Canada’s main stock index rose to its highest level since February as the energy sector was powered by oil prices surging to a 10-month high. On Wall Street, shares also ended higher in choppy trading, as investors took advantage of the previous session’s slump to buy them back, ahead of the outcome of the Senate runoff elections in the battleground state of Georgia, which will determine the balance of power in Washington.
The S&P/TSX composite index closed up 154.74 points to 17,682.51. The energy sector surged 7.29% as oil prices climbed nearly 5% after news that Saudi Arabia will make voluntary cuts to its oil output, while international political tension simmered over Iran’s seizure of a South Korean vessel.
Brent crude futures rose $2.51, or 4.9%, to settle at $53.60 a barrel. U.S. West Texas Intermediate crude ended $2.31, or 4.9%, higher at $49.93 a barrel.
Saudi Arabia will make additional, voluntary oil output cuts of 1 million barrels per day (bpd) in February and March. The cuts are part of a deal to persuade most producers from the group consisting of the Organization of the Petroleum Exporting Countries and allies to hold output steady amid concerns that new coronavirus lockdowns will hit demand.
“Saudi Arabia put the cherry on the cake and if there is one way to describe what its voluntary cut means for the market, ‘happy hour’ is a pretty fitting term,” said Bjornar Tonhaugen, Rystad Energy’s head of oil markets.
OPEC+ resumed talks on Tuesday after reaching a deadlock over February oil output levels this week.
An internal OPEC+ document dated Jan. 4 seen by Reuters highlighted bearish risks and stressed that “the reimplementation of COVID-19 containment measures across continents, including full lockdowns, are dampening the oil demand rebound in 2021.”
Meanwhile, tensions around OPEC member Iran’s seizure of a South Korean vessel continued. Iran denied on Tuesday it was using a South Korean ship and its crew as hostages, a day after it seized the tanker in the Gulf while pressing a demand for Seoul to release $7 billion in funds frozen under U.S. sanctions.
Still, coronavirus lockdowns, which have weighed on fuel demand since early last year, loom. Britain began its third COVID-19 lockdown on Tuesday.
Overall, analysts expect the stock market to consolidate December’s gains in January, as asset managers looked to rebalance their portfolios that had been heavily tilted toward equities.
The latest polls from data website 538 gave a slight edge to the two Democratic challengers who need to win both races for Democrats to gain U.S. Senate control from Republicans.
Along with their narrow majority in the House of Representatives, a “blue sweep” of Congress could usher in larger fiscal stimulus. It could also pave the way for President-elect Joe Biden to push through greater corporate regulation and higher taxes.
“Having a divided government is what generally investors want, whether you’re a Democrat or Republican. Investors prefer checks and balances,” said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.
“My sense is: we may get some clarity around the runoff by tomorrow, so why invest today?,” he added.
The Cboe Volatility Index flip-flopped after closing at its highest level in two months on Monday, which saw Wall Street’s main indexes drop to two-week lows as investors booked profits at the start of the year.
Unofficially, the Dow Jones Industrial Average rose 177.52 points, or 0.59%, to 30,401.41, the S&P 500 gained 27.37 points, or 0.74%, to 3,728.02 and the Nasdaq Composite added 124.30 points, or 0.98%, to 12,822.75.
“We’re somewhat worried about the high expectations (on stocks) among investors,” Cresset’s Ablin said. “We looked at things like bullish sentiment, which is not at an extreme, but it’s certainly higher than normal. Margin balances are also pretty high, also suggesting a fair amount of complacency.”
Although the start of vaccine rollouts and massive monetary support powered the major U.S. stock indexes to record levels recently, the discovery of a more contagious variant of the coronavirus and the latest virus-related curbs have muddied the economic outlook. New York on Monday found its first case of the highly contagious mutation of the coronavirus.
In terms of economic data, U.S. stocks got a boost from a survey by the Institute of Supply Management, which showed that U.S. manufacturing activity rose to its highest level in nearly 2-1/2 years in December, likely as spiraling new COVID-19 infections pulled demand away from services towards goods.
The February gold contract was up US$7.80 at US$1,954.40 an ounce and the March copper contract was up 8.5 cents at US$3.64 a pound.
Read more: Stocks that saw action Tuesday - and why
The Canadian Press, Reuters, Globe staff
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