Canada’s main stock index closed above the 20,100 level for the first time Friday, propelled by further gains in the energy sector as oil reached fresh multi-year highs. A week that saw a further decline in bond yields also served to calm investors’ recent concerns over surging inflation in some parts of the economy.
Benchmark U.S. Treasury yields posted their biggest weekly drop in nearly a year while the Canadian 10-year yield hit its lowest level since March 3 at 1.368% before recovering to 1.380%, up nearly one basis point on the day.
The S&P/TSX Composite Index closed up 88.88 points, or 0.44%, at 20,138.35. The energy sector led the charge, advancing 1.19%, but it was a broad-based advance. Only materials saw a decline among major sectors, as gold prices fell about 1% amid a strengthening U.S. dollar.
For the week, the TSX gained half a percentage point.
The S&P 500 closed nominally higher at the end of a torpid week marked with few market-moving catalysts and persistent concerns over whether current inflation spikes could linger and cause the U.S. Federal Reserve to tighten its dovish policy sooner than expected.
Economically sensitive smallcaps and transports notched solid gains, outperforming the broader market.
For the week, the S&P and the Nasdaq advanced from last Friday’s close, while the Dow posted a weekly loss.
But the indexes have been range-bound, with few catalysts to move investor sentiment. Much of the focus centered on Thursday’s consumer price data, which eased jitters over the duration of the current inflation wave.
“It’s a muted day today,” Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. “The summer is settling in, people are slipping out of work early and there’s nothing in the news that’s going to materially drive the market in either direction.”
“So, investors are going to wait until earnings season.”
The Federal Reserve has repeatedly said that near-term price surges will not metastasize into lasting inflation, an assertion reflected in the University of Michigan’s Consumer Sentiment report released on Friday, which showed inflation expectations easing from last month’s spike.
Investors now turn their attention to the Fed’s statement at the conclusion of next week’s two-day monetary policy meeting, which will be parsed for clues regarding the central bank’s timetable for raising key interest rates.
“Our view continues to be that inflationary data is transient and we will be around the 2% mark for the year,” Pursche added.
The Food and Drug Administration is facing mounting criticism over its “accelerated approval” of Biogen Inc’s Alzheimer’s drug Aduhelm without strong evidence of its ability to combat the disease.
Biogen shares ended down 4.4%, while the broader healthcare sector shed 0.7%.
The Dow Jones Industrial Average rose 13.36 points, or 0.04%, to 34,479.6, the S&P 500 gained 8.26 points, or 0.19%, to 4,247.44 and the Nasdaq Composite added 49.09 points, or 0.35%, to 14,069.42.
Among the 11 major sectors in the S&P 500, rebounding financial stocks and tech led the gainers, while healthcare suffered the biggest percentage drop.
Much of the trading volume this week was attributable to the ongoing social media-driven “meme stock” phenomenon, in which retail investors swarm around heavily shorted stocks.
But meme stock moves were more muted on Friday, with AMC Entertainment outperformed, gaining 15.4%.
Advancing issues outnumbered declining ones on the NYSE by a 1.83-to-1 ratio; on Nasdaq, a 1.70-to-1 ratio favored advancers.
The S&P 500 posted 33 new 52-week highs and one new low; the Nasdaq Composite recorded 108 new highs and 16 new lows.
Volume on U.S. exchanges was 9.11 billion shares, compared with the 10.56 billion average over the last 20 trading days.
Benchmark 10-year U.S. Treasury yields were under pressure Friday as the market deemed a spike in inflation to be transitory, squeezing bears out of short positions.
The 10-year yield, which falls when prices rise, was nearly unchanged at 1.4603% on Friday afternoon after touching as low as 1.428% earlier in the session, its lowest since early March. At that point, the yield had fallen roughly 13 basis points for the week, the steepest weekly drop since last June.
Traders said short-covering was driving the bond rally, in a market that remains the recipient of enormous Federal Reserve support, after U.S. inflation data on Thursday was dismissed as insufficiently scary to prompt early tapering of stimulus.
TD Securities global head of rates strategy Priya Misra said the pattern was triggered once the benchmark yield fell below 1.5%, the low end of its range in recent weeks, on June 9. That would have prompted an exit from many “steepener” trades and meant investors were buying longer-term debt since then, she said.
“I see this more as flow-driven trading rather than fundamentals,” she said of Friday’s patterns.
Kim Rupert, senior economist for Action Economics, said the move back up in yields on Friday also reflected investment strategies as traders positioned ahead of comments due from U.S. Federal Reserve officials next week.
“Today was just a little unwinding, people taking chips off the table,” she said.
The Fed accepted all $547.8 billion in bids submitted into its reverse repurchase facility on Friday, a fifth consecutive record amount.
Money fund managers have embraced the facility as a place to park cash, putting pressure on short-term interest rates. The one-month Treasury bill was at 0.0076%, just above the 0% level it last touched on May 28.
A reopening U.S. economy meant year-on-year consumer prices did rise 5%, the biggest jump in nearly 13 years, data on Thursday showed. But big contributions from price rises for airline tickets and used cars were seen as unsustainable and in keeping with the Fed’s forecasts for a temporary spike.
Short positions in Treasuries had hit their highest since 2018, according to JP Morgan positioning data last week.
Their unwinding has flattened the yield curve to push the gap between policy-sensitive 2-year notes and 10-year notes as low as 128 basis points early in Friday’s trading, its narrowest in three months. It was last at 131 basis points, two basis points higher than Thursday’s close.
Oil prices, meanwhile, closed out a third straight week of gains on an improved outlook for worldwide demand as rising COVID-19 vaccination rates help lift pandemic curbs.
Brent crude futures settled at US$72.69 a barrel, rising 17 cents after reaching their highest since May 2019. For the week, Brent was up 1%.
U.S. West Texas Intermediate (WTI) crude futures settled at US$70.91 a barrel, up 62 cents, settling at their highest since October 2018. WTI was up 1.9% on the week.
“Demand is coming back faster than supply and we’re going to need more supply to meet that demand,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.
The International Energy Agency (IEA) said in its monthly report that the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, would need to boost output to meet demand set to recover to pre-pandemic levels by the end of 2022.
“OPEC+ needs to open the taps to keep the world oil markets adequately supplied,” the Paris-based energy watchdog said.
It said that rising demand and countries’ short-term policies were at odds with the IEA’s call to end new oil, gas and coal funding.
“In 2022 there is scope for the 24-member OPEC+ group, led by Saudi Arabia and Russia, to ramp up crude supply by 1.4 million barrels per day (bpd) above its July 2021-March 2022 target,” the IEA said.
U.S. investment bank Goldman Sachs said it expects Brent crude prices to reach $80 per barrel this summer as vaccine rollouts boost global economic activity.
“The rollout of the vaccine in North America as well as Europe is helping to restore demand at the same time that OPEC+ has reigned in production,” helping propel oil prices, said Andy Lipow of Lipow Oil Associates in Houston.
Data showing road traffic returning to pre-COVID-19 levels in North America and most of Europe was encouraging, ANZ Research analysts said in a note.
“Even the jet fuel market is showing signs of improvement, with flights in Europe rising 17% over the past two weeks, according to Eurocontrol,” ANZ analysts said.
In an indication of future supply, U.S. oil rigs rose by six to 365 this week to their highest since April 2020, energy services firm Baker Hughes Co said in its weekly report. It was the biggest weekly increase of oil rigs in a month.
Read more: Stocks that saw action on Friday - and why
Reuters, Globe staff
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