Canadian banks announced they were raising their prime lending rates after the Bank of Canada surprised markets by hiking it benchmark interest rate on June 7.
Business
Bruised Banks Fuel Short-Covering Rally in Stocks: Markets Wrap
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(Bloomberg) — The chaotic week for financial markets ended with a rally in risk assets — possibly driven by short-covering — as regional banks rebounded from a brutal rout and solid jobs data tempered fears of a recession. Treasuries fell.
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A rally in equities halted the S&P 500’s longest losing streak since February. PacWest Bancorp soared over 80%, following a rout that saw its shares tumbling to a record low. Western Alliance Bancorp and First Horizon Corp., which were also strongly hit this week, jumped. The KBW Bank Index of financial heavyweights rebounded from its lowest since September 2020.
Wall Street’s favorite volatility gauge, the VIX, snapped a four-day surge to hover near 17. Strong earnings at Apple Inc. helped lift the megacap tech space, with the world’s most-valuable company climbing almost 5%.
US hiring and workers’ pay gains accelerated in April, showing signs of labor-market resilience and inflationary pressures in the face of headwinds.
“For now, this report is another sign that the Fed hasn’t broken the economy yet,” said Callie Cox, a US investment analyst at eToro. “The bears’ best argument is that a recession is around the corner, but it may be hard to make that argument until we see actual evidence in jobs data.”
Another key aspect of the data is the fact that the strong figures also increase chances the Federal Reserve will hold rates higher for longer, and potentially keep the door open to an 11th straight hike in June.
Fedspeak
Fed Bank of St Louis President James Bullard said policymakers will probably have to push rates higher to cool inflation, but added he would wait and see what the data show before deciding what move to support in June. Bullard also said he thinks the central bank can still achieve a soft landing, with inflation returning to the target without triggering a significant downturn.
Rates on swap contracts linked to Fed meetings — which on Thursday briefly priced in a cut in July — moved higher, to levels consistent with a stable policy rate until September — followed by at least two quarter-point cuts by year-end. Treasury two-year yields climbed as much as 15 basis points to 3.94%.
“If the Fed was expecting definitive confirmation it’s time to pause, this is not that signal,” said Ronald Temple, chief market strategist at Lazard. “All said, 500 bps of rate hikes are having an impact, but it’s too early to declare victory over inflation.”
In fact, while inflation has shown some signs of moderation, it’s still well above the central bank’s 2% target. The core consumer price index, which excludes food and energy and is closely watched by the Fed, is projected to show a 5.5% increase in April from a year ago. The report is due Wednesday.
Bank of America Corp.’s Michael Hartnett — who correctly predicted the equity exodus last year — said that a “new structural bull market requires big Fed easing,” which in turn needs a “big recession.”
Resilience in the labor market and price pressures that remain sticky, however, are likely to prevent the Fed from pivoting to cut rates. The strategist reiterated a call to “sell the last rate hike” in the note dated May 4, before the jobs report came out.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1.9% as of 4 p.m. New York time
- The Nasdaq 100 rose 2.1%
- The Dow Jones Industrial Average rose 1.6%
- The MSCI World index rose 1.5%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro was little changed at $1.1018
- The British pound rose 0.5% to $1.2635
- The Japanese yen fell 0.4% to 134.85 per dollar
Cryptocurrencies
- Bitcoin rose 2.4% to $29,585.59
- Ether rose 6% to $1,991.7
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.43%
- Germany’s 10-year yield advanced 10 basis points to 2.29%
- Britain’s 10-year yield advanced 13 basis points to 3.78%
Commodities
- West Texas Intermediate crude rose 4.1% to $71.36 a barrel
- Gold futures fell 1.5% to $2,025.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Carly Wanna, Peyton Forte and Ksenia Galouchko.
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The company says director Chika Stacy Oriuwa indicated she resigned “because of her loss of confidence in board leadership and because of mistreatment.”
In addition to Oriuwa, Indigo says Frank Clegg, Howard Grosfield and Anne Marie O’Donovan have also stepped down as directors. No explanation for their departures was given.
6:05
Indigo CEO Heather Reisman talks about creating a happier planet in her new book ‘Imagine It!’
Indigo wished the departing directors well and thanked them for their contributions.
The retailer says Reisman will retire as executive chair and from the board effective Aug. 22.
Reisman stepped down as chief executive of Indigo last year as part a transition that saw Peter Ruis, who had been the retailer’s president, promoted to chief executive.
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Big banks follow suit after surprise quarter-point hike
Royal Bank of Canada, TD Canada Trust, Canadian Imperial Bank of Commerce (CIBC), Bank of Montreal, National Bank of Canada and Bank of Nova Scotia all said they were increasing the prime rate by 25 basis points to 6.95 per cent from 6.70 per cent, effective June 8, 2023.
Desjardins Group and Equitable Bank also announced it would raise its Canadian prime rate by the same amount.
The Bank of Canada surprised markets and observers when it raised its benchmark policy rate by a quarter percentage point to 4.75 per cent earlier in the day.
The central bank has raised its rate nine times, and 4.5 percentage points, since March 2022, and the commercial banks’ prime rate has moved in lockstep from 2.7 per cent to 6.95 per cent.
Listen to Down to Business for in-depth discussions and insights into the latest in Canadian business, available wherever you get your podcasts. Check out the latest episode below:
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Last Updated 4:00 PM EST
Stock indices finished today’s trading session mixed. The Nasdaq 100 (NDX) and the S&P 500 (SPX) fell 1.75% and 0.38%, respectively. Meanwhile, Dow Jones Industrial Average (DJIA) gained 0.28%.
Furthermore, the U.S. 10-Year Treasury yield increased to 3.79%, an increase of more than 12 basis points. Similarly, the Two-Year Treasury yield also increased, as it hovers around 4.56%.
The Atlanta Federal Reserve updated its latest GDPNow reading, which allows it to estimate GDP growth in real-time. The “nowcast” becomes more accurate as more economic data is released throughout the quarter. Currently, it estimates that the economy will expand by about 2.2% in the second quarter.
This is higher than its previous estimate of 2%, which can be attributed to recent releases from the U.S. Census Bureau, the Institute for Supply Management, and the U.S. Bureau of Labor Statistics.
Last updated: 1:50PM EST
Stocks are mixed so far in today’s trading session. As of 1:50 p.m. EST, the Nasdaq 100 (NDX) and the S&P 500 (SPX) are down 1.5% and 0.4%, respectively. Meanwhile, Dow Jones Industrial Average (DJIA) is up 0.2%.
Surprising market observers, the Bank of Canada hiked its primary policy rate by 25 basis points, raising it to 4.75% on Wednesday. The bank cited persistent underlying inflation as the main driver for this decision, marking a departure from two consecutive meetings where the rate was held steady.
The bank also continues with its policy of quantitative tightening, indicating a response to worldwide economic growth that’s weakening due to increased interest rates. “Major central banks are signaling that interest rates may have to rise further to restore price stability,” the bank stated.
This unexpected move initially boosted the Canadian dollar but has since lost some ground as it hovers around C$1.338 per US$1. The rate increase follows a rise in CPI inflation to 4.4% in April, its first surge in 10 months, and a stronger-than-anticipated GDP of 3.1% in Q1.
The Bank of Canada’s Governing Council asserts that the rate hike is in response to previous policy not being restrictive enough to balance supply and demand and bring inflation sustainably back to the 2% target.
As a major trading partner, what happens in Canada usually has ripple effects in the U.S. Thus, this could be a sign that the Federal Reserve might have to continue hiking as well going forward.
Last updated: 10:55AM EST
Stocks have turned red so far in today’s trading session after a positive start. As of 10:55 a.m. EST, the Nasdaq 100 (NDX) and the S&P 500 (SPX) are down 0.9% and 0.2%, respectively. Meanwhile, Dow Jones Industrial Average (DJIA) is near the flatline.
Last updated: 9:50AM EST
Stocks ticked higher at open on Wednesday morning even as the trade deficit data showed that the United States’ trade deficit jumped 23% in April to $74.6 billion – a six-month high indicating a surge in imports. Imports were up 1.5% in April to $323.6 billion while exports fell by 3.6% to $249 billion.
The Nasdaq 100 (NDX), S&P 500 (SPX), and Dow Jones Industrial Average (DJIA) were all up by 0.6%, 0.32%, and 0.11%, respectively, at 9:50 a.m., EST, June 7.
First published: 4:38AM EST
U.S. Futures are in the red this morning after the SPX marked its highest close in trading since August 2022 yesterday. We are almost halfway through the trading week, and markets remain elevated in the absence of any negative news. Futures on the Nasdaq 100 (NDX), S&P 500 (SPX), and Dow Jones Industrial Average (DJIA) are down 0.26%, 0.15%, and 0.18%, respectively, at 4:00 a.m., EST, June 7.
On the economic front, traders await reports on the U.S. trade deficit and consumer credit due today, as well as the weekly initial jobless claims data scheduled for June 8. Meanwhile, the Chinese economy is showing signs of slowing, with May exports falling 7.5% year-over-year against the expected 0.4% decline. Also, imports fell 4.5% year-over-year, much lower than the expected 8% decline.
On the earnings front, fewer companies remain to report their quarterly results. Shares of Casey’s General Stores (NYSE:CASY) dropped 4.5% in extended trading yesterday, after missing both sales and earnings expectations. On the other hand, Dave & Buster’s (NASDAQ:PLAY) stock was up over 4% in yesterday’s extended trade following its report of mixed results, with earnings surpassing but sales missing estimates.
Furthermore, meme stock GameStop (NYSE:GME), travel service provider Trip.com Group (NASDAQ:TCOM), e-commerce platform Rent the Runway (NASDAQ:RENT), and discount chain Ollie’s Bargain Outlet (NASDAQ:OLLI) will report their results today.
Elsewhere, European indices are trading in the red today, following weaker-than-expected data from German industrial production for April. After a disastrous March, April seems to continue bleeding from poor performance. Industrial production in April grew by a marginal 0.3% month-over-month, against an expected rise of 0.7%. Economists worry that if data remains weak in May and June, the economy’s recession will spill well into the second quarter.
Asia-Pacific Markets Trade Mixed on Wednesday
Asia-Pacific indices ended the trading session mixed today, following economic data sets from different nations. Mainland Chinese and Hong Kong indices closed mixed on signs that the economy is going into a continued slowdown. At the same time, Australian indices continue their downward spiral after reporting poor GDP growth and following the Reserve Bank of Australia’s unexpected rate hike to a record high yesterday.
Hong Kong’s Hang Seng index and China’s Shanghai Composite ended the day up 0.80% and 0.08%, respectively, while the Shenzhen Component index closed down by 0.60%.
At the same time, Japan’s Nikkei and Topix indices ended down by 1.82% and 1.34%, respectively.
Interested in more economic insights? Tune in to our LIVE webinar.
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