Canada’s main stock index moved lower Friday after a week that saw the central bank raise interest rates, with the market’s move led by weakness in industrials, while U.S. markets ticked higher ahead of the country’s own rate announcement next week.
The S&P/TSX composite index was down 50.64 points at 19,892.06.
In New York, the Dow Jones industrial average was up 43.17 points at 33,876.78. The S&P 500 index was up 4.93 points at 4,298.86, while the Nasdaq composite was up 20.62 points at 13,259.14.
The Bank of Canada surprised some this week with an interest rate hike on Wednesday, raising its key rate to 4.75 per cent, citing continued economic strength which could lead to entrenched inflation.
“I think they’ve taken a bit more of a hawkish tone. There’s no question to that,” said Mike Archibald, vice-president and portfolio manager with AGF Investments Inc.
“So now you’re starting to price in more rate hikes from the Bank of Canada moving forward, and so that, I think, has recalibrated some investor sentiment and expectations on what that might mean for other global central banks.”
It’s clear the Canadian economy is still “humming along,” said Archibald, even as the latest jobs report released Friday showed an uptick in unemployment while total employment fell.
Canada’s jobs reports often vary monthly, but the report is nevertheless promising in the fight against inflation, he said.
“Maybe as we get further through 2023, we start to see that inflation rate continue to move in the right direction, that makes the bank a little less aggressive.”
With the Bank of Canada out of the way, next week is all about the U.S. economy. Inflation data will be released not long before the Federal Reserve makes its own rate announcement.
The bank could hike again, said Archibald, but a pause is currently more likely. However, the inflation data could change that, he said.
“Given the kind of surprise hikes out of the Bank of Canada and the Australian Central Bank, who knows what’s going to happen next week,” he said.
Archibald expects more market volatility next week amid the big economic news and data.
The S&P 500 is now in a bull market, The Associated Press reported, meaning the index has risen 20 per cent or more from its most recent low. The bull market is considered to have begun mid-October, and has been driven by a small group of stocks, mainly high-valued technology companies.
Archibald said he’s overall optimistic for equities in 2023, though he expects some kind of pullback or consolidation at some point given how strong the market has been in the first half of the year.
The Canadian dollar traded for 74.96 cents US compared with 74.86 cents US on Thursday.
The July crude contract was down US$1.12 at US$70.17 per barrel and the July natural gas contract was down 10 cents at US$2.25 per mmBTU.
The August gold contract was down US$1.40 at US$1,977.20 an ounce and the July copper contract was down less than a penny at US$3.79 a pound.
In the U.S. the wide expectations among traders is that the Fed will hold interest rates steady at its meeting next week. If it does, that will be the first meeting where the Fed hasn’t hiked rates in more than a year. After that, the widespread bet is that the Fed may hike one more time in July before going on hold or even cutting rates by the end of the year.
Elsewhere on Wall Street, Adobe rose another 3.4% to add to its 5% leap from the day before following its announcement of a new artificial-intelligence offering for businesses. It joined a frenzy around AI that has sent a select group of stocks soaring, such as a 165% surge for chipmaker Nvidia so far this year.
Proponents say AI will be the next revolution to remake the economy, while critics say it’s inflating the next bubble.
In the bond market, the yield on the 10-year Treasury rose to 3.74% from 3.72% late Thursday. It helps set rates for mortgages and other important loans.
The two-year yield, which moves more on expectations for the Fed, rose to 4.62% from 4.52%.
The Canadian Press, The Associated Press