Tech, metals weigh on index
The Canadian Press - Sep 18, 2023 - Business Buzz

Photo: The Canadian Press

TORONTO — Losses in technology and base metal stocks helped lead a broad-based decline as Canada’s main stock index fell almost 130 points, while U.S. stock markets lost steam midway through the trading day to essentially end flat.

Broader economic anxiety weighed on markets ahead of a long-anticipated rate decision from the U.S. Federal Reserve Wednesday, said Philip Petursson, chief investment strategist at IG Wealth Management.

The S&P/TSX composite index closed down 129.51 points at 20,492.83.

Shopify was a major drag on Canadian markets Monday, Petursson noted, helping explain why the TSX posted a worse day than U.S. markets. The tech company’s stock closed down more than 5%.

In New York, the Dow Jones industrial average was up 6.06 points at 34,624.30. The S&P 500 index was 3.21 points points at 4,453.53, while the Nasdaq composite was up 1.90 points at 13,710.24.

The new dynamic of oil prices, which continued their steady climb above US$90 per barrel, will put upward pressure on inflation as central banks weigh whether more hikes are necessary, Petursson said.

The November crude contract was up 56 cents at US$90.58 per barrel on Monday.

While gas prices feed into headline inflation, they also roll into other goods, including food, the prices of which could rise and heat up inflation as well, Petursson said.

The Fed is expected to hold its key rate this month but it could hike in November, he said, so the market will be much more focused on what officials have to say about their decision.

“I think the Fed now is going to take the approach where the pen is mightier than the sword,” he said, with the sword being interest rate hikes and the pen hawkish messaging.

The central bank wants to avoid sparking optimism among investors, which would risk losing hard-fought ground over inflation, Petursson said.

“They need to walk back inflation expectations so that it almost becomes a self-fulfilling prophecy,” he said.

If the Fed decides to hike rates again this year, the Bank of Canada will be in a tough spot, Petursson said. The broader differential between the two central banks’ interest rates could weaken the Canadian dollar, which could send inflation higher and pressure the Bank of Canada to raise again.

“We’re starting to see the adverse effects on the Canadian economy from all the interest rate increases,” he said. “So we’re walking a very, very fine line here.”

On Tuesday, Canada gets the latest report on inflation. The headline number for August is expected to climb because of gas prices but also because it will be in comparison to what was a weaker month a year ago, Petursson said.

The Canadian dollar traded for 74.12 cents US compared with 73.93 cents US on Friday.

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