Canada’s main stock index inched higher to start the week with bond yields climbing to their highest level in more than three years on inflation concerns.
The day started stronger but some of the gains evaporated later in the day.
“I think inflation and rate hike concerns remain, which is why I think there is some skepticism of any strong rallies at least early in the morning, and that’s why we’ve seen some of the gains have been given back,” said Angelo Kourkafas, investment strategist at Edward Jones.
The 10-year government bond yields in Canada and the U.S. increased to 3.189 and 3.044 per cent, respectively.
“There is still a little nervousness about how aggressive the central banks, the Fed and the BoC (Bank of Canada), would need to be with further rate hikes.”
The Canadian central bank last week increased interest rates by 50 basis points, as expected, but its commentary was a little on the hawkish side, opening the door to even more aggressive rate hikes to come, Kourkafas said in an interview.
“So a 75 basis points move at the next month meetings should not be out of the question.”
Signs of an easing of inflation could be seen with Friday’s U.S. consumer price index report, which is expected to be the key focus for markets and probably the primary driver of stocks and bonds in the coming months, he added.
In Canada, May’s employment numbers will be the focus on Friday. Kourkafas said the stronger-than-expected employment numbers last week in the U.S. can likely be extrapolated for Canada.
“The labour market remains in solid shape, and that’s probably what we’re going to see on Friday when we get the Canadian data. So despite the recession concerns, it is encouraging that the labour market remains strong and that will continue supporting consumer incomes.”
Technology and energy led the TSX.
Information technology rose 1.1 per cent with Shopify Inc. up 1.7 per cent. Kourkafas said some of the strength today has its roots in overseas markets, where some tech names rebounded on indications that the Chinese regulatory crackdown might be easing with Shanghai reopening.
Energy climbed one per cent even though crude oil prices dipped with Peyto Exploration and Development Corp. up 8.3 per cent and Tamarack Valley Energy Ltd. 5.7 per cent higher.
The July oil crude contract was down 37 cents at US$118.50 per barrel after nearly US$121 earlier in the day, while the July natural gas contract was up 79.9 cents at US$9.32 per mmBTU.
Oil is near a three-month high even though prices were down slightly on headlines that India is looking to import more Russian crude oil.
“But overall, clearly the market is tight given the supply and demand dynamics, and that’s not likely to change overnight, so that sector has maintained leadership and will continue to do so unless some of the geopolitical risks start to fade a little bit.”
The Canadian dollar traded for 79.59 cents US compared with 79.50 cents US on Friday.
Overall, the S&P/TSX composite index was up 28.36 points at 20,819.09, after hitting an intraday high of 20,931.94.
U.S. stocks ended a choppy session slightly higher on Monday, helped by gains in Amazon.com and other mega-cap growth shares, while persistent worries over inflation and interest rates kept a lid on the market.
Shares of Amazon.com Inc rose 2% and were the biggest positive for the S&P 500 and Nasdaq after the online retailer split its shares 20 for 1.
Apple Inc shares climbed 0.5%. The tech giant at its annual software developer conference announced among other things that it would more deeply integrate its software into the core driving systems of cars.
Among sectors, consumer discretionary and communication services had the day’s biggest gains.
But investors remain focused on inflation and rising interest rates. A U.S. consumer price index report on Friday is expected to show still-high inflation, and U.S. Treasury yields rose on Monday.
A solid jobs report on Friday lowered hopes of a pause in the Federal Reserve’s aggressive policy-tightening plan to fight inflation.
“There’s been a push-pull in the markets now for a while,” said Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago.
The jobs report was evidence that “the economy is still in OK shape,” he said. But “with inflation running kind of high and commodity prices still rising and putting in new all-time highs, maybe that peak of inflation is still in that ethereal future.”
Helping sentiment were easing regulatory crackdowns in China and signs in parts of China of a return to more normal activity after the country’s biggest COVID-19 outbreak in two years.
The Dow Jones Industrial Average rose 16.08 points, or 0.05%, to 32,915.78, the S&P 500 gained 12.89 points, or 0.31%, to 4,121.43 and the Nasdaq Composite added 48.64 points, or 0.4%, to 12,061.37.
Twitter Inc shares slipped 1.5% after billionaire Elon Musk said he might walk away from his buyout offer if the social media company fails to provide data on spam and fake accounts.
U.S.-listed shares of Chinese firms rallied after a report that Chinese regulators are concluding probes into ride-hailing giant Didi Global Inc and two other firms. The KraneShares CSI China Internet ETF jumped 4.7% and Didi Global gained 24.3%.
Reuters and The Canadian Press
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