Canada’s main stock index fell on Thursday, giving back some of this week’s rally, as hotter-than-expected U.S. inflation data pushed up long-term borrowing costs.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 163.60 points, or 0.8 per cent, at 19,500.24 after five straight days of gains.
“We saw a couple of days of pullback in bond yields and markets liked it. And the reverse is happening,” said Barry Schwartz, portfolio manager at Baskin Financial Services.
“Yesterday’s PPI (data), today’s CPI number, just too hot, too spicy to call inflation dead yet and to say that things are cooling off.”
Surging shelter costs pushed consumer prices higher last month while the annual increase in the core figure, excluding volatile food and energy components, was the smallest in two years.
After the data, the S&P 500 spent the morning zig-zagging between red and green. It turned decisively lower after a 1 p.m. EDT auction of 30-year U.S. Treasuries met weak demand.
“The biggest overhang to the market the last two months has been the rise in interest rates. Any meaningful move one way or the other on any given day is going to have an impact on equities,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
According to preliminary data, the S&P 500 lost 27.50 points, or 0.63 per cent, to end at 4,349.45 points, while the Nasdaq Composite lost 85.46 points, or 0.63 per cent, to 13,574.22. The Dow Jones Industrial Average fell 173.77 points, or 0.51 per cent, to 33,631.10.
Interest-rate sensitive sectors were among the biggest decliners on the Toronto market. Utilities fell 2.5 per cent, real estate was down 1.5 per cent and heavily-weighted financials ended 0.9 per cent lower. The materials group, which includes precious and base metals miners and fertilizer companies, lost 1.7 per cent as gold and copper prices fell.
But Barrick Gold Corp shares ended up 0.1 per cent after the company said its gold production rose nearly 3 per cent sequentially for the third quarter, helped by higher production at its Cortez mines in Nevada.
The energy sector also gained ground, rising 0.7 per cent, even as oil settled 0.7 per cent lower at $82.91 a barrel after data showed a large build in U.S. crude stockpiles.
After Thursday’s auction “the magnitude of the move higher in rates caused a significant downward dislocation in equities across the board,” James added.
The Canadian 10-year yield was up 11.6 basis points at 4.042 per cent, tracking moves in U.S. Treasuries.
U.S. benchmark 10-year yields rose after the inflation data and rose further to hit a session high after the auction. The benchmark yield rose as high as 4.728 per cent, after falling for two straight days.
The rise in yields particularly pressured rate-sensitive sectors such as utilities and real estate, often viewed as bond proxies.
Homebuilding stocks fell after the data and came under more pressure after the afternoon increase in bond yields. The iShares Home Construction ETF was down sharply.
Of the S&P 500′s 11 major sectors energy and information technology were under least pressure during the session.
Traders now expect a stronger chance the Fed will end up delivering another interest-rate hike this year, and keep rates higher for longer next year.
Boston Fed President Susan Collins, who does not have a vote on the rate-setting Federal Open Market Committee (FOMC) this year, said on Wednesday that while the odds of the economy escaping a recession have grown, it is possible the central bank is not done with interest rate hikes aimed at bringing inflation back to its target.
Investor focus may soon shift to the earnings season on Friday, with big banks including JPMorgan Chase, Wells Fargo and Citigroup reporting their quarterly numbers before the market open.
Reuters