More risk to the downside than upside for equities: Jason Draho
Canada’s main stock index climbed off its intraday low and U.S. markets ended in positive territory as investors brushed off the latest U.S. Federal Reserve minutes that showed officials advocated for a further rise in interest rates.
The S&P/TSX Composite Index fell 104.50 points to 18,729.66 on Wednesday. At its lowest level of the day, the index was down as much as 290.24 points.
Energy stocks, including Canadian Natural Resources Ltd. and Suncor Energy Inc., were the biggest drags on the TSX as the benchmark oil contract posted another drop, settling at US$98.53 per barrel – down about one per cent.
Shares of Resolute Forest Products closed an eye-popping 63.71 per cent higher at $26.57 after it announced it agreed to be purchased by pulp-and-paper producer Paper Excellence Group for US$1.6 billion.
All three major U.S. indices closed modestly higher Wednesday: The Dow Jones Industrial Average rose by 69.86 points; the S&P 500 edged up 13.69 points; and the Nasdaq ended the session 39.61 points higher.
The Fed minutes showed officials are likely to opt for a half-point or three-quarter-point hike at its next meeting in July to get inflation under control, even as it risks slowing economic growth.
Lesley Marks, senior vice president of investment management and chief investment officer of equities at Mackenzie Investments, said she thinks a recession will likely hit in the fourth quarter of this year but the fundamentals are still strong for the Canadian market with support from elevated oil prices.
“No matter what anyone says about oil prices, they're still up on average, about 50 per cent year-over-year average price,” Marks said in an interview on Wednesday.
“We still expect to see earnings growth in Canada, which is not necessarily going to be the case in other parts of the world.”
Meanwhile, traders have flocked to the U.S. dollar as a safe haven asset amid ongoing volatility, pressuring global currencies, including the Canadian dollar. The loonie ended slightly lower at 76.68 cents U.S.
In comparison to other currencies across the globe, Bipan Rai, North America head of FX strategy at CIBC Capital Markets, said in an interview Wednesday that the loonie is still relatively strong and it’s shaping up to be a “North American versus rest of the developed world story.”
Rai said with uncertainty around Russia’s natural gas deliveries to Europe and lagging monetary policy, he thinks Europe will enter a recession before North America, which could benefit the loonie.
“From a rates perspective, particularly the front end, it does look like the Canadian dollar could remain supported against the Sterling and the Euro as well,” he said.