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Jul 5, 2021

TSX sets new records as crude surpasses US$76 a barrel

McCreath: Smaller TSX oil stocks outperforming


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TORONTO - Canada's main stock index set a new high to start the trading week as the energy sector was driven higher by crude oil prices surpassing US$76 a barrel for the first time since the fall of 2018.

The S&P/TSX composite index gained 55.35 points to a record close of 20,281.46 after reaching an intraday high about 10 points higher.

U.S. stock markets were closed for trading in observance of the July 4 holiday.

Energy led the TSX, gaining 2.2 per cent as shares of Whitecap Resources Inc. increased 3.7 per cent and Cenovus Energy Inc. was up 3.1 per cent.

The August crude oil contract was up US$1.20 at US$76.36 per barrel and the August natural gas contract was up 7.5 cents at US$3.78 per mmBTU.

Oil prices rose as an OPEC meeting was postponed, raising questions if the cartel will even agree to increasing production levels, said Allan Small, senior investment adviser at IA Private Wealth.

“Production levels may not rise as much as some of the oil traders feared,” he said in an interview.

The Canadian dollar traded for 81.02 cents US compared with 80.95 cents US on Friday.

The heavyweight financials sector was also higher as investors anticipate that most Canadian banks will raise their dividends and buy back their shares once getting the green light from the banking regulator, the Office of the Superintendent of Financial Institutions.

Toronto-Dominion and National led the banks higher Monday with all the large banks gaining except Bank of Nova Scotia, which lost about one per cent.

Small said there's been talk that major banks, with the exception of Scotiabank, will raise their dividends by an average of 13 per cent when OSFI makes its announcement. Scotia has the most exposure to some of the more volatile regions of the world, such as South and Central America.

“I think (OSFI) might have some pressure on them because a lot of these banks are sitting on a lot of cash right now,” he said.

The interest in bank dividends comes after several large U.S. banks hiked their payouts, with Morgan Stanley doubling its dividend, after the Federal Reserve gave the all-clear after they all passed stress tests.

Seven of the 11 major sectors on the TSX were higher. Materials rose as the August gold contract was up US$8.70 at US$1,792.00 an ounce and the September copper contract was up 6.2 cents at nearly US$4.34 a pound.

Paper producer Cascades Inc. increased 6.3 per cent while Teck Resources Ltd. was up about two per cent.

Industrials lost some ground even though shares of Brookfield Business Partners LP and Air Canada each increased more than four per cent. Brookfield's shares rose after it agreed to buy U.S. car parts maker DexKo Global Inc from private equity firm KPS Capital Partners LP for US$3.4 billion.

Air Canada's shares rose on the day that travel restrictions relating to COVID were curtailed on Canadians returning home, while taxi and limousine drivers have talked about airports becoming busier, said Small.

“I look forward to a great run in some of these travel stocks, airlines in particular,” he said, noting that Air Canada shares are about half the level they were before the pandemic.

“I think it was only a matter of time before some of these names, like Air Canada, get back to the highs they were at.”

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