S&P/TSX composite falls as inflation fears stoked after crude hits three-month high

Ross Marowits, The Canadian Press
S&P/TSX composite falls as inflation fears stoked after crude hits three-month high

TORONTO — Canada’s main stock index snapped a two-day winning streak as crude oil prices rose to a three-month high, suggesting that inflation may not be tamed heading into next week’s meeting of the U.S. Federal Reserve.

With crude rising above US$120 a barrel Wednesday, the concern is that it’s going to be hard for the central bank to start to pull back on some of their hawkish tone, said Greg Taylor, chief investment officer of Purpose Investments. 

The hope has been that the Fed might revert to a more dovish stance after it hikes interest rates by half a percentage point at its next two meetings.

“But when you look at the oil price up and the concerns with inflation, that’s probably something that may be a little premature to call,” he said in an interview.

Investors will be watching closely Friday for the release of May’s CPI numbers. Although that’s the last data point before the Fed’s rate meeting next week, Taylor said the rate hikes are already baked in even if the inflation rate softens.

Energy was one of two sectors that were up on the TSX. It rose even as natural gas prices plunged following an explosion at an LNG facility in the U.S.

The July crude contract was up US$2.70 at US$122.11 per barrel after reaching an intraday higher of US$123.18. The July natural gas contract was down 59.4 cents at US$8.70 per mmBTU. 

Baytex Energy Corp. shares rose 4.8 per cent while Crescent Point Energy Corp. were 3.5 per cent higher.

Taylor said crude prices rose after OPEC ministers speaking at different events questioned if new supply around the world can come onstream even as demand picks up in China from the relaxing of lockdown measures.

“It feels like we’re in an environment that oil could just keep creeping higher and US$120 seems to be a level that they could keep going higher from.”

The Canadian dollar traded for 79.74 cents US compared with 79.65 cents US on Tuesday.

Consumer discretionary was up 1.1 per cent as Dollarama Inc. increased 5.3 per cent following the release of strong quarterly results that countered concerns about the retail sector generated by profit warnings in the U.S. from Walmart and Target.

Overall, the S&P/TSX composite index closed down 135.78 points to 20,792.43. 

In New York, the Dow Jones industrial average was down 269.24 points at 32,910.90. The S&P 500 index was down 44.91 points at 4,115.77, while the Nasdaq composite was down 88.96 points at 12,086.27.  

Markets were a lot calmer than they have been of late, with low volumes as everyone is waiting for moves by the Fed next week.

“It feels like a lot of people are sitting on their hands until then,” Taylor said.

Earlier, the Organization for Economic Co-operation and Development followed the World Bank in lowering its global economic growth forecasts for the year due to Russia’s war in Ukraine, the energy and food crisis and supply chain disruptions from China’s COVID-19 lockdowns.

The group said it expects the economy to expand three per cent this year, down from the 4.5 per cent that it predicted in December. 

Taylor said the concern is that the longer China remains in lockdown, supply chains will stay broken and that could tilt into a recession.

Nine of the 11 major sectors on the TSX were down, led by health care, telecommunications, industrials and financials.

Health care lost 2.1 per cent as Cronos Group Inc. fell 3.7 per cent. Industrials was hurt by share price decreases for railways, TFI Group Inc. and Air Canada.

The heavyweight financials dropped as most large Canadian banks were lower even as the 10-year U.S. Treasury bond yields rose again above three per cent.

Technology fell despite Shopify Inc. shares increasing a further 3.1 per cent, a day after its annual meeting.

Materials was also lower despite higher metals prices. The August gold contract was up US$4.40 at US$1,856.50 an ounce and the July copper contract was up 1.9 cents at US$4.45 a pound. 

This report by The Canadian Press was first published June 8, 2022. 

— With files from The Associated Press.

Companies in this story: (TSX:SHOP, TSX:BTE, TSX:DOL, TSX:CPG, TSX:CRON, TSX:TFI, TSX:AC, TSX:GSPTSE, TSX_CADUSD=X) 

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