Equities
Canada’s main stock index rose at Monday’s opening bell, helped by gains in materials stocks on the back of rising gold prices. Key indexes on Wall Street started mixed as traders weigh the weekend deal by UBS to acquire Credit Suisse in a bid to calm concerns over the global banking situation.
At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 33.55 points, or 0.17 per cent, at 19,421.27.
In the U.S., the Dow Jones Industrial Average rose 10.35 points, or 0.03 per cent, at the open to 31,872.33. The S&P 500 opened higher by 0.83 points, or 0.02 per cent, at 3,917.47, while the Nasdaq Composite dropped 16.13 points, or 0.14 per cent, to 11,614.39 at the opening bell.
“The next few hours of trading will give us a better picture on whether the crisis is contained,” Swissquote senior analyst Ipek Ozkardeskaya said. “In theory, there is no reason for the Credit Suisse crisis to extend, as what triggered the last quake for Credit Suisse was a confidence crisis – which doesn’t concern UBS - a bank outside of the turmoil, with, in addition, ample liquidity and guarantee from the SNB and the government.”
Meanwhile, markets are also awaiting the next Fed rate decision on Wednesday. Markets are now expecting the central bank to raise rates by a quarter percentage point, although some analysts still suggest the Fed could hold steady as a result of uncertainty still surrounding the financial sector. Last week, the European Central Bank raised rates by half a percentage point, citing continuing concerns about high inflation.
“It now comes down to what the Fed will do at its March 21-22 meeting and beyond,” BMO senior economist Priscilla Thiagamoorthy said.
“The central bank now has a tough decision ahead: continue with a 25-basis-point rate hike to extinguish the inflation inferno or pause the process, to ensure financial stability. It is not entirely clear that avoiding a rate hike would even help restore confidence in the global banking system. And, if the Fed pauses on Wednesday, it might send a signal of panic.”
In Canada, the key economic event comes Tuesday with the release of February inflation figures from Statistics Canada. Economists are expecting the headline rate of inflation to pull back to 5.4 per cent, from 5.9 per cent in January.
“RBC Economics expects that headline CPI inflation (Tuesday) slipped to 5.4 per cent year-over-year from 5.9 per cent in January as energy CPI may move below year-ago levels for the first time in two years,” Alvin Tan, Asia FX strategist with RBC, said in note.
“More importantly, the preferred core measures - CPI trim and median - are expected to continue to moderate on a three-month moving average basis. That together with narrowing breadth of inflation pressure suggests persistent easing in fundamental price pressure, which should be enough to keep the BoC on hold through the rest of the year.”
Notes from the Bank of Canada’s most recent rate decision will be released on Wednesday.
Overseas, the pan-European STOXX started the day down but managed to clawback losses, trading up 0.28 per cent by midday.
Britain’s FTSE 100 rose 0.27 per cent. Germany’s DAX and France’s CAC 40 edged up 0.46 per cent and 0.64 per cent, respectively.
In Asia, Japan’s Nikkei lost 1.42 per cent. Hong Kong’s Hang Seng fell 2.65 per cent.
Commodities
Crude prices fell in early trading, touching their lowest level in more than a year at one point, as markets remained volatile and economic concerns linger ahead of this week’s Fed decision.
The day range on Brent was US$70.12 to US$73.74 in the predawn period. The range on West Texas Intermediate was US$64.12 to US$67.45. In early trading, both bench markets fell to their lowest level since late 2021.
“No, if and or buts; price action in oil and safe-havens gold and yen suggests folks are still spooked, hinting we are in the process of devolving from a bank to an economic crisis when growth becomes more concerning than the crisis itself,” Stephen Innes, managing partner with SPI Asset Management, said.
“And if that proves accurate, a negative equity-bond correlation should see gold push higher and oil continues to tank.”
Monday’s price action comes after UBS’ historic deal to buy Credit Suisse, in an attempt to stem the current crisis in the banking sector. Following the announcement, the U.S. Federal Reserve, European Central Bank and other major central banks pledged to enhance market liquidity and support other banks.
As well, markets are anticipating another rate hike from the Federal Reserve later in the week, adding to concerns that high borrowing costs aimed at heading off high inflation could slow global economic growth.
Meanwhile, gold prices jumped as continued uncertainty drove investors to safe-haven assets.
Spot gold was up 1 per cent at US$2,007.30 per ounce by early Monday morning, after sliding 1 per cent earlier in the session. U.S. gold futures climbed 2 per cent to US$2,012.50.
Currencies
The Canadian dollar was slightly lower while its U.S. counterpart was little changed against a group of currencies and the safe-haven yen advanced.
The day range on the loonie was 72.74 US cents to 73.07 US cents in the predawn period.
“Weak stocks and softer commodities are a headwind for the CAD,” Shaun Osborne, chief FX strategist with Scotiabank, said in a note.
“But we note that US-Canada spreads have compressed significantly in the past week or so and while US yields retain a clear premium over Canadian bond yields still, a broader or more sustained pause in the global central bank tightening cycle, catching up with the BoC, could be more CAD-supportive if Canada remains aloof to global banking concerns.”
Canadian investors will get fresh inflation figures on Tuesday followed by retail sales numbers on Friday.
The U.S. dollar index - which measures the currency against six major peers - was flat at 103.79, following last week’s 0.73 per cent fall.
The yen - long seen as a safe currency to hold at times of stress - rallied as a drop in Asian bank stocks overnight spread to Europe on Monday, Reuters reported.
The U.S. dollar slid to its lowest since Feb. 10 at 130.55 yen, and was last down 0.75 per cent at 130.83.
The euro was down 0.11 per cent at US$1.065, while the British pound was up 0.14 per cent at US$1.22.
In bonds, the yield on the U.S. 10-year note was lower at 3.332 per cent in the premarket period.
Economic news
Germany producer price index for February; UK housing prices
With Reuters and The Canadian Press
Terry Weber