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.
In an effort to address economic disparities and promote entrepreneurship among Black communities, Canada introduced the Federal Black Entrepreneurship Program (FBEP) and the associated Black Entrepreneurship Loan Fund (BEFL). However, recent revelations have brought to light a shocking reality: the underutilization and obstacles faced by Black businesses in accessing the FACE (Funding for Black Entrepreneurship) loans. In this thought-provoking article, we delve into the numbers and uncover the challenges and experiences of Black entrepreneurs in navigating these loan programs. Through interviews with business owners, experts, and advocates, we shed light on the systemic barriers that hinder their success and explore potential solutions for a more equitable and inclusive lending landscape.
The FACE loan program was created with the intention of providing financial support and resources to Black-owned businesses. However, the reality has been far from the expected outcomes. Jessica Thompson, an economist specializing in racial disparities, states, “The FACE loan program was designed to address historical economic disadvantages, but the numbers reveal a significant gap between its objectives and the lived experiences of Black entrepreneurs.”
Black entrepreneurs face numerous hurdles when attempting to access FACE loans. A lack of awareness about the program, complex application processes, and limited outreach to communities in need contribute to low participation rates. Michael Johnson, a business owner, shares his frustration, saying, “It’s disheartening to see a program that was meant to uplift Black businesses fall short due to bureaucratic obstacles. Many of us struggle to navigate the application process and meet the stringent criteria.”
Systemic barriers and discrimination persist within the lending landscape, perpetuating the cycle of inequality. Dr. Maya Williams, a sociologist specializing in racial disparities, explains, “Structural racism and bias continue to disadvantage Black entrepreneurs. Discrimination in loan approvals, higher interest rates, and limited access to capital contribute to the challenges faced by Black-owned businesses.”
The consequences of the FACE loan program’s shortcomings are far-reaching. Many Black-owned businesses struggle to access the capital needed for growth, expansion, and operational sustainability. Tanya Campbell, a business owner, emphasizes, “The lack of financial support hampers our ability to scale our businesses, hire employees, and contribute to the local economy. It perpetuates a cycle of limited opportunities and restricted growth.”
To address the disparities within the FACE loan program, experts and advocates propose several solutions. Improved outreach and community engagement, simplified application processes and tailored support services can increase access and awareness among Black entrepreneurs. John Stevens, a business consultant, suggests, “The government must invest in targeted initiatives that address the specific needs and challenges faced by Black-owned businesses, such as mentorship programs, financial literacy training, and capacity-building initiatives.”
Addressing the challenges faced by Black entrepreneurs requires collaboration and accountability from various stakeholders. Governments, financial institutions, and community organizations must work together to create an inclusive lending ecosystem. Mary Johnson, an advocate for Black economic empowerment, states, “Transparency, accountability, and ongoing dialogue between policymakers, lenders, and Black entrepreneurs are essential to drive meaningful change and ensure equal opportunities for all.”
The FACE loan program aimed to empower Black entrepreneurs and address economic disparities, but the reality falls short of expectations. The underutilization and obstacles faced by Black businesses in accessing FACE loans highlight the pressing need for systemic change within the lending landscape. By acknowledging and addressing the structural barriers, streamlining processes, and fostering collaboration, we can create a more inclusive and equitable environment where Black entrepreneurs thrive. It is through proactive measures, collective effort, and ongoing dialogue that we can dismantle systemic inequities and build a future where Black-owned businesses have equal access to the resources and support necessary for success.
Crude oil began trading this week with a gain after President Biden and House Speaker Kevin McCarthy were reported to have reached a provisional agreement on raising the debt ceiling.
At the time of writing, Brent crude was trading at over $77 per barrel and West Texas Intermediate was changing hands at over $73 per barrel.
Debt ceiling negotiations have been a major factor for oil price movements in the past couple of weeks, mostly because of the apparent inability of Republicans and Democrats in Congress to strike any semblance of an agreement on how to increase the federal government’s borrowing power.
According to early reports on the tentative deal, it involves flat spending over the next two years and the recycling of unused Covid funds.
Although such tense negotiations have been relatively regular in past years, they have eventually ended with an agreement, and default has invariably been avoided.
This historical evidence could have served to stabilize prices but it did not, and neither did mixed data about China’s recovery. On the one hand, PMI readings are showing an uneven rebound in economic activity, but on the other, demand for oil as evidenced by import rates, is going strong.
To complicate the picture further, OPEC+ is reportedly in two minds about what to do with its output at its next meeting.
According to reports quoting Saudi Energy Minister Abdulaziz bin Salman, he has hinted at another round of output cuts.
According to reports quoting Russia’s Deputy Prime Minister and top OPEC+ official Alexander Novak, the co-leader of the extended cartel is fine with production where it is right now.
Thanks to its recent gains, oil’s decline since the start of the year has shrunk from about 14% earlier this month to just 9% as of the start of this week, according to Bloomberg.
By Irina Slav for Oilprice.com
Irina Slav
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
American equity futures posted modest gains amid cautious optimism the U.S. will avert a catastrophic default after the weekend’s tentative debt-ceiling deal. European stocks wavered in muted holiday-affected trading.
Contracts on the S&P 500 climbed about 0.2 per cent, while those on the Nasdaq 100 were up around 0.3 per cent, with trading set to end early for Memorial Day. The dollar, which has benefited from angst around the statutory borrowing limit, held Friday’s decline while Treasury futures were flat in the absence of cash trading.
The Stoxx Europe 600 index edged lower, with Spain’s benchmark underperforming after Prime Minister Pedro Sanchez called a surprise snap election following heavy losses for his party in regional and local elections Sunday. Volumes were about 60 per cent lower than usual as markets in the U.K. and some European countries remained closed for national holidays. SBB gained after the embattled Swedish landlord said it may look to sell the company. A gauge of Asia-Pacific equities rose, though Chinese shares slid closer to a bear market.
President Joe Biden and House Speaker Kevin McCarthy expressed confidence that their agreement to curtail spending and extend the borrowing limit will pass through Congress. But even assuming lawmakers seal the deal before the U.S. government runs out of cash in about a week, traders still have much to contend with — from the prospect of another interest-rate hike from the Federal Reserve to a likely deluge of bond issuance from the U.S. Treasury Department.
“The obvious positive interpretation is that a negative tail risk is close to being taken off the table,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors. “With the distraction of the debt ceiling fading into the background, investors can now refocus their attention on the underlying fundamentals. One concern, though, is that the fundamental picture remains precarious.”
European bonds rose, with Germany’s 10-year yield falling about 11 basis points. Spain’s 10-year yield dropped by a similar amount.
Meanwhile, Turkey’s lira weakened after Recep Tayyip Erdogan won a presidential runoff election on Sunday, extending his time as the nation’s longest-serving leader and leaving investors looking for any signs he’ll start to relax the state’s tight grip over markets. The nation’s stocks benchmark gained.
Gold was flat on waning demand for havens, while as oil held onto most of Friday’s gains and Bitcoin climbed, reflecting a modestly buoyant tone.
‘UNCERTAINTY PERSISTS
The agreement struck by Biden and McCarthy is running against the clock given that June 5 is the date when Treasury Secretary Janet Yellen has said cash will run out. There is plenty in the deal that Democrats and Republicans won’t like.
“Uncertainty persists regarding the duration and severity of the ongoing earnings recession, and perversely, the near-term tightening of liquidity may worsen due to the government’s need to address its debt issuance backlog,” said Suzuki. “While the markets managed to avert an immediate crisis, the coast is far from all-clear just yet.”
The rate-sensitive two-year Treasury drifted Friday as traders considered how a debt agreement could play into the Fed’s path forward on interest rates. The two-year yield hovered around 4.65 per cent after a report on consumer spending showed the Fed still has more work to do to bring inflation back toward its target.
“Markets will have the liquidity hassles to deal with, as the Treasury will issue a deluge of bonds to restore its cash reserves,” said Charu Chanana, market strategist at Saxo Capital Markets. “Not to forget, the hawkish re-pricing of the Fed path that we have seen last week could possibly get firmer if we get a hot jobs print this week.”
Key events this week:
U.S. Memorial Day holiday. U.K., Switzerland and some Nordic markets also closed for holidays, Monday
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