The TSX began the week with a boost from energy stocks riding increased oil prices.
Brent and WTI spiked on supply concerns after allegations of Russian war crimes in Ukraine led the E.U. and the U.S. to plan further sanctions against the Kremlin.
Today, the U.S. announced sanctions against certain high-ranking Russian public servants and President Putin’s two adult daughters, as well as stiffer penalties against Russian banks.
The E.U., for its part, proposed bans on Russian coal imports totalling C$5.4B per year and exports in semiconductors and machinery worth over C$16B. It also targeted Russian banks, shipping and the right to compete for E.U.-based contracts.
That said, oil proceeded to drop between 4-5 per cent today after data showed U.S. domestic crude stockpiles rose last week. The IEA also announced the release of 120M barrels of oil split between the U.S. and other members.
China’s COVID outbreak is also dampening energy demand with over 20,000 cases reported yesterday.
The TSX took a nose dive with oil, as well as declining tech and financials, nearing a three-week low as investors brace for aggressive policy tightening from the Bank of Canada (BoC) and the U.S. Fed.
Fed Governor Lael Brainard said the U.S. would be trimming its balance sheet as soon as May. U.S. traders are wagering for a 2.25-per-cent hike by year end, a level not seen since the 2008 financial crisis.
Back home, Canada’s Big Six banks see a 0.5-per-cent hike in store for the BoC’s meeting on April 13, which would bring its policy rate to 1 per cent. Markets are pricing in a rate as high as 3 per cent by April 2023.
The move would be backed up by last Thursday’s GDP data showing a ramp up in economic momentum in line with easing COVID restrictions.
The BoC’s quarterly executive survey also showed 80 per cent of companies expect some difficulty meeting unexpected demand. This is in addition to widespread concerns about growth in wages, input costs and output prices.
The current environment will likely place a premium on investments in companies well-suited to navigate higher borrowing costs, whether through pricing power, manufacturing cost advantages or consolidated industry positioning.
High-growth companies, such as Shopify, which was down over 8 per cent today, will face a tough road ahead as investors turn away from the appeal of market share to focus on profitability and cash reserves.
The TSX closed down by 0.65 per cent, though it remains up 2.52 per cent for the year, over 11 per cent ahead of the U.S. market.
Bond yield averages are up across the curve since the end of March, with spreads between maturities contracting and worries about an inversion beginning to emerge.
Our readers have kept their eyes on potential catalysts in a variety of industries over the past two days, including health care, energy, mining and technology:
Kraken Robotics recently completed a Robotics as a Service contract with the Royal Canadian Navy.
HPQ Silicon announced that its PUREVAP Quartz Reduction Reactor pilot plant is approximately 95 per cent complete.
Finally, Theralase provided a positive update on its phase II clinical study of non-muscle invasive bladder cancer.