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Equities
Canada’s main stock index fell at Thursday’s open with weakness in crude and metals prices weighing on resource stocks and the Bank of Canada’s aggressive rate hike hitting the financial sector. On Wall Street, indexes were also in the red in the wake of disappointing results from some of the biggest U.S. banks.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 167.11 points, or 0.9 per cent, at 18,448.08.
In the U.S., the Dow Jones Industrial Average fell 320.99 points, or 1.04 per cent, at the open to 30,451.80.
The S&P 500 opened lower by 37.79 points, or 0.99 per cent, at 3,763.99, while the Nasdaq Composite dropped 96.37 points, or 0.86 per cent, to 11,151.21 at the opening bell.
Rate concerns continue to stalk markets after the Bank of Canada surprised by hiking its key policy rate to 2.5 per cent from 1.5 per cent. In the U.S., new figures showed the annual rate of inflation jumped to 9.1 per cent in June, raising speculation that the Fed – which raised rates by three quarters of a percentage point at its last meeting – could follow suit later this month.
“The U.S. inflation report was ugly,” Swissquote senior analyst Ipek Ozkardeskaya said.
“A CPI figure above the 9-per-cent psychological level boosts the idea that the Federal Reserve (Fed) won’t hesitate to continue its aggressive rate increases to abate inflation,” she said. “Pricing on Fed funds futures now gives more than 80-per-cent chance for a 100 basis point hike at the next FOMC meeting, due by the end of this month.”
In this country, Bank of Canada Governor Tiff Macklem is scheduled to speak at a webinar hosted by the Canadian Federation of Independent Business later Thursday. The event is private, but a recording of the conversation will be published online this afternoon.
On the corporate side, U.S. markets get bank earnings ahead of the opening bell.
JPMorgan Chase reported a drop in second-quarter profit as America’s largest bank set aside more money to cover potential losses. The bank posted a profit of US$8.6-billion, or US$2.76 per share, for the quarter ended June 30, compared with US$11.9-billion, or US$3.78 per share, a year earlier. Shares were down more than 4 per cent in early trading in New York.
“Traders were in for a rude awakening today, as [JPMorgan CEO] Jamie Dimon brought home the reality of how earnings season is likely to play out,” IG senior market analyst Joshua Mahony said.
“Despite being well aware of the ongoing risks, markets appeared shocked as the JP Morgan chief laid out the risks posed by inflation, monetary tightening, and Russian influences on food and energy flows. Underperformance from both the bottom-and-top line bank earnings does highlight risks that businesses are already suffering as we seemingly head towards a recession.”
Meanwhile, Morgan Stanley also saw profit slip as volatile markets hit dealmaking. The U.S. bank reported a profit of US$2.4 billion, or US$1.39 per share, for the quarter ended June 30, compared with US$3.4-billion, or US$1.85 per share, a year earlier. Morgan Stanley stock was down more than 2 per cent shortly after the opening bell.
On Bay Street, Cogeco Communications Inc. reported a 5-per-cent increase in net profit to $100.3-million. The Montreal-based company says profit attributable to shareholders was the equivalent of $2.16 per diluted share, up from $2.01 per share or $95.7-million a year earlier. Revenue for the three months ended May 31 was $728.1-million, up 16.6 per cent. The results were released after the close on Wednesday.
Overseas, the pan-European STOXX 600 was down 1.18 per cent by midday. Britain’s FTSE 100 fell 1.11 per cent. Germany’s DAX and France’s CAC 40 were off 1.42 per cent and 1.54 per cent, respectively.
In Asia, Japan’s Nikkei gained 0.62 per cent. Hong Kong’s Hang Seng slid 0.22 per cent.
Commodities
Crude prices fell in early going, weighed down by global economic concerns and a high U.S. dollar.
The day range on Brent is US$97.45 to US$100.39. The range on West Texas Intermediate is US$93.80 to US$97. Both benchmarks were down more than 2 per cent in the predawn period.
“A wrath of economic data, monthly oil reports, and President [Joe] Biden’s trip to the Mideast will weigh on oil prices, but none of this will change how tight the oil market remains right now,” OANDA senior analyst Ed Moya said.
“WTI crude might stay in the mid-US$90s for a while before it makes a return to the US$100 level.”
Crude prices were tempered Thursday by growing expectations that the Fed will hike rates even more aggressively and increased concerns about a possible recession. A higher U.S. dollar, which hit a 20-year high on Wednesday, also hit crude prices, making purchases more expensive for holders of other currencies.
In other commodities, gold prices fell 1 per cent on Thursday, as Treasury yields and the dollar rose.
Spot gold dropped 1 per cent to US$1,718.69 per ounce by early Thursday morning. U.S. gold futures also lost 1 per cent to US$1,717.70.
Currencies
The Canadian dollar reversed course after the previous session’s gains on the back of a bigger-than-expected rate increase by the Bank of Canada as its U.S. counterpart hit its highest level in two decades against a group of world currencies.
The day range on the loonie is 76.53 US cents to 77.11 US cents. The loonie was at the lower end of that spread early Thursday morning.
“If you had a weaker CAD in response to a 100-basis-point hike from the BoC in your playbook, well done. We didn’t,” Shaun Osborne, chief FX strategist with Scotiabank, said.
“Risk aversion is dragging the CAD lower after the BoC’s bold move yesterday on the face of it but, again, we note that despite weak global stocks, there is little sign of real panic in the VIX which is trading comfortably below 30 still.”
Ahead of the opening bell, Statistics Canada said factory sales in May fell 2 per cent. Economists had been forecasting a steeper 2.5-per-cent decline for the month. Statscan says, excluding transportation equipment, manufacturing sales rose 0.2 per cent in May.
On world markets, the U.S. dollar index, which weighs the greenback against a group of currencies, rose a fifth of a percent on the day to 108.500, according to figures from Reuters. The index is up 13 per cent so far this year.
The U.S. dollar advanced more than 1 per cent against the yen, pushing it above 139 yen per dollar for the first time since 1998. It was last up 1.3 per cent at 139.18 yen per U.S. dollar.
Euro fell as much as 0.5 per cent on the day and was last down 0.3 per cent at US$1.00310. On Wednesday, the euro fell below parity with the U.S. dollar for the first time in two decades.
In bonds, the yield on the benchmark 10-year note was up at 2.965 per cent in the predawn period.
More company news
Deutsche Telekom has agreed to sell 51 per cent of its towers business to a consortium of Canada’s Brookfield and U.S. private equity firm DigitalBridge after they placed a surprise US$17.5-billion bid in the auction’s final stages. Brookfield had originally made a binding bid with Spanish telecoms firm Cellnex, before Cellnex withdrew on Wednesday. The German telecoms giant will keep the remaining 49-per-cent stake and the deal is expected to close towards the end of this year. It will reduce Deutsche Telekom’s financial debt by 10.7 billion euros, the company said, as it works towards acquiring a majority share in its T-Mobile U.S. subsidiary.
Amazon has offered to refrain from using sellers’ data for its own competing retail business and boost the visibility of rival products on its platform, EU regulators said on Thursday, a move aimed at staving off a possible hefty fine. The U.S. online retail giant offered to treat sellers equally when ranking their offers for the “buy box” on its website and which generates the bulk of its sales, confirming a Reuters story. Sellers will also be allowed to choose their own logistics and delivery services company instead of Amazon’s competing logistics services.
Barrick Gold Corp reported a 5.4-per-cent rise in second-quarter gold output compared to the previous quarter, as its mines including Carlin, Turquoise Ridge, Veladero, Bulyanhulu and North Mara performed well. Total preliminary gold production for the company, the world’s No.2 gold miner, stood at 1.04 million ounces in the quarter ended June 30, up from 990,000 ounces in the first quarter.
Economic news
(8:30 a.m. ET) Canada’s manufacturing sales and new orders for May.
(8:30 a.m. ET) Canada’s construction investment for May.
(8:30 a.m. ET) U.S. initial jobless claims for week of July 9.
(8:30 a.m. ET) U.S. PPI Final Demand for June.
With Reuters and The Canadian Press
