Canada’s main stock index fell on Friday as uncertainty around the pace of central bank interest rate hikes weighed on technology shares, with investors taking stock following a healthy rally in recent weeks.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 153.99 points, or 0.8 per cent, at 20,111.38. For the week, it fell 0.3 per cent but was up 10.7 per cent from its mid-July trough.
“It has been a strong run from the lows,” said Elvis Picardo, portfolio manager at Luft Financial, iA Private Wealth. “So it’s not altogether surprising to see a little bit of give-back here.”
Wall Street also slipped and bond yields climbed as investors weighed how aggressive the Federal Reserve may need to be as it raises interest rates to battle inflation.
Still, measures of market volatility, such as the VIX index, were trading at much lower levels than earlier this year.
“From a big picture point of view, some of the panic we have seen about inflation seems to have ebbed,” Picardo said. “So has concern about the pace of hikes and the magnitude of rate hikes from the central banks.”
The technology sector on the Toronto market fell 3.3 per cent, including a decline of 6.9 per cent for the shares of e-commerce giant Shopify Inc.
The materials group, which includes precious and base metals miners and fertilizer companies, lost 1.6 per cent, as gold prices fell, while heavily-weighted financials ended 0.8 per cent lower. Banks are due to begin reporting quarterly results next Wednesday.
Domestic data showed that retail sales rose 1.1 per cent in June, easily beating forecasts, on pricier gasoline and higher sales at car dealerships, but sales were seen falling in July.
U.S. stocks fell and the dollar rose on Friday, even as Treasury yields gained, with traders anxious about inflation and what the Federal Reserve will do to combat it.
The Canadian dollar traded for 76.98 cents US compared with 77.35 cents US on Thursday.
With higher rates looming, large technology stocks such as Amazon.com Inc and Alphabet Inc fell more than 2 per cent. Major banks such as JPMorgan Chase & Co, Bank of America Corp , and Deutsche Bank AG declined more than 2 per cent, a reversal of the sector’s late-summer rebound. And an earnings miss by heavy equipment maker Deere & Co. added to the risk-off mood.
The Dow Jones Industrial Average fell 0.86 per cent, to 33,706.15, the S&P 500 lost 1.29 per cent, to 4,228.37, and the Nasdaq Composite dropped about 2 per cent, to 12,705.22.
European shares fell on Friday and posted a weekly loss as the highest-ever jump in German producer prices in July added to gloom over the economic outlook. The pan-European STOXX 600 ended 0.8 per cent lower.
The MSCI world equity index, which tracks shares in 47 countries, was down 1.3 per cent.
“When market participants start to return from their holidays and look back ... they will find central banks still far from having achieved their goals of reining in inflation,” ING rates strategists said in a note to clients.
“That means a continued tussle between central bank tightening expectations and recession fears.”
U.S. central bank officials have “a lot of time still” before they need to decide how large an interest rate increase to approve at their Sept. 20-21 policy meeting, Richmond Federal Reserve President Thomas Barkin said on Friday.
But more hawkish Fed official comments on Thursday helped push the dollar index up on Friday around 0.5 per cent, a one-month high. The euro was down 0.44 per cent at $1.003.
U.S. Treasury yields also rose on Friday, mimicking European bonds’ own sell-off on inflationary fears.
The U.S. benchmark 10-year Treasury yield rose to a month high of 2.9776 per cent, just shy of the 3 per cent threshold it crossed in May for the first time since 2018 as investors worried about the U.S. Federal Reserve’s plan to tighten monetary conditions.
Next week, investors will be paying close attention to minutes from the European Central Bank’s July meeting, as well as comments by Fed Chair Jerome Powell when he addresses the annual global central banking conference in Jackson Hole, Wyoming, on Aug. 26.
“Incoming data, on net, suggests the U.S. economy retains fairly healthy momentum,” Michael Gapen, a Bank of America economist, wrote in a client note. He cited improving motor vehicle assembly and retail sales data, but noted declining housing numbers.
“Incoming data was not uniformly strong ... and we note that stronger momentum will ultimately be met with additional policy rate firming,” Gapen added.
Cryptocurrencies fell sharply, with sudden selling dragging bitcoin to a three-week low. It was last at $21,332, down nearly 9 per cent on the day.
Gold was headed for its first weekly drop in a month after hitting a three-week low. Spot gold fell for a fifth straight session, down about 0.67 per cent at $1,746 per ounce, in what could be its longest losing streak since November 2021.
Oil prices steadied on Friday, but fell for the week on a stronger U.S. dollar and fears that an economic slowdown would weaken crude demand.
Brent crude futures settled at $96.72 a barrel, gaining 13 cents. U.S. West Texas Intermediate crude ended 27 cents higher at $90.77. Both benchmarks fell about 1.5 per cent on the week.
Oil briefly jumped in volatile trade on comments made by Mr. Barkin that the Fed would balance its rate hike path with uncertainty over any impact on the economy. But crude pared its gains as investor concerns about upcoming rate hikes settled back in.
Strength in the U.S. dollar hit a five-week high, which also capped crude’s gains as it make oil more expensive for buyers in other currencies.
“Although the oil complex has been able to shrug off a strong dollar on any given session, extended strong dollar trends will pose a major headwind against sustainable oil price gains,” Jim Ritterbusch, of oil trading advisory firm Ritterbusch and Associates, said in a note.
In a sign of easing oil supply tightness, the price gap between prompt and second-month Brent futures has narrowed by about $5 a barrel since the end of July to under $1. The spread for WTI has shrunk to a 39-cent premium from a nearly $2 premium in late-July.
Haitham Al Ghais, the new secretary general of the Organization of the Petroleum Exporting Countries, told Reuters he was optimistic about oil demand into 2023.
OPEC is keen to ensure Russia remains part of the OPEC+ group, Al Ghais said ahead of a Sept. 5 meeting.
Supplies could tighten again when European buyers start seeking alternative supplies to replace Russian oil ahead of European Union sanctions that take effect from Dec. 5.
“We calculate the EU will need to replace 1.2 million barrels per day of seaborne Russian crude imports with crude from other regions,” consultancy FGE said in a note.
Data earlier this week showed U.S. crude inventories fell sharply as world’s top producer exported a record 5 million barrels of oil per day last week, with oil companies finding demand from European nations looking to replace Russian crude.
However, the number of U.S. oil rigs, an early indicator of future supply, was unchanged at 601 this week, according to Baker Hughes Co, as energy companies slowly increase production to pre-pandemic levels with shale oil output in September expected to hit its highest since March 2020.
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