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In spite of a dip in inflation, the TSX was in the red, tracking dour U.S. sentiment.

The materials sector shed 1.07 per cent as investors jumped from gold and silver to the strengthening U.S. dollar.

As trades favouring rising Canadian rates receded, the financial sector gave back 0.87 per cent.

Canadian inflation slipped to 7 per cent in August, below the 7.3-per-cent consensus and down from 7.6 per cent in July, driven by lower gasoline prices and decelerating housing prices.

Conversely, food prices climbed by 10.8 per cent YoY, rising at their fastest pace in August since 1981 due to extreme weather, higher input costs, Russia’s invasion of Ukraine and ongoing COVID-related supply chain disruptions.

The inflation figure coincides with 997,000 job vacancies in Q2, up 4.7 per cent from Q1 and 42.3 per cent from Q2 2021, as wages lag behind inflation.

Average hourly wages were up 4.1 per cent YoY in Q2 compared to an average quarterly increase in consumer costs of 7.5 per cent.

It is no surprise, then, that many Canadians are under increasing stress due to higher expenses. According to today’s survey by the National Payroll Institute, Canadians living paycheque-to-paycheque increased by 26 per cent YoY, while those spending more than their paycheque reached an all-time high of 11 per cent.

The survey also found that 9 per cent of Canadians do not actively save, while working Canadians with credit card debt soared to 42 per cent, up 13 per cent from 2021.

The Bank of Canada’s next interest rate announcement is scheduled for October 26.

While investors may have expected cooling inflation to improve risk sentiment, the TSX was dragged down by widespread expectations that the U.S. Fed will raise its benchmark interest rate by 75 basis points to 3.25 per cent next Wednesday. These are the highest rates the country has seen since the Great Financial Crisis of 2008 as it reckons with 8.3 per cent inflation, down from 8.5 per cent in July.

Fed officials have highlighted a thin labour market and fast-rising wages as the reasons behind its hawkish outlook, which contributed to the loonie falling below US$0.75 yesterday for the first time since 2020 as investors favour the greenback for their cash allocations.

Oil fell in reaction to U.S., European and Asian central banks’ upcoming interest-rate decisions to control rampant inflation and restore predictable consumer demand. Compounding the fall, the U.S. also offered 10 million barrels from its strategic reserves in November, one month ahead of the E.U.’s planned ban on Russian crude.

Seaborne crude exports from the bellicose nation have fallen by almost 900,000 barrels per day this month to 2.54 million.

WTI was down by 2.18 per cent to US$83.50 per barrel as of 1:20 pm EST, which brought its 5-day losses to 3.95 per cent.

Crude has lost one-third of its value since June, vaporizing gains from the Russia-Ukraine war, as recessionary fears cut into global demand.

Active investors should be on the lookout for cash-flowing companies that become undervalued due to market-wide pessimism. The mining sector may be of particular interest if persistent inflation aligns with resource estimates or ramp-ups in production.

In other notable news:

  • Ford suffered its greatest loss in seven months after reporting over US$1 billion in supply costs above expectations for the current quarter due to inflation. It expects adjusted EBIT between US$1.4 billion and $1.7 billion, well below $3.7 billion in the previous quarter and $3 billion YoY
  • Additionally, Walmart Canada announced a C$1 billion infrastructure investment, including store renovations, new stores, and a new fulfillment centre near Montreal set to open in 2024

The TSX closed down by 0.99 per cent, while the U.S. market was down by 0.24 per cent, Developed International dipped 0.88 per cent, and Emerging Markets gained 0.38 per cent.

Market movers

Though slowing, Canadian inflation remains at its highest in decades, prompting our investor community to keep a keen eye on the mining space:

Kinross Gold launched an enhanced C$300 million share buyback program over the remainder of 2022.

Artemis Gold (ARTG) has begun on-site works at the Blackwater Project in B.C. in preparation for major construction activities in Q1 2023.

Finally, Cypress Development (CYP) has produced 99.94-per-cent lithium carbonate from lithium-bearing claystone from its 100-per-cent owned Clayton Valley Lithium Project in Nevada.

Capital raises to start off the week include Rugby Resources, International Prospect Ventures and Lithium Ionic.

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