Equities
Canada’s main stock index started lower Wednesday with commodities-linked stocks under pressure. Major U.S. indexes were also in the red amid uncertainty over the timing of potential rate cuts.
At 9:30 a.m. , the Toronto Stock Exchange’s S&P/TSX composite index was down 225.76 points, or 1.08 per cent, at 20,722.33.
In the U.S., the Dow Jones Industrial Average fell 79.26 points, or 0.21 per cent, at the open to 37,281.86.
The S&P 500 opened lower by 26.85 points, or 0.56 per cent, at 4,739.13, while the Nasdaq Composite dropped 129.58 points, or 0.87 per cent, to 14,814.77 at the opening bell.
Concerns that interest rates may not come down as quickly as markets had been expecting continue to weigh. On Tuesday, Federal Reserve Governor Christopher Waller said, while inflation is within striking distance of the Fed’s 2-per-cent target, the central bank shouldn’t rush to cut its key rate until it’s clear easing price pressures can be sustained. He also said the Fed should proceed “methodically and carefully” and not make any quick, big moves.
“Markets had entered 2024 with a key concern that needed to be resolved, with expectations for easing standing in stark contrast to the path laid out by the central bankers,” Joshua Mahony, chief market analyst with Scope Markets, said.
The Fed’s Beige Book, which offers a snapshot of regional economic conditions, will be released later this afternoon. Ahead of the start of trading, the U.S. Commerce Department said A December retail sales in the U.S. rose by 0.6 per cent on a monthly basis, compared with the 0.4-per-cent increase expected by economists polled by Reuters.
Meanwhile in Canada, new figures showed the annual rate of inflation rose to 3.4 per cent in December, from 3.1 per cent a month earlier. Economists had been forecasting the increase, partly the result of base effects, although stickier core inflation caught markets off guard. The Bank of Canada’s preferred measures rose at an average annual rate of 3.65 per cent, from 3.55 per cent in November. Analysts were expecting a reading of 3.35 per cent.
“Headline inflation likely won’t fall into the Bank of Canada’s target range for a few months, but the key to our call for the bank to start cutting interest rates in June will be further progress in core measures, particularly excluding shelter costs, which are being impacted directly by the Bank of Canada’s previous interest rate hikes,” CIBC economist Katherine Judge said in a report.
On the corporate side, The Globe’s Nicolas Van Praet reports Gildan Activewear Inc. says it has uncovered new information suggesting former chief executive officer Glenn Chamandy was even less engaged in his job than previously thought and has a “close relationship” with Browning West, a U.S. hedge fund spearheading a shareholder campaign to have him reinstated. “In addition to rarely being in the office, holding few senior management meetings and never bothering to visit the company’s newest manufacturing plant, Gildan has now learned that Mr. Chamandy sent on average no more than a handful of work e-mails a day and had few business-related meetings diarized on his calendar,” the Canadian maker of T-shirts and fleece said in an update Tuesday after markets closed.
On Wall Street, Charles Schwab and U.S. Bancorp are among the companies reporting results today.
Overseas, the pan-European STOXX 600 dropped 1.36 per cent by early afternoon. Britain’s FTSE 100 fell 1.66 per cent. Germany’s DAX and France’s CAC 40 lost 1.05 per cent and 1.19 per cent, respectively.
In Asia, Japan’s Nikkei finished down 0.40 per cent. Hong Kong’s Hang Seng toppled 3.71 per cent, touching its lowest level since 2022. New figures released Wednesday showed China’s GDP grew by 5.2 per cent in the fourth quarter, up from 4.9 per cent in the third quarter but below the 5.3 per cent analysts polled by Reuters had been forecasting.
Commodities
Crude prices fell in early trading as economic concerns in the wake of a disappointing reading on China’s economic growth offset trade concerns stemming from conflicts in the red sea.
The day range on Brent was US$76.55 to US$77.98 in the early premarket period. The range on West Texas Intermediate was US$70.64 to US$72.05. Both benchmarks were down more than 2 per cent in the predawn period.
China’s fourth-quarter GDP showed growth above the prior three-month period but below the level analysts had been expecting. China is among the world’s top consumers of crude and signs of patchy economic growth raise concerns about demand in that economy.
The economic data “doesn’t end the headwinds over crude oil demand, the Chinese outlook for 2024 and 2025 is still bleak,” Priyanka Sachdeva, senior market analyst at Phillip Nova, told Reuters.
“(The) oil industry was backing the notion that despite a bumpy recovery, oil demand from China has been resilient and will likely reach record levels in 2024.”
Crude prices were further pressured by a recent increase in the U.S. dollar on the back of rising expectations that central banks will be slower than initially thought to cut interest rates.
“Oil futures took a downturn, retracting from an earlier advance influenced by the overall decline in risk sentiment, and the pressure intensified due to a strengthening U.S. dollar as investors re-calibrated their expectations for near-term rate cuts from the Federal Reserve,” Stephen Innes, managing partner with SPI Asset Management, said.
In other commodities, spot gold was down 0.2 per cent at US$2,024.49 per ounce, by early Tuesday morning. Gold slid more than 1 per cent in the previous session. U.S. gold futures fell 0.1 per cent to US$2,027.70.
Currencies
The Canadian dollar was slightly weaker while its U.S. counterpart continued to trade near its best level in a month against a group of currencies.
The day range on the loonie was 73.90 US cents to 74.18 US cents in the early premarket period. The Canadian dollar has lost more than 1 per cent against the greenback over the past month.
“Weak risk appetite is keeping the CAD undertone soft,” Shaun Osborne, chief FX strategist with Scotiabank, said.
“CAD losses yesterday largely reflected broader strength in the USD after higher-than-expected Canadian core CPI data helped pare BoC rate cut expectations. But weak stocks, a higher VIX and lower crude prices today are weighing against the CAD.”
Meanwhile, the U.S. dollar index, reached 103.58 its highest since Dec. 13, extending gains after a 0.67-per-cent rise on Tuesday, according to figures from Reuters. Markets are now pricing in a more than 60-per-cent chance of the Federal Reserve cutting interest rates at its March meeting, according to the CME FedWatch Tool.
In other currencies, the euro was steady at US$1.0881. Britain’s pound was up 0.42 per cent at US$1.2690. Data released Wednesday showed Britain’s annual rate of inflation rose to 4 per cent last month, above economists’ estimates of a 3.8-per-cent increase.
In bonds, the yield on the U.S. 10-year note was slightly lower at 4.047 per cent ahead of the North American opening bell.
More company news
Mullen Group Ltd. says it has signed a letter of intent to buy logistics company ContainerWorld Forwarding Services Inc. Financial terms of the agreement were not immediately available. ContainerWorld offers international and domestic wine, beer and spirits producers inventory management, freight forwarding, warehousing and distribution services. -The Canadian Press
Charles Schwab’s fourth-quarter profit fell 47 per cent as bigger interest payments on its client deposits and debt dented gains from a jump in asset management fees, the brokerage reported on Wednesday. The U.S. Federal Reserve’s aggressive rate hikes have been a drag on financial firms like Schwab, which primarily rely on clients’ deposits and uninvested cash balances to buy bonds and give loans. Schwab, like major banks, has been dangling higher interest rates to avoid depositors from seeking better returns elsewhere. It paid an average rate of 1.37 per cent on deposits, compared to 0.46 per cent a year earlier. -Reuters
BP interim boss Murray Auchincloss was named permanent CEO on Wednesday four months after the energy giant was rocked by the sudden resignation of Bernard Looney over undisclosed relationships with employees. Auchincloss, who headed BP’s finances under Looney, indicated he will continue a strategy aimed at slashing carbon emissions, building up its renewables and clean fuel capacity and cutting oil and gas output by 2030. -Reuters
Economic news
(8:30 a.m. ET) Canada’s industrial product and raw materials price indexes for December.
(8:30 a.m. ET) Canadian international securities transactions for November.
(8:30 a.m. ET) U.S. retail sales for December.
(8:30 a.m. ET) U.S. import prices for December.
(9:15 a.m. ET) U.S. industrial production for December.
(10 a.m. ET) U.S. NAHB Housing Index for January.
(10 a.m. ET) U.S. business inventories for November.
(2 p.m. ET) U.S. Beige Book is released.
With Reuters and The Canadian Press
Terry Weber