North American stock markets surge after Fed says even larger rate hike not on table

Ross Marowits, The Canadian Press
North American stock markets surge after Fed says even larger rate hike not on table

TORONTO — North American stock markets surged Wednesday afternoon after the U.S. Federal Reserve announced its largest interest rate hike in 22 years but extinguished fears of even bigger increases to come. 

The U.S. central bank announced a 50 basis point increase and announced it will start reducing its US$9 trillion balance sheet of Treasury and mortgage bonds starting in June that more than doubled after the pandemic recession hit.

Markets didn’t really move much until after chairman Jerome Powell’s press conference when he downplayed expectations of a 75 basis point rate increase at the next meeting but suggested one or two 50 basis point increases to come, said Michael Currie, vice-president and investment adviser at TD Wealth.

“So he kind of ruled out 75 or higher rate hikes going forward, and that’s when the market suddenly jumped another 300, 400 points,” Currie said in an interview. 

He said Powell delivered what people wanted to hear. 

“And he sort of took the mystery of 75 off the table there, so I guess that got people excited.”

Some observers even suggested a 75-point hike was possible on Wednesday. But Currie said that would have sent a signal that inflation is even worse than the 40-year high it has reached in the U.S.

Still, Powell talked more about inflation than in previous meetings, saying the Fed committee is very attentive to inflation risk.

“We know rates are going up. We want to push them up enough to fight inflation, but not too much that you’re going to get a recession. So the move to 75, the more you think recession.”

The S&P/TSX composite index closed up 279.67 points or 1.3 per cent to 21,184.95 after dipping to an intraday low of 20,798.78.

In New York, the three stock markets each rose by about three per cent. The Dow Jones industrial average was up 932.27 points at 34,061.06. The S&P 500 index gained 124.69 points at 4,300.17, while the Nasdaq composite was 401.10 points higher at 12,964.86. 

Currie said Wednesday’s announcement reinforces the belief that the Bank of Canada will also increase interest rates by another 50 basis points next month, like it did at its last meeting.

“I think there would be nothing here that would prevent the Bank of Canada from still being aggressive on the rate hikes which all their recent statements say they still want to do.”

After most sectors were down on the TSX for most of the day, they reversed course with all 11 ending the day higher.

Energy led the Toronto market as higher commodity prices pushed the sector up 2.4 per cent with MEG Energy Corp. gaining 8.6 per cent.

The June crude contract was up US$5.40 at US$107.81 per barrel and the June natural gas contract was up 46.1 cents at US$8.42 per mmBTU. 

Crude oil prices rose after the European Union unveiled plans to phase out imports of Russian oil. That offset demand concerns resulting from China’s COVID-19 lockdowns.

Prices rose even though U.S. crude stockpile increased unexpectedly by 1.3 million barrels last week. However, inventories from other countries were down, Currie said.

“So it is mostly on the EU plan, but I think it’s also little bounce after a bit of a drop yesterday.”

The Canadian dollar was supported by higher crude prices, trading for 78.06 cents US compared with 77.84 cents US on Tuesday.

Health care was the second-strongest sector, climbing as Canopy Growth Crop. increased 10.2 per cent.

The materials sector was up 1.7 per cent despite lower bullion prices.

The June gold contract was down US$1.80 at US$1,868.80 an ounce and the July copper contract was up 5.5 cents at US$4.34 a pound. 

Technology was also positive as Hut 8 Mining Corp. increased 7.4 per cent and Shopify Inc. swung to a 3.5 per cent gain.

This report by The Canadian Press was first published May 4, 2022. 

Companies in this story: (TSX:HUT, TSX:SHOP, TSX:MEG, TSX:WEED, TSX:GSPTSE, TSX_CADUSD=X) 

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