At midday: TSX falls as sharp rise in bond yields fans investors’ interest rate worries

Canada’s stocks fell on Friday and were on track for their fourth weekly decline in five, as a sharp rise in long-term government bond yields fanned fears of interest rates staying high for longer.

At 10:55 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 123.76 points, or 0.64%, at 19,225.05.

The index was on track for a weekly loss of 1.1%.

Read more: Friday’s analyst upgrades and downgrades

“It has been a difficult week for global equities. Bond markets are proving to be a significant headwind,” said David Morrison, senior market analyst at Trade Nation.

The U.S. 10-year Treasury yield rose to almost 5%, touching its 16-year high, after U.S. Federal Reserve Chairman Jerome Powell said that additional interest rate hikes could be warranted in view of economic resiliency and labor market tightness.

The materials sector, which includes precious and base metals miners and fertilizer companies, added 0.4% to lead gains on the index.

Gold prices soared to a three-month high as demand for the safe-haven asset grew amid worries over a possible escalation of the conflict in the Middle East.

However, a drop in copper prices capped gains in materials stocks as a stronger dollar and lack of additional stimulus in top metals consumer China weighed on the metal.

Rate sensitive financials slipped 1.2%, leading declines, while the real estate sector lost 0.6%.

Data showed Canadian retail sales fell by 0.1% in August from July, led by decreases at motor vehicle and parts dealers, as well as food and beverage retailers.

In August, retail sales were down in six of nine subsectors.

Wall Street is closing out its worst week in a month with more losses on Friday.

The S&P 500 was 0.9% lower in morning trading and on track to break a two-week winning streak. The Dow Jones Industrial Average was down 148 points, or 0.4%, and the Nasdaq composite was 1.3% lower.

The stock market has been struggling under the weight of the bond market, where the yield on the 10-year Treasury has shot to the edge of 5% for the first time since 2007. High yields make borrowing more expensive for everyone, and they slow the economy while dragging on prices for stocks and other investments.

The yield on the 10-year Treasury was sitting at 4.89%, down from 4.99% late Thursday. But it was again just a hair below 5% earlier in the morning, according to Tradeweb. It’s been catching up to the Federal Reserve’s main interest rate, which is already above 5.25% at its highest level since 2001.

Yields swung a day earlier after investors took comments from Federal Reserve Chair Jerome Powell to indicate the central bank won’t raise its main interest rate at the end of the month. But financial markets are less sure about what the Fed will do after that, and the central bank has said its upcoming moves will depend entirely on how inflation and the job market behave.

The Fed has raised its overnight interest rate at a furious pace in hopes of suffocating high inflation, which has come down from its peak last summer. But a rise in oil prices is threatening to add more upward pressure, and crude climbed again amid worries about war in the Middle East.

A barrel of benchmark U.S. oil added 1.1% to $89.33. It’s been bouncing around since the latest Hamas-Israel war began, after leaping from $70 to more than $93 through the summer. Brent crude, the international standard, rose 1% to $93.32 per barrel.

Investors are pulling so many dollars out of riskier investments, such as junk bonds and global stock funds, and holding so much cash to protect themselves that a market-sentiment reading by Bank of America is signaling “extreme bearish.” Such a signal has historically been a signal for contrarians to buy, with stock prices typically improving in the ensuing three months, strategist Michael Hartnett wrote in a BofA Global Research report.

But he also pointed out that it hasn’t been a reliable signal when very big shocks occur, such as the period around Lehman Brothers’ collapse in 2008 or the Russia-Ukraine war early last year.

Maybe a jump for oil prices above $100 or the 10-year Treasury yield shooting above 5% could act as similar very big shocks. In other words, he said, if the S&P 500 can’t hold at 4,200 “with this level of bearishness then there may be imminent risks of credit event/hard landing” for the economy.

On Wall Street, SolarEdge tumbled 29.8% after the solar technology company slashed its sales and profit expectations for the current quarter. The company blamed order cancellations in Europe due in part to slower-than-expected installation rates.

Other solar stocks also fell, including a 14.8% drop for Enphase Energy.

Regions Financial sank 10.6% after it reported weaker profit than expected for the latest quarter. Focus has been on the banking industry outside its biggest titans. It was under heavy pressure earlier this year after high interest rates helped cause three high-profile collapses of U.S. banks.

Other regional banks were also weaker. Comerica fell 5.6% despite reporting better profit for the summer than expected. Huntington Bancshares sank 1.7% after likewise topping earnings forecasts.

SLB, the giant oilfield services provider, fell 4.6% despite reporting stronger profit than expected for the summer. Its revenue fell just shy of analysts’ expectations.

On the winning side of Wall Street was Knight-Swift Transportation. The trucking company jumped 10.2% after reporting stronger profit for the latest quarter than expected.

In stock markets abroad, indexes slumped across Europe and Asia.

Reuters and The Associated Press

 

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