Equities
Canada’s main stock index started higher Wednesday helped by gains in energy and materials stocks while Wall Street was largely treading water ahead of this afternoon’s rate decision by the Federal Reserve.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 64.29 points, or 0.32 per cent, at 20,054.69.
In the U.S., the Dow Jones Industrial Average fell 167.42 points, or 0.49 per cent, at the open to 34,044.70.
The S&P 500 opened lower by 2.72 points, or 0.06 per cent, at 4,366.29, while the Nasdaq Composite dropped 2.76 points, or 0.02 per cent, to 13,570.56 at the opening bell.
Wednesday afternoon will see the release of the Fed’s rate decision. Markets have now priced in a 90-per-cent chance the central bank will keep rates steady after ten consecutive hikes. On Tuesday, signs of easing inflation in the U.S. economy helped underscore expectations. New figures showed the annual rate of U.S. inflation slowed to 4 per cent in May from 4.9 per cent in April.
“The Fed’s decision for today is considered as done and dusted with a no rate hike,” Swissquote senior analyst Ipek Ozkardeskaya said.
“But the chances are that Fed Chair Jerome Powell will sound sufficiently hawkish to let investors know that the war is not won just yet.”
She noted that core inflation in the U.S. remains well above the Fed’s 2-per-cent target, the U.S. jobs market is still strong and equity valuations point to an overly optimistic market.
“At the current levels, the S&P 500 trades at around 18 times its earnings forecast over the next year, and these levels are typically associated with times of healthy economic growth and rising corporate profits,” she said. “But we are now in a period of looming recession odds, and falling profits.”
The Fed’s decision is due at 2 p.m. and will be followed by a news conference with Fed chair Jerome Powell. Last week, the Bank of Canada surprised markets by raising rates after moving to the sidelines earlier in the year.
On the corporate side, Aurora Cannabis said early Wednesday that net revenue in the latest quarter totalled $64-million, up from $50.4-million in the same quarter last year. Adjusted earnings before interest, taxes, depreciation and amortization came in at $310,000 for the quarter ended March 31 compared with a loss of $10-million a year earlier.
Elsewhere, The Canadian Press reports that Air Canada pilots have kickstarted the bargaining process in the wake of WestJet pilots ratifying their new collective agreement. Representing about 4,500 employees, the Air Line Pilots Association’s Air Canada contingent said it has provided a bargaining notice to company management, the first step toward hashing out a new deal. Key issues include job security and the widening wage gap between pilots in U.S. and Canada, the news service said.
Overseas, the pan-European STOXX 600 was up 0.41 per cent by afternoon. Britain’s FTSE 100 rose 0.22 per cent. Germany’s DAX and France’s CAC 40 advanced 0.34 per cent and 0.58 per cent, respectively.
In Asia, Japan’s Nikkei added 1.47 per cent. Hong Kong’s Hang Seng slid 0.58 per cent.
Commodities
Crude prices added to the previous session’s gains in early trading while markets await the Fed’s rate decision later in the session.
The day range on Brent was US$73.94 to US$75.27 in the early premarket period. The range on West Texas Intermediate was US$69.07 to US$70.24.
Both both benchmarks added about 3 per cent on Tuesday and were up more than 1 per cent early Wednesday morning.
“Risk markets remain supported ahead of the widely expected Fed pause and the generally held view that inflation will continue to ebb through the summer,” Stephen Innes, managing partner with SPI Asset management, said in a note.
“But the main problem for the everything-else catch-up rotation trade to set in and broaden the rally from a one-trick AI pony show is that inflation is still running at 2.5 times the Fed target.”
He said pulling inflation back below 3 per cent could require additional rate hikes or, at minimum, a lengthy pause well into next year.
Meanwhile, the International Energy Agency said early Wednesday that the boost to oil demand growth from the post-pandemic recovery is set to end this year, with economic challenges and the transition to cleaner fuels slowing growth from 2024, according to Reuters.
In its monthly report, the IEA said it expects global oil demand will grow by 2.4 million barrels per day in 2023 to a record 102.3 million bpd. However, the agency also says economic headwinds will likely reduce growth to 860,000 bpd next year and increasing use of electric vehicles to help cut that to 400,000 bpd in 2028 for overall demand of 105.7 million bpd, the news agency reported.
Later Wednesday morning, markets will get weekly inventory figures from the U.S. Energy Information Administration. On Tuesday, weekly figures from the American Petroleum Institute showed crude stocks rose by about 1 million barrels in the week ended June 9. Analysts had been expecting a decline.
Meanwhile, pot gold rose 0.4 per cent to US$1,950.09 per ounce by early Wednesday morning. U.S. gold futures rose 0.2 per cent to US$1,962.90.
Currencies
The Canadian dollar was higher in early trading, supported by improved crude prices, while its U.S. counterpart slid against world currencies as markets anticipate the Fed foregoing a rate hike later in the day.
The day range on the loonie was 75.06 US cents to 75.28 US cents in the early premarket period. The Canadian dollar has gained nearly 2 per cent against the greenback for the year to date.
On world markets, the dollar index - which measures the performance of the U.S. currency against six others - was flat at 103.20, after touching its lowest since May 22 overnight at 103.04, according to figures from Reuters.
The euro was last flat at US$1.0787. The European Central Bank makes its next rate decision on Thursday and is expected to hike borrowing costs by a quarter percentage point.
In bonds, the yield on the U.S. 10-year note was lower at 3.80 per cent in the predawn period.
More company news
Canaccord Genuity Group Inc. says a proposed management buyout of the firm will not go ahead after key conditions of the offer, including required regulatory approvals, were not received by the offer’s expiry time. The financial services firm says the management group decided not to extend the offer beyond a June 13 deadline. -The Canadian Press
Shell will ramp up its dividend and share buybacks while keeping oil output steady into 2030, it said on Wednesday, as CEO Wael Sawan moved to regain investor confidence that wavered over its energy transition plan. In a new financial framework announced ahead of an investor conference in New York starting at 1230 GMT, Shell said it will increase overall shareholder distribution to 30% to 40% of cash flow from operations from 20% to 30% previously. That includes a 15% dividend boost and an increase in the rate of its share buyback program from the second quarter to $5-billion from $4-billion in recent quarters. -Reuters
Alphabet’s Google was charged by EU antitrust regulators with anti-competitive practices in its digital advertising business on Wednesday and may have to sell part of this business to address their concerns. The European Commission set out its charges in a statement of objections, two years after it opened an investigation into the case. “The Commission takes issue with Google favouring its own online display advertising technology services to the detriment of competing providers of advertising technology services, advertisers and online publishers,” the EU competition enforcer said in a statement. -Reuters
Economic news
(8:30 a.m. ET) Canadian national balance sheet accounts for Q1.
(8:30 a.m. ET) U.S. PPI for May.
(2 p.m. ET) U.S. Fed announcement and summary of economic projections with chair Jerome Powell’s press conference to follow.
With Reuters and The Canadian Press
Terry Weber