Canada's main stock index closed on a downward note after higher-than-expected inflation numbers south of the border appeared to increase the likelihood of an aggressive rate hike next month by the U.S. Federal Reserve.
A broad-based afternoon sell-off concluded what was a "very volatile” day Thursday for the S&P/TSX composite, said Mike Archibald, vice-president and portfolio manager with AGF Investments Inc.
The index closed down 72.47 points at 21,531.72, after immediately starting the day on a negative note following the release of new data from the U.S. Labor Department. The data showed inflation in that country jumped 7.5 per cent last month compared with the same period in 2021, with “core inflation” (excluding food and fuel) coming in at six per cent.
Both numbers were higher than analysts had anticipated, and sent U.S. stock indexes tumbling. While Canada’s main stock index rallied mid-morning — in part because of positive earnings reports from a number of major Canadian companies — the S&P/TSX entered sell-off territory again in the afternoon after St. Louis Fed president James Bullard said he favoured a rate hike of half a percentage point by the U.S. central bank.
Central banks in both the U.S. and Canada are expected to raise rates this year to counteract inflation, but a 50-basis point hike in March by the U.S. Fed would be higher than some analysts have predicted. The prospect made traders jittery and sent stocks tumbling.
“The real debate is how much more hawkishness or aggressiveness the Fed is going to move toward," Archibald said. "That’s really going to dictate how risk assets are going to trade over the coming weeks.”
In New York, the Dow Jones industrial average was down 526.47 points at 35,241.59. The S&P 500 index was down 83.10 points at 4,504.08, while the Nasdaq composite was down 304.73 points at 14,185.64.
The Canadian dollar traded for 78.85 cents US compared with 78.86 cents US on Wednesday.
The March crude contract was up 22 cents at US$89.88 per barrel and the March natural gas contract was down five cents at US$3.96 per mmBTU.
The April gold contract was up 80 cents at US$1,837.40 an ounce and the March copper contract was up six cents at US$4.66 a pound.
"The commodity space has been a very good place to be, so far in 2022. Oil is still looking like it wants to continue to march towards US$100," Archibald said.
"The demand picture is definitely improving as economies reopen, as the weather gets a little bit better, and we don’t necessarily have the appropriate mass supply globally to meet the increased demand.”
A number of Canadian companies saw significant gains Thursday, particularly Brookfield Asset Management which saw its share price jump 5.5 per cent on a strong quarterly earnings report.
"They bumped the dividend, and they talked about a potential spinoff of their asset management unit, so that’s contributing a really nice amount of upside to the TSX today," Archibald said.
On the negative side, luxury parka maker Canada Goose Holdings Inc. was one of the day's big losers, with its shares taking a 16-per-cent nosedive Thursday after the company reduced its forecast for the year based on lower than expected sales and retail traffic in Asia and Europe.
Archibald said Friday will also be a day to watch, with a number of significant Canadian companies — including Enbridge Inc., Magna International Inc., Fortis Inc. and CAE Inc. — slated to report earnings
This report by The Canadian Press was first published Feb. 10, 2022.
Companies in this story: (TSX:GOOS, TSX:BAM.A, TSX:CADUSD=X)
Amanda Stephenson, The Canadian Press
Note to readers: This is a corrected story. Previous version had wrong closing numbers in para 3.
