S&P/TSX composite drops, loonie gains in reaction to hawkish Bank of Canada outlook

·4 min read
S&P/TSX composite drops, loonie gains in reaction to hawkish Bank of Canada outlook

TORONTO — Canada's main stock index suffered its worst day in about a month while the loonie climbed higher after the Bank of Canada moved up its timeline for raising interest rates.

"Traders are interpreting ... today's response from the Bank of Canada as fairly hawkish in general, meaning a faster pace of tightening monetary policy, so that's a negative for stocks," said Candice Bangsund, portfolio manager for Fiera Capital.

She believes those fears are overdone with the market overreacting to the prospect of tighter monetary policy.

"In our view, it wasn't all that hawkish," Bangsund said of the central bank's policy statement.

In an interview, she noted that governor Tiff Macklem went to great lengths Wednesday to reinforce that the near-term spike in inflation will likely prove transitory and will eventually fade over time.

"But markets took the message to basically say that rates are going to rise sooner and faster than initially expected."

Bangsund is still "constructive" on the Canadian equity market.

"We still think there's room to run for the TSX. We think there's opportunity, particularly in the energy space, for continued upside, as well as the financial sector, as in our view interest rates, particularly at the long end, are moving higher, and that's typically good for the financial sector."

The S&P/TSX composite index closed down 218.46 points to 20,954.99 for the worst showing since Sept. 28.

Even with Wednesday's decrease, the TSX is only at its lowest point since Oct. 15. It is up 4.4 per cent in October and 20.2 per cent so far in 2021.

U.S. stock markets were mainly lower with gains in technology offset by weakness in energy and financials.

In New York, the Dow Jones industrial average was down 266.19 points at 35,490.69. The S&P 500 index was down 23.11 points at 4,551.68, while the Nasdaq composite was up 0.12 of a point at 15,235.84.

Health care and energy were the weakest sectors on the day, falling three and 2.6 per cent, respectively.

Energy lost ground as crude oil prices fell on higher U.S. stockpiles and speculation that easing sanctions against Iran from a renewed nuclear deal would allow it to supply more oil to global energy markets.

"Together that has pushed oil prices lower for today."

The December crude oil contract was down US$1.99 at US$82.66 per barrel and the December natural gas contract was up 19.5 cents at US$6.20 per mmBTU.

Shares of Vermilion Energy Inc. each lost 5.2 per cent while MEG Energy Corp. was down 5.1 per cent.

Crude oil prices have surged 70.4 per cent so far in 2020 and Bangsund believes they have more room to grow. She has a US$90 target for West Texas Intermediate that would come from a recovery in global demand and restricted or disciplined supply.

Technology lost 1.8 per cent with Hut 8 Mining Corp. off 7.4 per cent, while materials dipped on weakness in copper prices.

The December gold contract was up US$5.40 at US$1,798.80 an ounce and the December copper contract was down 9.7 cents at US$4.39 a pound.

Telecommunications and real estate were the only two of 11 major sectors to be up on the day. Telecommunications rose 1.1 per cent as Rogers Communications Inc. gained 3.4 per cent in a recovery amid an internal board battle by its controlling family.

The loonie appreciated, despite the pullback in crude prices, in reaction to the Bank of Canada policy gathering.

The Canadian dollar traded for 80.92 cents US compared with 80.80 cents US on Tuesday.

"Traders are very swiftly raising their wagers for tightening from the Bank of Canada so that of course is boosting the Canadian dollar."

This report by The Canadian Press was first published Oct. 27, 2021.


Ross Marowits, The Canadian Press

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