TMX Group Inc. signage is seen at the Toronto Stock Exchange (TSX) in this file photo. (Pawel Dwulit/Bloomberg)
Canada’s main stock index slipped in early trade on Friday, with heavyweight financial shares pushing the index lower, more than offsetting a jump in energy company Nexgen Energy which announced a financing deal.
The Toronto Stock Exchange’s S&P/TSX composite index was down 23.74 points, or 0.16 per cent, at 15,189.68 shortly after the open. It is on track for a 1-per-cent retreat in June and a 0.9-per-cent slip for the week.
The Canadian dollar strengthened on Friday to a 9-month high against its U.S. counterpart, boosted by higher oil prices and domestic growth which supported the Bank of Canada’s more hawkish stance.
Canada’s economy expanded by 0.2 per cent in April after a 0.5-per-cent increase in March, Statistics Canada said. The gain matched analysts’ estimates.
It leaves the economy on track to grow at a 2.5-per-cent pace in the second quarter, which is “more than enough to justify the recent change in tone from the Bank of Canada,” Avery Shenfeld, chief economist at CIBC Capital Markets said in a research note.
Hawkish comments earlier this week from Bank of Canada Governor Stephen Poloz have raised expectations for an interest rate hike as early as next month.
Chances of a Bank of Canada rate hike in July have increased to one-in-two from just 20 per cent after subdued inflation data last week, data from the overnight index swaps market shows
Oil prices climbed for a seventh straight session in their longest bull run since April but were still set for the worst first-half performance since 1998.
The Canadian dollar was trading at $1.2991 to the greenback, or 76.98 U.S. cents, up 0.1 per cent.
The currency’s weakest level of the session was $1.3011, while it touched its strongest since Sept. 9 at $1.2947.
Investors will digest the Bank of Canada’s business outlook report, due for release at 10:30 a.m. ET. An improvement in business investment or sales expectations would underscore the central bank’s recent shift to a more hawkish stance.
U.S. stocks opened higher on Friday, as technology stocks attempted a rebound while consumer spending data for May showed steady economic growth.
The Dow Jones industrial average was up 103.68 points, or 0.49 per cent, at 21,390.71, the S&P 500 was up 9.54 points, or 0.394264 per cent, at 2,429.24 and the Nasdaq composite was up 21.15 points, or 0.34 per cent, at 6,165.50
U.S. consumer spending rose modestly in May and inflation cooled, pointing to a slow-but-steady economic expansion that could still lead the Federal Reserve to raise interest rates by the end of the year.
The S&P 500 and the Dow recorded their worst daily percentage drop in about six weeks on Thursday as a recent decline in technology shares deepened and outweighed strength in bank shares.
“It would not surprise me to have a lot of volatility, considering the financials were particularly strong yesterday and technology was particularly weak,” said Andre Bakhos, managing director at Janlyn Capital LLC.
“We have what appears to be some sector rotation going on, and its occurring at the end of the quarter and its adding to the volatility.”
Towards the end of the second quarter, the market witnessed a few volatile days. On Wednesday, the tech-heavy Nasdaq posted its best day since Nov. 7.
Tech stocks, which have led the S&P 500’s 8-per-cent gain this year, pulled back recently as some investors questioned the sector’s high valuations.
The euro came off yearly highs on Friday but was still set for its strongest quarter in six years as investors piled into the currency on a brightening euro zone economy and its implications for monetary policy in the bloc.
The final reading of University Of Michigan Surveys Of Consumers Sentiment for June is due at 10:00 a.m. ET.
Oil prices climbed for a seventh straight session on Friday, thanks to a weaker U.S. dollar, in their longest bull run since April but were still set for the worst first-half performance since 1998.
Lingering worries about oversupply have knocked 16 per cent off Brent crude so far this year, despite a deal involving OPEC members and some other major producers to curb production by about 1.8 million barrels per day (bpd).
Brent fell 19 percent in the first half of 1998 and would need to close at $46.01 a barrel or lower on Friday to do worse this time.
Crude hit a 10-month low last week as rises in output revived concerns about global oversupply but data this week showing a temporary dip in U.S. oil production has dented the bearish sentiment.
Benchmark Brent crude futures were up 12 cents at $47.54 a barrel. WTI crude futures were up 25 cents at $45.18 a barrel.
The oil market shrugged off news that production from Libya, one of two OPEC members exempt from the group’s supply deal, had soared above 1 million barrels per day.
“The strength is driven by the weak dollar but in light of the rising Libyan production it will be temporary,” said Tamas Varga, analyst at London brokerage PVM Oil Associates.
The U.S. dollar fell to its lowest since October in early trading on Friday, giving investors an incentive to buy dollar-denominated commodities such as crude oil.
“After a brutal sell-off earlier this month … the focus is returning to covering short positions,” said Ole Hansen, head of commodities strategy at Saxo Bank.
The rise in oil supplies has led funds to cut speculative long positions in recent weeks.
Reuters’ monthly oil price poll also showed analysts have reduced their price forecasts again, with 2017 average Brent and WTI prices lowered by more than $2 since last month.
Bank of America Merrill Lynch analysts cut their forecasts on Friday, saying the rise in output from Libya, Nigeria and U.S. shale fields coupled with weaker demand growth, meant the market would be more oversupplied than previously expected.
“With output set to rise further, our oil supply/demand balances now point to average deficits of 210,000 bpd in 2017 and 90,000 bpd in 2018,” they said in a report.
They cut their forecast for average 2017 Brent crude prices to $50 a barrel from $54 and WTI to $47 from $52.