Canada: TSX Gained Near 190 Pts Friday, Touched Above the 21,600 Level
Canada’s main stock market, the Toronto Stock Exchange, gained near 190 points or 1% on Friday in closing out near 21,550, having earlier in the session even breached the 21,600 level for the first time since the Spring of two years ago.
Today, the resources heavy index was lifted by a strong performance in gold and oil prices, while it also appears that some stock pickers who may have been on the sidelines, wary about Canada falling in to a recession, have now freed themselves of those fears and have resumed buying. There has been a fierce debate over recent months about whether or not Canada had already dipped into recession, or would do so in the near term.
All sectors were higher, led by Battery Metals and Health Care stocks. Energy was up near 2% and Base Metals by 1%.
Of commodities today, gold prices surged to a record as weak US economic data raised hopes that rate cuts are on the way soon. Gold for April delivery rose $41.00 to US$2,095.70 per ounce, passing the prior record of US$2,093.10 touched Dec.27.
Also, West Texas Intermediate crude oil rose to the highest in four months on Friday ahead of next week’s expected roll over of OPEC+’s voluntary production cuts into the second quarter, while weak economic data pushed investors to add risk on expectations lower interest rates may be near. WTI crude oil for April delivery closed up $1.71 to settle at US$79.97 per barrel, the highest since Nov.6, while May Brent crude, the global benchmark, was last seen up $1.74 to US$83.65.
On the recession or not question, maybe Douglas Porter at BMO Economics caught the mood in the market here on that in his weekly ‘Talking Points’ note when he said solid external conditions were a key factor steering the Canadian economy away from technical recession waters in Q4.
Led by a pop in exports, Porter noted, GDP managed to grow at a 1.0% annual rate, consistent with the full year advance of 1.1%. He said: “While dismal in per capita terms, the modest headline growth is still much better than we and the consensus had anticipated a year ago. And that’s despite a variety of special factors — including drought, fires, and strikes — shaving at least a few ticks from growth.” Because of a “decent start to 2024”, with January GDP expected to pop 0.4%, BMO nudged up its full year estimate of growth to 1.0%. Porter added that “meagre” growth is weak enough to further chip away at inflation, although he noted that Canada’s PCE deflator (“not a widely followed measure”) eased only slightly in Q4 to 3.3% y/y. Still, he also noted, it’s down almost 3 ppts from the 2022 peak, and that’s without a recession — “albeit barely”. According to Porter, the modest growth and only gradual inflation progress are expected to keep the Bank of Canada on ice next week, and still sounding cautious.
United States: S&P 500, Nasdaq Composite Touch New Records, Tech Leads Sectors After Fed’s Preferred Inflation Gauge Moves In-Line
US equity indexes ended the week mixed, with the S&P 500 and the Nasdaq Composite touching new record highs, as the technology sector led peers amid an in-line inflation report.
The Dow Jones Industrial Average closed at 39,087.38 on Friday, down from 39,131.86 a week ago. The S&P 500 closed at 5,137.08, compared with 5,088.80 a week earlier and after hitting a new record of 5,150.33, according to data compiled by CNBC. The S&P 500 posted its 16th week of gains in 18 for the first time since 1971, Deutsche Bank said. The Nasdaq ended at 16,274.94 versus 15,996.82 a week earlier after touching a new record of 16,302.24.
Technology was the top-performing sector, followed by energy and health care, with communication services lagging.
The annual personal consumption expenditures price index and the Federal Reserve’s preferred core PCE measure eased in January, in line with the Bloomberg consensus. While the headline and core gauges accelerated month-over-month, the increase matched forecasts.
Traders are pricing in a 54% probability the Fed will cut rates in June, potentially marking the beginning of an easing cycle, according to the FedWatch tool. Traders only see a 25% chance the Fed will kick off the cuts in May and a 5% probability of easing starting in March.
The market continues to anticipate a near-term initiation to rate cuts and a more expedited pathway lower, said Stifel in a note. But, without a meaningful improvement in inflation, investors are poised for disappointment in timing and pace.
Q4 GDP was revised lower from the advance estimate, missing the consensus for no revision in a Bloomberg survey, and remained below Q3. This week also saw an unexpected downward revision in the University of Michigan consumer sentiment index and a surprise drop in the ISM manufacturing gauge for February.
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