The TSX pushed 0.63 per cent higher today on optimism in tech based on dovish monetary policy expectations.
Canadian tech stocks gained 3.08 per cent, spearheaded by an 8.77-per-cent jump from Shopify following Deutsche Bank’s buy rating on the e-commerce giant.
Telecom was the day’s worst-performing sector with a 0.53-per-cent loss due to the uncertainty surrounding the Rogers-Shaw merger and TD’s downgrading of Bell.
Consensus remains on a 25-basis-point rate hike from the Bank of Canada (BoC) on Wednesday. The hike, lower than recent moves, is motivated by near record-low unemployment of 5 per cent and decreasing but still unsustainably high inflation above 6 per cent YoY.
During the interest rate announcement, the BoC will seek to reinforce its credibility by sharing minutes from its policy-setting meeting for the first time in its history.
The effects of this first-time glimpse on consumers are likely to be limited, given that over a third of Canadians are uncertain about their ability to pay off debt and/or make major purchases in the coming months, according to Marty Weintraub, a national retail leader at Deloitte Canada.
The BoC’s quarterly consumer expectations survey, released earlier this month, offers conflicting data. According to the survey, over a quarter of Canadians believe consumer prices will drop within five years once supply chain disruptions fade, enabling widespread pricing discounts.
Canadian tech stocks tracked their U.S. counterparts, which edged higher on favourable sentiment about this week’s earnings reports from Microsoft, Tesla and Intel, among others, amid the sector’s pervasive focus on cost-cutting, including tens of thousands of layoffs.
While the S&P 500 has added over 10 per cent since its October low, its current multiples of 18x forward earnings and 2.3x sales leave little room for absorbing downside surprises.
The consensus view also posits a 25-basis-point hike from the Federal Reserve during its January 31-February 1 meeting. However, December’s 6.5-per-cent YoY inflation reading, and a historically low unemployment rate of 3.5 per cent, suggest continued restrictive monetary policy despite easing price pressures over the past two quarters.
In response to improving sentiment about global commercial demand, WTI has climbed steadily upward throughout the month from approximately US$73.50 to US$82.20 per barrel.
Catalysts include Chinese Lunar New Year festivities and the country’s increased crude import quotas following the end of its Zero COVID policy, as well as shrinking Russian crude exports, which led to the Soviets’ smallest weekly revenue inflow since the beginning of the invasion of Ukraine.
Russian supply is set to fall even further as more international sanctions take effect and the country institutes a national ban on firms selling crude to clients committed to a price cap.
From a technical perspective, Brent futures overtook their 100-day moving average for the first time since November.
Year to date, global markets have reacted to persistent inflation, offset by strong employment and a resilient consumer, with some of the strongest returns in over three decades. This includes a 6.11-per-cent gain for the TSX, 3.22 per cent for the U.S., 5.07 per cent for Developed International, and 7.04 per cent for Emerging Markets.
Market movers
Influenced by improving prospects for lower borrowing costs and the BoC’s potentially multi-year timeframe to corral inflation toward its 2-per-cent target, TMH readers continue to seek out value dislocations in sectors that can either benefit from macro conditions, like energy and mining, or ride through them toward outsized long-term returns, such as tech. Three of the most viewed stories under this thesis are summarized below:
Brixton Metals (BBB) recently identified copper-gold mineralization from sampling on its Thorn Project in British Columbia. This includes 25 samples yielding greater than 5 per cent copper.
Magnet Forensics (MAGT), a developer of digital investigation software, signed a $1.8 billion definitive arrangement to be acquired by Thoma Bravo.
Finally, energy infrastructure and energy transition solution provider Enerflex (EFX) announced the appointment of Laura W. Folse to its Board of Directors.
Notable capital raises since our last market summary include Monarch Mining, Paycore Minerals and NorthWest Copper.
