Canada’s main stock index opened higher on Monday, led by gains in financial shares and as Bank of Canada chief showed comfort with inflation running above the central bank’s 2-per-cent target.
The Toronto Stock Exchange’s S&P/TSX Composite Index rose 28.06 points, or 0.18 per cent, to 15,512.38.
The Canadian dollar weakened to a two-week low against its U.S. counterpart on Monday, as the greenback broadly rose and after Bank of Canada Governor Stephen Poloz showed comfort with inflation running above the central bank’s 2-percent target.
Mr. Poloz said he expects the inflation rate to be above 2 per cent in 2018, but he is comfortable with that as long as the long-term trend is steady, according to media reports published on Sunday.
Data on Friday showed that Canada’s annual inflation rate in March edged up to 2.3 percent, the highest in more than three years. Investors have been weighing whether higher inflation will prompt the central bank to raise interest rates further over the coming months.
The U.S. dollar rallied to a seven-week high after a rise in the 10-year U.S. Treasury yield to within a whisker of the psychologically important 3-per-cent level prompted buying of the greenback.
The Canadian dollar was trading 0.2 per cent lower at C$1.2797 to the greenback, or 78.14 U.S. cents. The currency, which fell 1.2 per cent last week, touched its weakest level since April 9 at C$1.2805.
Losses for the loonie came as the price of oil, one of Canada’s major exports, fell on rising U.S. borrowing costs and the prospect of further output rises after another increase in the weekly rig count.
U.S. stocks opened higher on Monday as gains in technology and industrial stocks led optimism about a strong earnings season and concerns on rising U.S. bond yields eased.
The Dow Jones Industrial Average rose 25.13 points, or 0.10 per cent, at the open to 24,488.07. The S&P 500 opened higher by 5.26 points, or 0.20 per cent, at 2,675.40. The Nasdaq Composite gained 27.86 points, or 0.39 pe rcent, to 7,173.99 at the opening bell.
The yield on 10-year U.S. Treasuries, the benchmark for global borrowing costs, hit 2.9980 per cent, its highest since January 2014. The U.S. five-year inflation swap, a key market gauge of long-term U.S. inflation, hit its highest level in 3-1/2 years.
The last time 10-year Treasury yields neared 3 per cent, in 2013, it rocked risk appetite and sent stocks sliding and was shortly before oil prices went on a mighty 75 per cent tumble. More recently, the stock market sold off in February as inflation expectations sent treasury yields surging.
But analysts say that strong earnings could help investors overlook such concerns at least for the moment.
“Earnings are going to be the bigger factor, the increase in yields isn’t too excessive just yet and investors maybe willing to take it in stride,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Fla..
“We came into the earnings season with pretty lofty expectations and the earnings have been relatively strong.”
The prospect of rising inflation comes as U.S. companies are reporting results for what is turning out to be a much stronger-than-expected first quarter.
Profits at S&P 500 companies are expected to have risen 20 per cent in the quarter, according to Thomson Reuters I/B/E/S, making it the strongest quarter in seven years.
This week, 181 S&P 500 companies are scheduled to report including some of the technology heavy-hitters like Facebook , Microsoft, Amazon and Intel. Alphabet reports after markets close on Monday.
Shares of Hasbro fell over 4 per cent in early trading after the toymaker reported a bigger-than-expected drop in quarterly revenue, blaming the liquidation of Toys ‘R’ Us.
Caterpillar rose 1.4 per cent Citigroup upgraded to “buy,” saying the stock could outperform over the next six to 12 months.
In a move that could ease tensions between the United States and China, U.S. Treasury Secretary Steven Mnuchin said on Saturday he may travel to China to try to resolve the differences over trade.
Reuters