Management said on Wednesday it had raised $15-billion for its Brookfield Global Transition Fund, a fund focused on investments in the decarbonization technology space.

Boeing expects supply chain problems to persist almost until the end of 2023, led by labour shortages at mid-tier and smaller suppliers, partly due to the faster-than-expected return of demand, its chief executive said on Wednesday. Boeing said last month that production of its 737 aircraft had been slowed by shortages of a single type of wiring connector, while some of its airline customers had been forced to cancel flights due to a lack of staff in the post-pandemic recovery. “The shift from demand to now supply issues ... is remarkable, the speed with which it happened,” Boeing Chief Executive David Calhoun said at Bloomberg’s Qatar Economic Forum in Doha.

Economic news

(8:30 a.m. ET) Canada’s CPI for May.

(9:30 a.m. ET) U.S. Fed Chair Jerome Powell testifies to the Senate Banking Committee.

With Reuters and The Canadian Press