Canada’s main stock index rose on Thursday to just short of a two-month high as higher oil prices bolstered resource shares and investors welcomed recent data that could signal a soft landing is possible for the U.S. and Canadian economies.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 83.93 points, or 0.4 per cent, at 20,265.37. On Tuesday, it notched its highest closing level since June 10 at 20,269.97.
“I think the market is in a nice spot right now,” said Allan Small, senior investment advisor of the Allan Small Financial Group with iA Private Wealth.
“The Fed (U.S. Federal Reserve) and the Bank of Canada would love to see a Goldilox scenario – the economy not too hot, not too slow.”
Investors have worried that in the fight against inflation, central banks would have to raise interest rates to a level that would trigger a recession. But recent data has showed both an easing of U.S. inflation pressures and encouraging job gains.
The number of Americans filing new claims for unemployment benefits fell last week and the prior period’s data was revised sharply lower, suggesting labour market conditions remain tight despite a slowdown in momentum due to higher interest rates.
The Toronto market’s energy sector gained nearly 2.7 per cent as positive U.S. economic data and robust U.S. fuel consumption boosted oil prices. U.S. crude oil futures settled 2.7 per cent higher at $90.50 a barrel.
The materials sector, which includes precious and base metals miners and fertilizer companies, added nearly 1 per cent, while heavily-weighted financials ended up 0.2 per cent.
Canadian banks are expected to post declines in profits on average in the third quarter as a murky economic outlook drives up provisions for credit losses while market turmoil pressures capital markets and wealth management results, analysts and investors said.
Another day of choppy trading on u Thursday and the benchmark S&P 500 barely back into the green for the week.
The S&P 500 rose 0.2 per cent after shifting between small gains and losses for much of the day. It’s now up 0.1 per cent for the week.
The Dow Jones Industrial Average managed a 0.1 per cent gain, while the Nasdaq rose 0.2 per cent as technology companies gained ground.
Smaller company stocks outpaced the broader market, sending the Russell 2000 index 0.7 per cent higher.
The choppy trading for stocks follows a four-week winning streak for the S&P 500. Investors remain concerned about stubbornly hot inflation and its impact on consumers and businesses. Financial results from big retailers and economic updates throughout the week have shown that the economy remains under pressure from inflation, but has several pockets of resiliency.
“The market is looking for direction and it seems people are caught between the idea of slowing economic growth and slowing inflation,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
The S&P 500 rose 9.70 points to 4,283.74, while the Dow added 18.72 points to 33,999.04. The Nasdaq gained 27.22 points to 12,965.34, and the Russell 2000 added 13.41 points to 2,000.73.
Technology companies had some of the strongest gains. Cisco Systems rose 5.8 per cent after reporting solid financial results.
Energy stocks also climbed as U.S. crude oil prices rose 2.7 per cent. Devon Energy rose 5.9 per cent.
Department store Kohl’s fell 7.7 per cent after issuing a disappointing financial forecast.
Bond yields fell. The yield on the 10-year Treasury, which affects mortgage rates, slipped to 2.87 per cent from 2.90 per cent late Wednesday.
Bed Bath & Beyond fell 19.6 per cent after investor Ryan Cohen proposed selling his entire stake in the struggling retailer.
Slightly fewer Americans filed for unemployment benefits last week, according to the Labor Department, as the labour market continues to stand out as one of the strongest segments of the U.S. economy. The solid update on the employment market follows an encouraging report on Wednesday that showed retail sales remain solid despite the hottest inflation in four decades.
Investors have been closely watching the Federal Reserve for any reaction to shifts in inflation or the economy. The central bank has been raising interest rates in an effort to slow the economy and cool inflation, but Wall Street is concerned it could slam the brakes too hard and veer into a recession instead.
Any sign that inflation is peaking or cooling has given Wall Street hope that the Fed could consider easing up on rate hikes. It raised its benchmark interest rate by three-quarters of a point for a second-straight time during its meeting in July and is expected to raise the rate by a half-percentage point at its upcoming meeting.
The minutes from last month’s meeting of Federal Reserve policy-makers showed that policy-makers expected the economy to expand in the second half of 2022, though many suggested that growth would weaken as higher rates take hold. The Fed intends to continue raising rates enough to slow the economy.
Wall Street continues monitoring potential trade issues between the U.S. and China after the U.S. government said it will hold trade talks with Taiwan in a sign of support for the island democracy that China claims as its own territory, prompting Beijing to warn that it will take action if necessary to “safeguard its sovereignty.”
Oil prices gained about 3 per cent on Thursday as positive U.S. economic data and robust U.S. fuel consumption offset concerns that slowing economic growth in other countries could undercut demand.
Brent futures rose $2.94, or 3.1 per cent, to settle at $96.59 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $2.39, or 2.7 per cent, to settle at $90.50.
Prices rose more than 1 per cent during the previous session, although Brent at one point fell to its lowest since February, as signs of a slowdown mounted in some places.
“Oil prices rallied after another round of impressive U.S. economic data boosted optimism for an improving crude demand outlook,” said Edward Moya, senior market analyst at data and analytics firm OANDA. Moya also noted that OPEC will not allow the recent pullback in oil prices to continue much further.
The number of Americans filing new claims for unemployment benefits fell last week and the prior period’s data was revised sharply lower, suggesting labour market conditions remain tight despite slower momentum due to higher interest rates.
The new secretary general of the Organization of the Petroleum Exporting Countries (OPEC), Haitham Al Ghais, told Reuters that policy-makers, lawmakers and insufficient oil and gas sector investments are to blame for high energy prices, not the cartel.
At its next meeting in September, Al Ghais said OPEC+, which includes other oil suppliers like Russia, “could cut production if necessary, we could add production if necessary. ... It all depends on how things unfold.”
U.S. crude stocks fell by 7.1 million barrels in the week to Aug. 12, Energy Information Administration data showed, against expectations for a 275,000-barrel drop, as exports hit a record 5 million barrels per day (bpd).
Bans by the European Union on Russian oil exports could dramatically tighten supply and drive up prices in coming months.
“The EU embargoes will force Russia to shut in around 1.6 million (bpd) of output by year-end, rising to 2 million bpd in 2023,” consultancy BCA research said in a note.
Russia, however, forecasts rising output and exports until the end of 2025, an economy ministry document seen by Reuters showed, saying revenue from energy exports will rise 38 per cent this year, partly due to higher oil export volumes.
Oil prices rose despite the possibility of increased supplies from Iran and worries that demand could drop if China imposes more lockdowns to stop the spread of COVID-19, along with slowing economic growth as central banks raise interest rates to control runaway inflation.
The market is awaiting developments from talks to revive Iran’s 2015 nuclear deal with world powers, which could lead to a roughly 1 million bpd boost in Iranian oil exports.
Open interest in U.S. futures fell on Wednesday to the lowest since January 2015 as investors cut back on risky assets like commodities, worried central banks will keep raising rates.
The U.S. dollar index, meanwhile, hit a near five-week high on Thursday.
A stronger dollar reduces demand for oil by making the fuel more expensive for buyers using other currencies.
The Canadian dollar traded for 77.35 cents US compared with 77.45 cents US on Wednesday.
Reuters, The Canadian Press
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.