S&P/TSX composite rebounds to new record as materials rise in hedge against inflation

·3 min read

TORONTO — Canada's main stock index rebounded from a midweek breather to resume its record climb as the materials sector got a boost from investors seeking safety from inflation.

"After yesterday's surprise CPI (U.S. consumer price index) print, which led to the selloff, Canada is leading the charge over the U.S. — but Canada is being led by those inflation-protection asset classes," said Macan Nia, co-chief investment strategist at Manulife Investment Management.

The American consumer price index jumped 6.2 per cent in October from a year ago for the hottest inflation numbers in more than 30 years. That was far above economist forecasts and marked the biggest annual increase since 1990, raising concerns interest rates could be on the rise sooner than expected.

The S&P/TSX composite index closed Thursday up 120.05 points to 21,581.98 after hitting a record intraday high of 21,621.47.

In New York, the Dow Jones industrial average was down 158.71 points at 35,921.23 on a big drop by Disney. The S&P 500 index was up 2.56 points at 4,649.27, while the Nasdaq composite was up 81.57 points at 15,704.28.

Gold prices climbed to a near five-month high while other commodities such as copper, silver and diversified metals performed well.

"Generally that inflation theme is helping this part of the Canadian market," Nia said in an interview.

The materials sector gained 2.6 per cent with Stelco Holdings Inc. surging 10 per cent on very strong quarterly results. Teck Resources Ltd. was up 7.2 per cent while Ivanhoe Mines Ltd. increased 6.4 per cent.

The December gold contract was up US$15.60 at US$1,863.90 an ounce and the December copper contract was up 7.7 cents at US$4.40 a pound.

The Canadian dollar depreciated following release of the inflation numbers. The loonie traded for 79.46 cents US compared with 80.31 cents US on Wednesday.

Nia said the loonie's selloff was motivated by a shift in narratives about central bank moves. The pre-inflation expectation was for the Bank of Canada to be more hawkish by raising interest rates five time over the next 12 months, versus just twice by the U.S. Federal Reserve.

"I think there is going to be continued short-term pressure on the CAD/USD."

Health care, technology, financials and energy were higher on the TSX.

Health care rose 2.7 per cent with shares of Aurora Cannabis Inc. up 7.4 per cent and Cronos Group Inc. 4.6 per cent higher.

Energy was up on a slight increase in crude oil prices with Birchcliff Energy Ltd. up 7.9 per cent and MEG Energy Corp 3.2 per cent higher.

Nia forecasts that crude prices will be under pressure with the Biden administration reportedly looking to release some supply from its strategic petroleum reserves to push gasoline prices lower ahead of next year's midterm election. The move would follow OPEC and its allies rejecting the U.S. president's call for the cartel to increase its output.

"I think inflation is going to be weaponized by both parties in terms of the campaign," Nia said.

"The hope is that now that it's on the front page of the Biden's administration agenda that the path of least resistance for oil is down as opposed to up."

The December crude oil contract was up 25 cents at US$81.59 per barrel and the December natural gas contract was up 26.9 cents at US$5.15 per mmBTU.

This report by The Canadian Press was first published Nov. 11, 2021.


Ross Marowits, The Canadian Press

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