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Canada’s main stock index fell on Wednesday as a drop in commodity prices weighed on resource shares and hotter-than-expected domestic inflation data fueled worries about aggressive interest rate hikes.

Copper and oil prices both tumbled about 3%, with the prospect of slower economic growth taking their toll on those markets.

Wall Street’s main indexes also ended lower, but well off the day’s lows, with stocks finding a footing after Federal Reserve Chair Jerome Powell emphasized that future rate moves by the bank would be data-dependent and not pre-determined.

Powell said the Fed is “strongly committed” to bringing down inflation that is running at a 40-year high while policymakers are not trying to cause a recession in the process.

“The Fed knows that inflation is a problem, they know they need to get their hands around it and rate increases are the only real tool that they have to do that,” said Thomas Simons, a money market economist at Jefferies in New York.

That said, Simons said that Powell was slightly less aggressive than he was after last week’s meeting as he stated that future moves will depend on economic data.

“It’s the dovish side of very hawkish,” Simons said. “It’s a little bit less clear and a little bit less than totally committed.”

Philadelphia Fed President Patrick Harker said on Wednesday said if data in coming weeks show demand is slowing faster than he expects, he would support a smaller half-point rate hike in July; otherwise, he would support a bigger rate hike.

Chicago Fed Bank President Charles Evans also signaled he’d likely back another big interest rate hike in July unless inflation data improves and nodded to the risk of a downturn because the Fed cannot “fine-tune” the economy’s response to rising borrowing costs.

Economists polled by Reuters expect the Fed to hike by another 75 basis points in July, followed by a half-percentage-point rise in September, and that it would not scale back to quarter-percentage-point moves until November at the earliest.

Investors are trying to assess how far stocks could fall as they weigh risks to the economy with the Fed hiking rates to tamp down surging inflation. The S&P 500 earlier this month fell over 20% from its January all-time high, confirming the common definition of a bear market, with the benchmark index last week logging its biggest weekly percentage drop since March 2020.

The TSX energy sector tumbled 5.4% and the materials group, which includes precious and base metals miners and fertilizer companies, lost 2.3%. Combined, the energy and materials sectors account for 31% of the Toronto market. Heavily weighted financials were also a drag on the Canadian market, falling 1.2%.

Copper prices have also been slammed by China’s strict “zero-COVID” policy to prevent the spread of coronavirus, weakening the demand outlook for metals. On the London Metal Exchange, copper fell to its lowest since March 4, 2021 at US$8,656 per tonne. Aluminum and other industrial metals also joined the selloff.

In an illustration of weakening consumption trends, the International Copper Study Group said Tuesday that world refined copper market showed a 3,000-tonne surplus in April, compared with a 22,000-tonne deficit in March.

The Dow Jones Industrial Average fell 47.12 points, or 0.15%, to 30,483.13, the S&P 500 lost 4.9 points, or 0.13%, to 3,759.89 and the Nasdaq Composite dropped 16.22 points, or 0.15%, to 11,053.08.

The S&P energy sector, which has been a strong performer this year, fell 4.2% as oil prices slid. Declines in Exxon Mobil , Chevron and Conocophillips were the biggest individual drags on the S&P 500.

A 0.4% decline in the heavyweight technology sector also weighed.

Defensive areas real estate, healthcare and utilities were the top-gaining S&P 500 sectors. Real estate rose 1.6%, healthcare gained 1.4% and utilities added 1%.

In company news, Moderna Inc shares rose 4.7% after the company said an updated version of its COVID-19 vaccine generated a strong immune response against fast-spreading Omicron subvariants.

Declining issues outnumbered advancing ones on the NYSE by a 1.17-to-1 ratio; on Nasdaq, a 1.08-to-1 ratio favored decliners. The S&P 500 posted one new 52-week highs and 39 new lows; the Nasdaq Composite recorded nine new highs and 207 new lows. About 12.2 billion shares changed hands in U.S. exchanges, compared with the 12.5 billion daily average over the last 20 sessions.

In the forex market, the Canadian dollar weakened against its U.S. counterpart as oil prices fell, but the currency pared its decline as domestic inflation data bolstered bets for a supersized interest rate hike by the Bank of Canada next month.

The loonie was trading 0.1% lower at 1.2930 to the greenback, or 77.34 U.S. cents, by late afternoon.

Canada’s annual inflation rate unexpectedly accelerated to 7.7% in May, the highest since January 1983, while the average of the Bank of Canada’s three core measures rose to 4.7% from an upwardly revised 4.4%.

The central bank has vowed to tame price pressures. Money markets see about an 80% chance of a three-quarter-percentage-point rate increase at the BoC’s next policy announcement on July 13, up from 70% before the inflation data, which would be the biggest hike in 24 years.

Still, Canadian bond yields fell on Wednesday, tracking moves in U.S. Treasuries. The Canada 10-year government bond fell 8.1 basis points to 3.419%.

Reuters, Globe staff

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