TORONTO — 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.
In New York, the Dow Jones industrial average was up 16.08 points at 32,915.78. The S&P 500 index was up 12.89 points at 4,121.43, while the Nasdaq composite was up 48.64 points at 12,061.37.
Health care was the biggest laggard, falling 2.6 per cent with Tilray Inc. off 6.2 per cent.
Materials was down 0.7 per cent on lower metals prices with Iamgold Corp. down 5.2 per cent.
The August gold contract was down US$6.50 at US$1,843.70 ounce and the July copper contract was down 3.7 cents at US$4.45 a pound.
This report by The Canadian Press was first published June 6, 2022.
Companies in this story: (TSX:SHOP, TSX:TLRY, TSX:PEY, TSX:TVE, TSX:IMG, TSX:GSPTSE, TSX_CADUSD=X)
