Canada’s main stock index rose on Friday to an eight-week high as a rebound in oil prices boosted energy shares and domestic producer price data raised optimism that the Bank of Canada’s interest rate hiking campaign is at an end.
The S&P/TSX composite index ended up 122.70 points, or 0.6%, at 20,175.77, its highest closing level since Sept. 20. For the week, the index was up 2.7% as the latest economic data from the U.S. boosted hopes of an end to the Federal Reserve’s tightening cycle.
Canadian producer prices fell by 1% in October from September, adding to recent evidence that inflation is cooling.
“It (PPI data) is consistent with the cool down that provides support that the BoC is done hiking and we are likely are going to see some rate cuts potentially even before the Fed,” said Angelo Kourkafas, investment strategist at Edward Jones Investments.
The energy sector rose 2.8% as crude prices recovered from a four-month low. U.S. crude oil futures settled 4.1% higher at $75.89 a barrel.
Heavily-weighted financials also gained ground, adding 0.6%, and consumer discretionary was up 1.1%.
The materials sector, which includes precious and base metals miners and fertilizer companies, was a laggard. It ended 0.7% lower.
Meanwhile, Wall Street’s third straight winning week came to a quiet close Friday, as stocks tacked a whisper more onto their sizzling gains for November so far.
The S&P 500 edged up by 5.78 points, or 0.1%, to 4,514.02 and is near its highest level in three months. The Dow Jones Industrial Average inched up by 1.81, or less than 0.1%, to 34,947.28, and the Nasdaq composite gained 11.81, or 0.1%, to 14,125.48.
Several retailers made strong gains after reporting better results for the latest quarter than analysts expected. Gap surged 30.6% after reporting much higher profit than Wall Street had forecast, more than doubling its stock’s gain for the year so far. Ross Stores climbed 7.2% after reporting stronger profit and revenue than expected.
On the losing end was BJ’s Wholesale Club, which fell 4.8% despite also reporting better results than expected. Analysts pointed to an underlying sales figure that strips out the boost from store openings, which fell short of expectations.
Retailers are closing out what’s been a better-than-hoped earnings reporting season for the summer. Companies in the S&P 500 are on track to report their first overall growth in a year, according to FactSet.
But the much more impactful factor driving stocks higher this week was hope that inflation has cooled enough for the Federal Reserve to finally be done with its market-crunching hikes to interest rates.
The Fed has already raised its main interest rate to the highest level since 2001, trying to slow the economy and dent financial markets just enough to get inflation under control without causing a painful recession.
A report on Tuesday showing inflation at the consumer level cooled more than expected last month ignited hopes that the Fed could pull off the delicate balancing act. Subsequent readings fanned the hopes higher after suggesting inflation and the overall economy may be slowing.
Now traders are trying to bet on when the Fed could actually begin cutting interest rates, something that can juice prices for investments and provide oxygen for the financial system. The Fed has said that it plans to keep rates high for a while to ensure that the battle against inflation is definitively won, but traders are thinking cuts could begin early in the summer of 2024.
One source of potential worry about inflation has been receding in recent weeks. Oil prices have plunged amid worries about a mismatch between too much crude supply and too little demand.
A barrel of U.S. crude for December delivery rose $2.99 to settle at $75.89 Friday to recover some of its sharp losses from earlier in the week. But it’s still well below its perch above $93 in late September.
Brent crude, the international standard, rose $3.19 to $80.61 per barrel Friday.
In the bond market, the yield on the U.S. 10-year Treasury dipped to 4.43% from 4.44% late Thursday. Just a few weeks ago, it was above 5%, at its highest level since 2007 and undercutting prices for stocks and other investments.
Of course, too steep a drop in Treasury yields and too big a rally in stock prices could end up conspiring to work against Wall Street. Chair Jerome Powell said after the Fed’s last meeting on interest rates that it may not hike any more if the summer’s jump in Treasury yields and fall in stock prices remained “persistent.” That’s because such pressures could act like substitutes for more rate increases on their own.
Since then, yields have eased sharply, and November is on track to be the best month for the S&P 500 in a year. It all means financial conditions have unwound a bit over half of the tightening seen in October, according to economists at Deutsche Bank.
Still, recent reports on inflation and the economy have been so encouraging that “the Fed can afford to be less concerned with this easing,” according to Justin Weidner and the other economists.
In currency markets, the Canadian dollar strengthened against its U.S. counterpart on Friday, adding to its gains for the week, as oil prices rebounded and recent evidence that inflation is cooling weighed on the greenback.
The loonie was trading 0.3% higher at 1.3715 to the greenback, or 72.91 U.S. cents, after moving in a range of 1.3709 to 1.3770. For the week, the currency strengthened 0.6%.
Canada’s consumer price index report for October, due on Tuesday, could offer further evidence of cooling prices. Analysts expect CPI to fall to an annual rate of 3.2% from 3.8% in September.
Canadian government bond yields were mixed across a flatter curve. The 10-year was unchanged at 3.680% after earlier touching its lowest level since Sept. 14 at 3.635%.
Reuters, The Associated Press, Globe staff