Wall Street ended sharply lower on Thursday after U.S. consumer prices data came in hotter than expected and subsequent comments from a Federal Reserve official raised fears the U.S. central bank will hike rates aggressively to fight inflation. U.S. 10-year Treasury yields hit 2% for the first time since August 2019 and Canada’s 5-year government bond yield – which has a heavy influence on fixed mortgage rates – rose to its highest level in three years. Bond prices, which move opposite to yields, were left with sharp losses.
The TSX closed lower but with much more modest losses than in the U.S., as its heavy weighting in financial and energy shares helped it better handle the prospect of aggressive Federal Reserve interest rate hikes.
U.S. Labor Department data showed consumer prices surged 7.5% last month on a year-over-year basis, topping economists’ estimates of 7.3% and marking the biggest annual increase in inflation in 40 years.
U.S. stocks fell further after St. Louis Federal Reserve Bank President James Bullard said the data had made him “dramatically” more hawkish. Bullard, a voting member of the Fed’s rate-setting committee this year, said he now wanted a full percentage point of interest rate hikes by July 1.
“Inflation tends to be kryptonite to valuations. Higher inflation causes multiples to compress, and that’s what we’re experiencing right now,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.
“Volatility is likely to remain until in the number and magnitude of Fed rate hikes is better known.”
Within minutes of Bullard comments, rate futures contracts were fully pricing an increase in the Fed’s target range for its policy rate to 1%-1.25% by the end of its policy meeting in June, with some bets on an even steeper rate hike path.
“This number re-emphasizes the sense of urgency for the Fed to act,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale In New York.
“The market is starting to price in a much more aggressive path of rate hikes and this really starts to increase the odds of perhaps a 50 basis points rate hikes at one of the meetings, but broadly speaking we’re pretty much fully priced in for a hike per meeting between now and July.”
The yield on 10-year Treasury notes was up 12.7 basis points to 2.054% late Thursday, after climbing to 2.056%, its highest since August 1, 2019.
Canada’s 10-year wasn’t far behind, yielding 1.946%. And the Canadian five-year bond was 1.824%, its highest since 2019, a move that is sure to put even more upward pressure on fixed mortgage rates. Five-year fixed rates below 3% are already becoming harder to find.
“Given that lenders benchmark fixed rates to bond yields, fixed mortgages will get more expensive. Uninsured 5-year fixed rates in the two per cent range could become fond memories within days,” Robert McLister, a mortgage specialist and Globe and Mail columnist, said Thursday.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 72.47 points, or 0.3%, at 21,531.72. Earlier in the day, the index moved within 12 points of the record intraday high it notched in November at 21,796.16.
“Toronto has got commodities and its got financial stocks and they don’t trade the same (as the U.S. market),” said Norman Levine, managing director, Portfolio Management Corporation. “Especially when interest rates are going up and inflation is going up.”
Rising interest rates help banks earn higher margins on their loans and reduce the long-term liabilities of insurance companies.
Financials, which account for one-third of the Toronto market, rose 0.3%, helped by a 5.5% gain for Brookfield Asset Management after the company said it is considering spinning off its asset management unit at a valuation of $70 billion to $100 billion.
That’s a move that could “unlock a higher multiple for the stock,” said Brandon Michael, senior investment analyst at ABC Funds.
Energy rose 0.6% as oil prices settled higher but all the other sectors ended lower, including 1.5% declines for information technology and consumer discretionary.
Shares of auto parts companies fell, including a 1.6% drop for Magna International Inc, as protesters blocking a vital U.S.-Canada trade route forced automakers in both countries to reduce operations.
Among the biggest decliners was Canada Goose Holdings Inc It ended 16% lower after the company cut its full-year forecasts.
In the U.S., megacap growth stocks Tesla Inc, Nvidia and Microsoft each lost around 3%.
The Dow Jones Industrial Average fell 1.47% to end at 35,241.59 points, while the S&P 500 lost 1.81% to 4,504.06.
The Nasdaq Composite dropped 2.1% to 14,185.64. It was the seventh time in 2022 that the Nasdaq lost more than 2% in a session.
The S&P 500 is now down about 5% in 2022, and the Nasdaq is down about 9%.
All of the 11 S&P 500 sector indexes declined, with technology, down 2.75%, and real estate, down 2.86%, leading the way lower.
Meanwhile, U.S. companies continued to report upbeat quarterly results. With 78% of the S&P 500 companies that have reported results beating analysts’ profit estimates, according to Refinitiv data.
Walt Disney Co rose 3.4% after beating revenue and profit estimates on strong subscriber additions and attendance at U.S. theme parks.
Barbie maker Mattel Inc and cereal maker Kellogg Co gained 7.65% and 3.11%, respectively, after forecasting full-year profits above market expectations.
Thursday’s session was busy. Volume on U.S. exchanges was 12.8 billion shares, compared with a 12.5 billion average over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 3.08-to-1 ratio; on Nasdaq, a 2.26-to-1 ratio favored decliners. The S&P 500 posted 31 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 55 new highs and 102 new lows.
Reuters, Globe staff
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MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
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