Canada’s main stock index moved lower Wednesday as the market digested an interest rate hike by the Bank of Canada, while U.S. markets were mixed.
The Bank of Canada hiked its key interest rate by a quarter of a percentage point to 4.75 per cent, the first increase since January.
The raise was a response to inflation ticking unexpectedly higher in April after months of steady decline, said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.
Inflation in April was 4.4 per cent year over year, up from 4.3 per cent in March.
“It was breaking what was a very steep downtrend in inflation data,” said Burkett.
While the market was initially caught by surprise at the Bank of Canada’s decision, it appears to have digested it and normalized as the day wore on, said Burkett.
The S&P/TSX composite index was down 71.91 points at 19,983.69.
In New York, the Dow Jones industrial average was up 91.74 points at 33,665.02. The S&P 500 index was down 16.33 points at 4,267.52,while the Nasdaq composite was down 171.52 points at 13,104.89.
The rate hike wasn’t an out-of-the-blue decision, as the Bank of Canada had always left the door open to more rate hikes if the economic data supported that decision.
“I think that willingness to raise here, as a reaction to evidence that things may be heating up again, was appropriate and wasn’t entirely unexpected,” he said.
The central bank could hike again if needed, said Burkett.
Meanwhile, investors in the U.S. are waiting for their own central bank to announce its next rate decision next week. Many expect a pause from the Federal Reserve, said Burkett, but the bank will likely remain hawkish.
The Associated Press reported that while the Fed is widely expected to hold its key rate steady next week after 10 straight hikes, it would be more of a “skip” than a pause, implying that another hike is coming even as the bank gives itself time to assess the lagging effects of higher borrowing rates on the economy.
The Nasdaq led U.S. markets’ soft day, down more than one per cent, but has been outpacing other indexes in year-to-date gains, Burkett said. While the tech industry is interest-rate sensitive, it’s also been getting a boost from excitement over artificial intelligence, he said.
“Tech has appreciated significantly this year,” said Burkett.
The Canadian dollar traded for 74.76 cents US compared with 74.52 cents US on Tuesday.
The July crude contract was up 79 cents at US$72.53 per barrel and the July natural gas contract was up seven cents at U$2.33 per mmBTU.
The August gold contract was down US$23.10 at US$1,958.40 an ounceand the July copper contract was down a penny at US$3.76 a pound.
The Canadian Press