Hydrocarbons and the energy transition reign amid slowly easing inflation

The TSX sank by 1.28 per cent today despite data showing easing inflation.

Tech stocks were weighed down by Canadian 10-year government bond yields rising to 3.4 per cent today from 3.3 per cent in the previous session. The sector has added 0.56 per cent over the past month and lost 5.34 per cent YoY.

Meanwhile, consumer stocks mirrored 1.62-per-cent losses in the broad U.S. market, dragging the TSX further down. Consumer discretionary stocks have lost 3.2 per cent over the past month and added 0.62 per cent YoY.

Inflation came in at a lower-than-expected 5.9 per cent in January, which is down from 6.3 per cent in December and 8.1 per cent in June, and 0.2 per cent lower than projected by a Bloomberg survey of economists. On a monthly basis, CPI rose 0.5 per cent in January, against expectations of 0.7 per cent.

The cost of cellular services and passenger cars played key roles in the deceleration. Higher prices for gasoline (up 2.9 per cent YoY), food (up 10.4 per cent YoY)) and interest costs (mortgage interest cost index up 21.2 per cent) contributed the most to price gains.

January’s reading, reported today by Statistics Canada, adds credence to the Bank of Canada’s (BoC) previously announced plan to hold off on rate hikes at 4.5 per cent, dependent on available data. The BoC’s next interest rate decision is on March 8.

Contradictorily, Canadian retail sales added 0.5 per cent in December to $62.1 billion, spurred on by higher sales of motor vehicles and parts (up 3.8 per cent), general merchandise (up 1.7 per cent), and overall transaction volume (up 1.3 per cent). Statistics Canada’s preliminary estimate for January is 0.7 per cent.

Consumer strength – which includes no retail sales growth in November and a gain of 1.3 per cent in October – is due to record low unemployment and strong wage gains taking the bite out of inflation.

BoC Governor Tiff Macklem expects economic output near zero in the first three quarters of 2023, with headline CPI falling to 3 per cent by mid-year, and to 2 per cent by 2024.

January inflation numbers follow the addition of 150,000 jobs to the Canadian economy, which was 10x above expectations and the fifth-straight month of increases.

The TSX’s year-to-date return stands at 4.61 per cent.

The U.S. market’s Tuesday performance cuts its year-to-date return to 4.42 per cent.

Last month’s and YTD figures for Developed International Markets are -0.24 per cent and 4.92 per cent while Emerging Markets came in at -4.84 per cent and 1.86 per cent, respectively.

Market movers

This year’s TSX Venture 50 shows how investor preferences are shifting to energy transition companies, whose value creation is tied to a lower-carbon global energy infrastructure. That said, oil and gas companies also managed a stellar 2022, with Venture 50 winners in the sector growing by 89 per cent as a whole. In line with these favoured sectors, TMH readers ended last week focused on a trio of commodity-centric stories:

Cenovus (CVE) reduced its net debt to $4.3 billion, a decline of more than $5.3 billion YoY.

Lithium Americas (LAC) closed the initial tranche of a US$650 million investment by General Motors.

Finally, Sokoman Minerals’ (SIC) final assays from its most recent drill program have returned its best-ever results.

Notable capital raises over the past few days include Canopy Growth, Victory Battery Metals and GFG Resources.