The TSX slumped today on higher-than-expected inflation data.
Cyclicals and technology shares led early morning losses falling by 2.3 and 1.4 per cent, respectively.
The energy sector shed 2 per cent due to over 3-per-cent drops in Brent and WTI, which counteracts positive sentiment from COVID lockdowns in Shanghai ending June 1, paving the way for a resurgence in Chinese oil consumption.
Materials stocks also shouldered over 2-per-cent losses with gold slightly down over the past week and investors uncertain about the ultimate length of the ongoing commodities boom.
By early afternoon, the TSX was down by 1.34 per cent and trending lower.
The S&P 500 fared no better down by 2.94 per cent as of 12:37 pm EST. All industry groups were in the red led by consumer names.
According to data released today by Statistics Canada, Canadian inflation hit 6.8 per cent in April, the highest reading since January 1991. Shelter costs were largely responsible for the figure, rising by 7.4 per cent YoY, while food prices rose 9.7 per cent and gasoline declined slightly.
The market is betting on a second 50-basis-point hike when the Bank of Canada (BoC) meets on June 1, which would bring its policy rate to 1.5 per cent. Current consensus sees the rate rising up to 3 per cent by year end.
The BoC is in dire straits to get ahead of price increases as Canadians’ cost of living is climbing at twice the rate of average wage gains.
Home prices have also begun to drop, saddling buyers and sellers with less value than expected during last year’s white hot market.
Canadians experienced a 25.7-per-cent decline in homes sold over the last year and a 3.8-per-cent decline in prices between March and April. The average home price in April was C$741,517.
U.S. Fed Chair Jerome Powell is open to similarly hefty rate hikes as the central bank battles against 8.3-per-cent inflation, with prices expected to rise as the summer driving season begins. Large cap tech and consumer firms like Apple, Amazon, Target and Walmart are navigating double-digit drops as the market adjusts to supply chain issues, higher materials and labor costs and the rising cost of capital.
E.U. inflation stabilized at a record high of 7.4 per cent in April with the group determined to finalize a plan to sanction Russian oil imports.
Oil has remained extremely volatile over the past three months due to Russia’s violent occupation of Ukraine and its halting of fuel exports to Bulgaria and Poland. Besides the pending end to Shanghai lockdowns, the tightening of U.S. fuel stockpiles has also done little to reverse this trend. U.S. crude stockpiles decreased by 3.4M barrels last week, while gasoline stockpiles fell by 4.7M barrels.
WTI is up by almost 70 per cent from a year ago, while Brent is up by just over 58 per cent. For U.S. consumers, this has manifested in gas prices rising above US$4 per gallon in all 50 states for the first time. The Canadian average also hit a new high at C$2 per litre.
The TSX closed down by 1.9 per cent nursing 5.41-per-cent losses year to date. The U.S., for comparison’s sake, is down over 18 per cent since January, not too far behind Developed International’s 15.72 per cent and Emerging Markets’ 16.04 per cent.
Ever privy to global economic conditions, our readers have spent the start of the week analyzing firms in mining and finance, both sectors primed to benefit from inflationary forces:
Tenet Fintech announced a partnership with China’s largest insurer to offer the first policy exclusive to its Heartbeat platform.
Leading Edge Materials signed an exploration license in Romania’s Northern Apuseni Mountains, which are prospective for high-grade cobalt, nickel and polymetallic mineralization.
Finally, Honey Badger Silver received a Class 3 Quartz Mining Land Use Approval from the Yukon government. The approval covers the Plata Silver Property, which is prospective for high-grade silver, lead and zinc.