Key indexes in Canada and the United States opened higher Wednesday after a fresh reading on U.S. inflation helped ease at least some concerns about the future course of interest rates.
At 9:36 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 35.45 points, or 0.17%, at 20,621.18.
In the U.S., the Dow Jones Industrial Average rose 145.39 points, or 0.43 per cent, at the open to 33,707.20.
The S&P 500 opened higher by 24.57 points, or 0.60 per cent, at 4,143.74, while the Nasdaq Composite gained 107.11 points, or 0.88 per cent, to 12,286.66 at the opening bell.
Markets were playing close attention to the release of April U.S. inflation numbers, released before the start of trading.
The report showed the annual rate of inflation in the U.S. economy eased to 4.9 per cent last month, lower than the 5 per cent analysts had been forecasting. On a monthly basis, the consumer price index rose 0.4 per cent in April. That number was in line with forecasts but up from the 0.1-per-cent increase seen the month before. Excluding food and energy, the annual rate of inflation in April was 5.5 per cent. That also matched market forecasts.
The report was highly anticipated by traders, who are looking for clues about the course of rate moves by the Federal Reserve in the months ahead.
The Fed’s next policy decision is June 14, meaning markets will also get the May inflation report before that announcement. At its last meeting, the Fed hiked rates by a quarter percentage point but also signalled a likely move to the sidelines for the time being.
After the release of the April numbers, futures tied to the Fed’s policy rate had priced in a 90-per-cent chance that rates would remain unchanged at the central bank’s June meeting, according to Reuters.
“Today’s data was in line with expectations and does not change our view that the Fed has now paused its interest rate hikes, but the still hot pace in core inflation also reaffirms that rate cuts are not in the cards for this year,” CIBC economist Karyne Charbonneau said.
Canada’s reading on inflation is due next week.
In Canada, earnings season continues. Insurer Manulife Financial reports after the close of trading, as does RioCan REIT. Brookfield Asset Management and WSP both report this morning.
After Tuesday’s closing bell, Great-West Lifeco reported first-quarter net earnings of $595-million, down more than 55 per cent from $1.3-billion a year earlier, The Canadian Press reported. The Winnipeg-based insurer says base earnings for the quarter ended March 31 were $808-million, up more than 13 per cent from $712-million the same quarter a year ago. Diluted earnings per share were 64 cents, down from $1.43 a year earlier.
On Wall Street, Walt Disney Co. results are due after the close.
Overseas, the pan-European STOXX 600 was up 0.04 per cent following the fresh reading on U.S. inflation after spending much of the early premarket period in the red. Britain’s FTSE 100 gained 0.11 per cent. Germany’s DAX advanced 0.04 per cent while France’s CAC 40 rose 0.06 per cent.
In Asia, Japan’s Nikkei closed down 0.41 per cent. Hong Kong’s Hang Seng lost 0.53 per cent, extending the previous day’s losses.
Commodities
Crude prices were lower, following a three-day streak of gains, after weekly U.S. inventory figures showed a surprise increase.
The day range on Brent was US$76.11 to US$77.39 in the early premarket period. The range on West Texas Intermediate was US$72.44 to US$73.64. Both benchmarks were down more than 1 per cent in the early premarket period.
Figures from the American Petroleum Institute released late Tuesday showed U.S. crude stocks rose by 3.6 million barrels in the week ended May 5. Gasoline stockpiles rose by nearly 400,000 barrels.
Analysts polled by Reuters had been forecasting a decline for both.
More official figures are due later Wednesday morning from the U.S. Energy Information Administration.
“Inventory data typically holds sway ahead of US driving season; hence the market focus will turn to the API and EIA crude stocks data this week, with oil traders still looking over their shoulders at U.S. inflation data and bank stocks,” Stephen Innes, managing partner with SPI Asset Management said.
In other commodities, gold prices slid after two days of gains.
Spot gold was down 0.3 per cent to US$2,028.06 per ounce by early Wednesday morning, while U.S. gold futures shed 0.4 per cent to US$2,034.40.
“Gold is entering a win-win scenario as a hot inflation report will justify higher rates for longer that will cripple growth prospects and trigger a stock market selloff,” OANDA senior analyst Ed Moya said in a note.
“A cooling round of inflation data points could vindicate calls that the Fed is done tightening and support Fed rate cuts to happen later in the year.”
Currencies
The Canadian dollar was slightly weaker in early trading as crude prices slid and risk sentiment remained tentative while its U.S. counterpart was steady against a basket of currencies.
The day range on the loonie was 74.63 US cents to 74.80 US cents in the predawn period. The loonie has gained 1.6 per cent over the last five days and is up more than 1 per cent for the year to date.
Against a basket of currencies, the U.S. dollar index steadied at 101.64 after wavering through the early morning period, according to figures from Reuters.
The U.S. dollar saw some pressure from news Tuesday that talks between U.S. President Joe Biden and top lawmakers led to little headway on raising the US$31.4-trillion debt limit. Further talks are scheduled for Friday.
Elsewhere, the euro was flat at US$1.0957 early Wednesday, as was Britain’s pound, which held at US$1.2628. The Bank of England is scheduled to deliver its next rate decision on Thursday. The central bank is expected to again hike borrowing costs.
In bonds, the yield on the U.S. 10-year note was lower at 3.509 per cent in the predawn period.
More company news
Vacation rental booking company Airbnb Inc said on Tuesday that it expected fewer bookings and lower average daily rates in the second quarter versus a year earlier. U.S. travel companies, which have benefited from higher prices and hybrid work, are moderating their outlook for 2023 as pre-pandemic travel patterns return and consumers seek cheaper accommodation amid high inflation and recession fears. Shares sank more than 11 per cent shortly after the opening bell. –Reuters
Tim Hortons says the coffee and doughnut chain has signed a deal to open locations in South Korea starting later this year. The company says it has signed a master franchise agreement with BKR Co. Ltd. Financial terms of the agreement were not immediately available. BKR is the company that operates Burger King, which is also owned by Tim Hortons parent company Restaurant Brands International Inc., in South Korea. Tim Hortons has about 5,600 restaurants across 15 countries. –The Canadian Press
Economic news
(8:30 a.m. ET) Canadian building permits for March.
Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.
The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.
Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.
The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.
The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.
The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.
The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.
Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.
In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.
“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.
As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.
Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.
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