Canadian stocks jumped to a 15-month high as the nation’s resource-rich equity index advanced with oil and gold prices. Shares also got a boost from the prospect for additional stimulus as the Bank of Canada dimmed its outlook for the domestic economy.
The S&P/TSX Composite Index rose 0.6 per cent, or 88.24 points, to 14,840.49 in Toronto, as a third day of gains pushed its advance in October to 0.9 per cent. The Canadian equity benchmark is up 14 per cent this year amid rallies in miners and energy producers that make up one-third of the index, making it the top performing developed equity market in the world, ahead of the U.K. and New Zealand.
“You’ve got oil and gold up, that’s really fueling Toronto right now,” said Norman Levine, a fund manager with Portfolio Management Corp. in Toronto. The firm manages about $550-million and has recently begun positioning its portfolios for a higher interest rate environment and stimulative infrastructure spending in Canada, including adding a position in Edmonton engineering firm Stantec Inc., Mr. Levine said.
Raw-materials and energy producers paced gains Wednesday, jumping at least 1.8 per cent as crude prices surged to the highest levels in 15 months. Crude has rallied as OPEC members look set to enact a production cut that would reduce supply. Oil got a boost Wednesday amid a decline in U.S. stockpiles, according to weekly industry data that showed inventories dropped by 3.8 million barrels.
Raw-materials producers surged as gold advanced to its highest in two weeks. The metal’s appeal improved as the dollar weakened amid speculation the Federal Reserve will gradually tighten monetary policy. Gold had its first back-to-back gains in almost a month on Tuesday. Barrick Gold Corp. gained 5.7 per cent for the biggest gain in a month.
While the Fed considers the timing for higher interest rates, the Bank of Canada maintained its benchmark lending rate and reduced the nation’s growth profile on weakness in exports and new housing rules. Governor Stephen Poloz said the central bank “actively” discussed the possibility of adding more stimulus to jump-start the economy. However, the increased amount of uncertainty stayed his hand.
While the prospect for more stimulus would underpin Canadian equity gains because lower rates would boost the economy, adding to corporate profits, tighter monetary policy in the U.S. would signal growth there, bolstering prospects for Canada’s exporters Mr. Levine said. America is Canada’s largest trading partner.
“As the U.S. economy improves the Canadian economy will improve,” he said. “You’d be surprised how soon we will raise rates. We will eventually follow what the Fed does because our countries are so tied.”
Corporate results continue to show a mixed picture for the nation’s largest companies. Canadian Pacific Railway declined 1.9 per cent as the company reduced its full-year profit target amid a 9-per-cent revenue decline. The company reported third-quarter adjusted earnings were $2.73 a share, falling short of the $2.79 average of analyst estimates compiled by Bloomberg. Canada’s second-largest railroad has reduced staff and parked locomotives amid falling revenue.
Canadian stock valuations are 17 per cent higher than their U.S. peers, with the S&P/TSX carrying a price-earnings ratio of 23.6 compared with 20.2 for the the S&P 500 Index, according to data compiled by Bloomberg.
Globally, stocks climbed as a surge in oil to a 15-month high spurred a rally in energy producers from Exxon Mobil Corp. to Royal Dutch Shell Plc.
Equities posted their biggest advance in a month as traders also sifted through corporate earnings to gauge the health of the global economy. Crude jumped on data showing a surprise decline in U.S. inventories as Saudi Arabia said many nations are willing to join OPEC output cuts. Treasuries fluctuated as Saudi Arabia’s $17.5-billion planned bond sale – the largest ever from an emerging-market nation – weighed on U.S. sovereign debt. The Canadian dollar erased gains after the nation’s central bank governor said policy makers have “actively” discussed the possibility of more stimulus.
Traders pushed up the value of equities, which earlier struggled to find direction amid a mood of political and economic uncertainty, with the next Federal Reserve meeting and the presidential election just three weeks away. Ahead of the final debate tonight, a Bloomberg Politics national poll showed a nine-point lead for Democratic nominee Hillary Clinton over Republican Donald Trump. The U.S. economy maintained a steady growth pace between late August and early October, as a tight labour market with nascent wage pressures contributed to a “mostly positive” outlook, according to the Fed’s Beige Book.
“We did get a number of earnings so that will continue to be the focus,” said Yousef Abbasi, a global market strategist at JonesTrading Institutional Services LLC. “It has been a market that has lacked leadership to a certain extent, so we’re looking to financials and energy.”
MSCI’s gauge of global stocks rose 0.4 per cent in New York, extending a two-day advance to 1.2 per cent.
The Dow Jones industrial average unofficially rose 40.95 points, or 0.23 per cent, to 18,202.89 and the S&P 500 gained 4.71 points, or 0.22 per cent, to 2,144.30. The Nasdaq Composite added 2.58 points, or 0.05 per cent, to 5,246.41, as Intel Corp.’s disappointing sales outlook led chipmakers lower.
European stocks erased losses as Zalando SE and Carrefour SA led the region’s retailers higher after the German online company raised its profitability forecast and the French grocer reported sales that beat projections. ASML Holding NV climbed after Europe’s largest semiconductor-equipment maker forecast fourth-quarter profitability above analysts’ expectations. Automakers climbed amid a weaker euro.
Shares of developing nations posted the biggest back-to-back gain in about four weeks.
The Canadian dollar weakened 0.1 per cent to $1.3123 against the U.S. dollar, reversing a rally of much as 0.8 percent. The currency initially gained after the central bank held its benchmark interest rate at 0.5 per cent and the BOC’s policy statement dropped a reference to downside inflation risks that featured in its previous stance from September. The markets then did an abrupt u-turn after Governor Stephen Poloz said policy makers discussed monetary easing “in order to speed up the return of the economy to full capacity.”
“The fact that they considered a rate cut is significant,” said Mazen Issa, a senior foreign-exchange strategist at Toronto-Dominion Bank in New York. “It could be more bark than bite, but nonetheless, the signaling effect is important.”
The Bloomberg Dollar Spot Index, which measures the U.S. currency against 10 major counterparts, dropped 0.1 per cent. It reached the highest level since March last week. The dollar rose 0.1 per cent to $1.0966 per euro and fell 0.6 per cent to 103.29 yen.
Oil prices rose more than 2 per cent on Wednesday, with U.S. crude settling at its highest in 15 months after the government reported a surprisingly large drop in inventories for the sixth week out of seven.
The U.S. Energy Information Administration (EIA) said crude stocks fell 5.2 million barrels in the week ended Oct. 14. Analysts polled by Reuters had expected the EIA to report a crude build of 2.7 million barrels.
It is common for crude stocks to build this time of year as refineries go into maintenance, producing less gasoline and other products. Refinery runs were only at 88 percent of capacity last week, the EIA said.
The agency said U.S. crude imports slid by 912,000 barrels per day last week to 6.47 million bpd, the lowest since November 2015, helping push inventories lower.
“This lowest import pace in some 16 months is surprising given the fact that OPEC production has recently attained a record level that would imply easy availability,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.
U.S. West Texas Intermediate (WTI) crude’s front-month contract, November, closed up $1.31, or 2.6 per cent, at $51.60 a barrel for its highest settlement since July 14. Its session peak of $51.93 was also the highest in 15 months.
But with its expiry due on Thursday, the November contract saw lighter trades than December WTI, which hit a 5-month high of $52.22. The December contract will be front-month from Friday.
London-traded Brent, the world benchmark for crude, settled up 99 cents, or 1.9 per cent, at $52.67.
Some market participants were not impressed by the crude inventory drop, citing instead the large gasoline build of 2.5 million barrels for last week versus forecasts for 1.3 million-barrel drop.
“While the headline number was bullish, we wouldn’t call it extremely bullish,” said Tariq Zahir, crude trader at Tyche Capital Advisors in New York.
Oil has rallied more than 15 percent over the past three weeks after the Organization of the Petroleum Exporting Countries proposed to enforce from November its first output cut since 2008 to rein in a global glut.
Khalid al-Falih, energy minister of Saudi Arabia, which dominates OPEC, told the Oil & Money conference in London “fundamentals are improving and the market is clearly balancing” after prices fell below $30 from 2014 highs above $100.
But Rex Tillerson, chief executive of Exxon Mobil, the world’s largest listed oil firm, later told the same conference he expected U.S. shale oil output, responsible for much of the glut, to rebound at current prices.
With files from Reuters
- Stantec Inc
- Crude Oil Front Month Futures
- Gold Front Month Futures
- S&P/TSX Composite
- Dow Jones Industrials
- S&P 500 INDEX
- NASDAQ NMS COMPOSITE INDEX
- Barrick Gold Corp
- Canadian Pacific Railway Ltd
- Exxon Mobil Corp
- Updated October 19 12:26 PM CDT. Delayed by at least 15 minutes.