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Equities

Canada’s main stock index fell at the start of trading Wednesday as traders await an expected outsized rate increase from the Bank of Canada. On Wall Street, key indexes dropped after a hotter-than-forecast reading on inflation raised concerns about continued aggressive moves by the Federal Reserve.

At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 161.18 points, or 0.86 per cent, at 18,517.46.

In the U.S., the Dow Jones Industrial Average fell 237.70 points, or 0.77 per cent, at the open to 30,743.63. The S&P 500 opened lower by 39.13 points, or 1.02 per cent, at 3,779.67, while the Nasdaq Composite dropped 208.18 points, or 1.85 per cent, to 11,056.55 at the opening bell.

On Wednesday, new figures showed the annual rate of inflation in the United States jumped to 9.1 per cent in June, from May’s 8.6-per-cent reading. Economists had been forecasting a number closer to 8.8 per cent in the latest report. The June annual rate was the highest since late 1981.

On a monthly basis, the U.S. consumer price index increased 1.3 per cent last month after rising 1.0 per cent in May.

“Although gasoline prices have fallen into July, suggesting an easing in headline inflation ahead, core annual inflation could accelerate ahead as base effects will no longer be biasing that measure down, while higher shelter prices will continue to feed through to that index,” CIBC economist Katherine Judge said in a note.

“Overall, this data clearly supports a 75-basis-point hike from the Fed later this month.”

The Fed hiked interest rates by 75 basis points last month in an effort to address spiking price pressures. Markets are expecting the Fed to continue hiking as it continues to battle high inflation. The next policy decision is scheduled for July 28.

In this country, the Bank of Canada’s next rate decision is due just after the start of trading. Economists widely expect the bank to raise borrowing costs by 0.75 per cent after a similar move by the Fed in its last meeting.

“At its last rate meeting the Bank of Canada raised interest rates by 50 basis points which was in line with expectations, however the statement suggested more aggressive hikes were likely, due to the risks of elevated CPI becoming entrenched,” Mr Hewson said.

In May, Canada’s annual rate of inflation jumped to 7.7 per cent from 6.8 per cent in April “which suggests that the Bank of Canada will act again with another big rise 75 basis points, pushing the headline rate to 2.25 per cent,” Mr. Hewson said.

On the corporate side, Canadian investors will get results from Cogeco Inc. after the close of trading.

Elsewhere, Rogers Communications Inc. says it will credit customers with the equivalent of five days of service in the wake of Friday’s massive outage.

Overseas, the pan-European STOXX 600 was down 1.52 per cent by afternoon. Britain’s FTSE 100 fell 1.08 per cent. Germany’s DAX and France’s CAC 40 fell 1.80 per cent and 1.25 per cent, respectively.

In Asia, Japan’s Nikkei closed up 0.54 per cent. Hong Kong’s Hang Seng slid 0.22 per cent.

Commodities

Crude prices moved higher after the previous session’s losses.

The day range on Brent is US$98.30 to US$101.15. The range on West Texas Intermediate is US$93.67 to US$97.37. Both benchmarks finished below US$100 a barrel on Tuesday.

“I remain skeptical that oil prices will move materially lower from here,” OANDA senior analyst Jeffrey Halley said.

“The forward futures remain heavily in backwardation on both Brent and WTI, indicating real-world supplies remain tighter than Elon Musk’s wallet.”

He added OPEC’s latest forecast suggests a supply-demand deficit from its members will continue through 2023.

“The price action still appears to be a disconnect between the speculative world, and the real world, although I don’t discount more downside losses in the short term,” he said.

Renewed worries about the impact of COVID-19 restrictions in China have weighed on crude prices through the early part of this week.

Later Wednesday morning, the U.S. Energy Information Administration will release its weekly inventory figures. Analysts are expected to see a drop in crude and gasoline stocks, although numbers from the American Petroleum Institute late Tuesday showed a 4.8-million-barrel increase in crude inventories.

In other commodities, spot gold was flat at US$1,725.84 per ounce, after touching US$1,721.98 earlier in the session, its weakest since late-September. U.S. gold futures slid 0.1 per cent to US$1,723.60.

Currencies

The Canadian dollar was trading modestly firmer ahead of another expected rate increase from the Bank of Canada.

The day range on the loonie is 76.71 US cents to 76.92 US cents.

The Bank of Canada’s rate announcement is due at 10 a.m. ET. Economists are forecasting an outsized increase of 75 basis points. That would be the biggest increase since 1998.

“May CPI growth at 7.7% (y/y) is running well above the Bank’s April forecast of 5.8 per cent in Q2,” RBC chief currency strategist Adam Cole said.

“And 60 per cent of the prices tracked by the measure are growing above the BoC’s 1-per-cent to 3-per-cent target range by our count. Worryingly, those higher price readings are beginning to seep into longer run inflation expectations.”

He said most businesses and consumers expect inflation to moderate in the next two or three years but the share expecting it to last longer is also edging higher.

“An unhinging of longer-run inflation expectations from the BoC’s targets would disrupt decades of effective inflation-targeting monetary policy,” Mr. Cole said. “It would also require much larger and more damaging interest rate hikes to reverse.”

On world markets, the euro fell below parity with the U.S. dollar after the release of the latest U.S. inflation figures.

The euro was changing hands at US$0.998, down 0.4 per cent on the day, its lowest level since December 2002, according to figures from Reuters.

Britain’s pound was up 0.2 per cent versus the greenback at US$1.19055 in the early hours of the day.

The Australian dollar, often viewed as a gauge of risk appetite, was up 0.2% at US$0.67700.

In bonds, the yield on the U.S. 10-year note was slightly higher at 2.961 per cent in the predawn period.

More company news

Twitter Inc sued Elon Musk for violating his US$44-billion deal to buy the social media platform and asked a Delaware court to order the world’s richest person to complete the merger at the agreed $54.20 per Twitter share. “Musk apparently believes that he - unlike every other party subject to Delaware contract law - is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” said the complaint.

Alphabet Inc said on Wednesday it would slow the pace of hiring for the rest of the year, the latest company to make such a move as decades-high inflation and the fallout from the Ukraine crisis pressure businesses. The announcement aligns the parent of search giant Google with other major tech companies including Uber Technologies Inc and Twitter Inc and comes a day after Microsoft Corp said it would eliminate some positions. “Like all companies, we’re not immune to economic headwinds,” Alphabet said in a regulatory filing.

Takeover target Spirit Airlines Inc said it intends to delay the shareholder vote slated for Friday on its merger deal with Frontier Group Holdings Inc to July 27. The move on Wednesday comes after Frontier requested the budget carrier to postpone the shareholder meeting, citing the need for more time to gather sufficient proxy support for the buyout.

Delta Air Lines Inc forecast a “meaningful” profit for the full-year as robust travel demand helped it post its strongest quarterly earnings since the start of the pandemic. The Atlanta-based carrier expects a solid profit in the third quarter as well, with operating margin estimated to be in the range of 11%-13%. The No 3. U.S. airline by fleet size said there is no evidence of a pullback in consumer demand. It reported an adjusted profit of US$1.44 per share for the second quarter. That was below analysts’ expectations of US$1.73 per share, according to Refinitiv, yet still marked the carrier’s best performance since 2019.

Economic news

(8:30 a.m. ET) Canada’s census household data for 2021

(8:30 a.m. ET) U.S. CPI for June.

(10 a.m. ET) Bank of Canada policy announcement and monetary policy report (with press conference to follow).

(2 p.m. ET) U.S. budget balance for June.

With Reuters and The Canadian Press