Canada’s main stock index lost ground on Friday as resource stocks weighed and strong domestic jobs data in August dampened hopes of an interest rate cut next month.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 39.48 points, or 0.24 per cent, at 16,535.33.
Material stocks dropped 2.3 per cent as gold prices declined, while energy stocks fell 0.5 per cent, despite a rebound in oil prices
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Pot producers were among the tops gainers, with Cronos Group Inc., Canopy Growth Corp., Aurora Cannabis rising between 2.4 per cent and 4.3 per cent, helping the healthcare sector.
The Canadian dollar strengthened to a five-week high against its U.S. counterpart on Friday as domestic data showing a bigger-than-expected jobs gain in August reduced investor expectations for a Bank of Canada interest rate cut next month.
Canada’s economy added 81,100 jobs in August, largely driven by increases in part-time work, Statistics Canada data showed. That was much more than the 15,000 increase that analysts had expected.
“If the Bank of Canada was on the fence about cutting rates in October, today’s jobs numbers might be one further push towards standing pat,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in a note.
Chances of a cut at the Bank of Canada’s next interest rate decision on Oct. 30 fell to 22 per cent from 28 per cent before the data, the overnight index swaps market indicated.
They were nearly 70 per cent before Wednesday’s interest decision, which showed no indication that the central bank was planning to cut rates despite easing this year by many of its global peers, including the U.S. Federal Reserve.
Ivey Purchasing Managers Index data was also upbeat, showing that the pace of economic activity in Canada picked up in August as inventories climbed.
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The Canadian dollar was trading 0.4 per cent higher at 1.3172 to the greenback, or 75.92 U.S. cents.
The currency touched its strongest level since July 31 at 1.3159. For the week, it was up 1.0 per cent, its first advance since the first half of July.
Wall Street advanced on Friday and Treasury yields pared their losses as upbeat remarks from Federal Reserve chair Jerome Powell and a Chinese economic stimulus package helped investors shrug off a weaker-than-expected U.S. jobs report.
The week began with a flight to safety driven by trade jitters and weak U.S. manufacturing data, but positive geopolitical developments in Britain, Hong Kong and Italy, along with news that U.S.-China trade talks would continue, put market participants in a risk-on mood.
That mood was given a further lift by China’s central bank, which said that in order to bolster the nation’s weakening economy it would lower the amount of cash that banks must hold as reserves, resulting in additional liquidity to the tune of 900 billion yuan ($126.35 billion).
“For the next few weeks, market direction is going to be determined by macroeconomic and geopolitical headlines,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. “Until we get into October and there’s solid company data again, the market’s going to be gyrating based on headlines.”
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But risk appetite was curbed after the U.S. non-farm payrolls report showed an increase of 130,000 jobs in August, fewer than analysts expected.
The underwhelming data provided another possible sign that the longest-ever period of U.S. economic expansion is losing steam and increased the likelihood that the Federal Reserve will cut interest rates when it meets later this month.
“The jobs report gave enough weakness for the Fed to cut 25 basis points this month, but not enough that they would start flashing a recession warning,” Sroka added.
Indeed, Powell called the jobs report consistent with a quite strong labor market, in remarks made at a panel discussion in Zurich, adding that despite trade uncertainties he does not foresee or expect a U.S. recession.
The Dow Jones Industrial Average rose 69.31 points, or 0.26 per cent, to 26,797.46, the S&P 500 gained 2.72 points, or 0.09 per cent, to 2,978.72 and the Nasdaq Composite dropped 13.75 points, or 0.17 per cent, to 8,103.07.
European and emerging markets extended their gains as China’s stimulus announcement outweighed the disappointing economic data from the United States and also from Germany.
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The pan-European STOXX 600 index rose 0.32 per cent and MSCI’s gauge of stocks across the globe gained 0.34 per cent.
Emerging market stocks rose 0.63 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.72 per cent higher, while Japan’s Nikkei rose 0.54 per cent.
U.S. Treasury yields pared their losses and were essentially flat following the Powell’s remarks in Zurich.
Benchmark 10-year notes last rose 5/32 in price to yield 1.5483 per cent, from 1.565 per cent late on Thursday.
The 30-year bond last rose 23/32 in price to yield 2.0236 per cent, from 2.054 per cent late on Thursday.
The dollar also regained some ground lost against a basket of major world currencies after the Fed chair spoke.
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The dollar index fell 0.08 per cent, with the euro up 0.03 per cent to $1.1036.
The Japanese yen strengthened 0.10 per cent versus the greenback at 106.86 per dollar, while sterling was last trading at $1.2299, down 0.24 per cent on the day.
Gold initially gained ground on the heels of weaker-than-expected labor market data, but has since reversed.
Spot gold dropped 0.6 per cent to $1,510.40 an ounce.
Copper lost 0.18 per cent to $5,834.50 a tonne.
Oil prices rose above $61 a barrel on Friday after the head of the U.S. Federal Reserve said the central bank will act “as appropriate” to sustain an economic expansion in the world’s biggest economy that has been pressured by uncertainty over global trade.
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Global benchmark Brent crude settled at $61.54 a barrel, up 59 cents, or 1 per cent, while U.S. West Texas Intermediate (WTI) crude ended 22 cents, or 0.4 per cent, higher at $56.52.
Both benchmarks had declined earlier on concerns over slipping U.S. job growth and continued U.S.-China trade tensions, despite recent diplomatic progress.
The Federal Reserve has an obligation “to use our tools to support the economy, and that’s what we’ll continue to do,” Fed Chair Jerome Powell said at the University of Zurich, sticking to a phrase that financial markets have read as signaling further interest-rate reductions ahead. The Fed cut rates by a quarter of a percentage point in July.
Crude prices “are working back up right now,” said Bill Baruch, president at Blue Line Futures LLC in Chicago. Comments by Powell that indicate further interest rate reductions are one factor that would help keep “a bid in the market ahead of the weekend.”
Oil prices had fallen earlier in the session as U.S. government data showed the nation’s job growth slowed in August for the seventh month in a row, with nonfarm payrolls expanding by 130,000, about 28,000 less than economists polled by Reuters had forecast.
Reuters
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