Canada’s largest stock index ticked higher Tuesday even as investors digested a new inflation report that experts say will be unlikely to dissuade the Bank of Canada from raising interest rates significantly in September.
The S&P/TSX composite closed up 89.37 points at 20,269.97 after Statistics Canada released new data showing the year-over-year inflation rate slowed to 7.6 per cent in July, down from the nearly 40-year high of 8.1 per cent in June.
The TSX has been on an upward trend in recent weeks, bolstered by a string of better-than-expected second-quarter corporate earnings reports. However, inflation — and how far central bankers are willing to go to tame it — still remains the number one issue affecting equities markets right now. Investors have been watching for any sign of cooling inflation in the hope that central banks will be able to reduce the pace of interest rate hikes and avoid tipping the economy into recession.
While the downward trend evident in July's inflation report was greeted by markets as a positive, the deceleration was largely driven by a decline in gas prices, with Statistics Canada showing that prices for food, rent and travel continued to rise in July.
Crystal Maloney, head of equity management at CIBC Asset Management, said the July figures make it unlikely that the Bank of Canada will be willing to take its foot off the gas just yet. She said the market is in fact now banking on a more aggressive interest rate hike than previously expected.
“As of last week, I might have suggested that 50 basis points are priced in," Maloney said. "And now, the probabilities are shifting toward a 75-basis point increase in September.”
In addition to inflation data, investors were digesting a number of earnings reports by major U.S. retailers Tuesday, most of which came in very positive. Walmart and Home Depot in particular posted strong results that easily topped analysts' forecasts, giving a boost to consumer stocks and driving much of the gains experienced by U.S. markets Tuesday.
In New York, the Dow Jones industrial average was up 239.57 points at 34,152.01. The S&P 500 index was up 8.06 points at 4,305.20, while the tech-heavy Nasdaq composite was down 25.50 points at 13,102.55.
U.S. crude oil prices slid for a third day Tuesday as the prospects of an Iran nuclear deal raised speculation about a potential influx of supply on the market. This in turn dragged down the Canadian energy sector, which lost 1.23 per cent on the day.
The September crude contract was down US$2.88 at US$86.53 per barrel and the September natural gas contract was up 60 cents at US$9.33 per mmBTU.
The December gold contract was down US$8.40 at US$1,789.70 an ounce and the September copper contract was up a penny at US$3.62 a pound.
The Canadian dollar traded for 77.72 cents US compared with 77.47 cents US on Monday.
Maloney said in general, markets remain very much in wait-and-see mode as investors anticipate meetings and rate announcements next month not just from the Bank of Canada, but from the U.S. Federal Reserve as well.
But she pointed out that with an absence of major new data releases expected for the rest of the week, markets could continue to tick higher simply on their own momentum. The S&P/TSX has gained almost 2,000 points since mid-July, when it began to recover from its June slump.
“We could see a continued rally. It’s certainly been impressive what we’ve seen since the lows," Maloney said.
This report by The Canadian Press was first published Aug. 16, 2022.
- With files from Nojoud Al Mallees
Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)
Amanda Stephenson, The Canadian Press