TORONTO — Canada's main stock index rose in the final trading day of the week as a strong employment report and rising wages increased the likelihood that the Bank of Canada will announce a bigger interest rate hike next week.
The S&P/TSX composite index closed up 39.46 points to 21,874.35 for its second-straight week of losses.
The week was marked by signals that the U.S. Federal Reserve plans to be more aggressive in cutting its balance sheet and raising interest rates to tackle high inflation.
"One of the issues that the market is digesting is the potential for larger rate hikes, so rather than 25 basis points at each of the upcoming meetings, just going to 50 basis points if necessary," said Anish Chopra, managing director with Portfolio Management Corp.
Friday's jobs report with unemployment dropping to a record low in March and average hourly wages rising reinforced expectations for the Bank of Canada to follow a similar path next week.
The macroeconomic conditions are supportive of the Toronto stock market with energy, materials and financials leading the charge.
"They tend to do well in periods of higher inflation, which is what we're we're seeing from data that came out of the labour market today, so that's positive," he said in an interview.
The financial sector does well in a rising-rate environment because companies are able to earn more money on the spread between what they pay on savings accounts and what they can earn from loans.
Ten-year U.S. bond yields rose to a three-year high that exceeded 2.7 per cent.
"Higher rates in the long end, just tend to make banks more profitable. And you're seeing that translate into their stock prices today," said Chopra.
Energy climbed 2.1 per cent as crude oil prices increased, with shares of Advantage Oil and Gas Ltd. up 6.7 per cent and Cenovus Energy Inc. 4.7 per cent higher.
The May crude contract was up US$2.23 at US$98.26 per barrel and the May natural gas contract was down 8.1 cents at US$6.28 per mmBTU.
Despite Friday's increase, the International Energy Agency said member countries will release 120 million barrels of oil products from emergency stockpiles in a bid to reduce global oil prices following Russia's invasion of Ukraine.
The Canadian dollar traded for 79.43 cents US compared with 79.47 cents US on Thursday.
Materials gained 1.6 per cent on higher metals prices as the June gold contract was up US$7.80 at US$1,945.60 an ounce and the May copper contract was up 2.6 cents at US$4.73 a pound.
Technology was the biggest laggard on the day. It fell 3.2 per cent as shares of Shopify Inc. dropped 6.6 per cent and Lightspeed Commerce Inc. was 5.7 per cent lower.
In New York, the Dow Jones industrial average was up 137.55 points at 34,721.12. The S&P 500 index was down 11.93 points at 4,488.28, while the Nasdaq composite was down 186.30 points at 13,711.00.
Earnings season will begin in the U.S. next week with the large banks reporting first-quarter results.
Chopra said markets will be watching for how companies are managing in the environment of higher inflation, higher interest rates and new COVID-19 restrictions in Shanghai.
"So there's just a lot of macro factors that will end up moving through the financial statements of the various companies, and investors will just get a read through of that over the next number of weeks, including the impact on demand for company products as central banks increase rates."
This report by The Canadian Press was first published April 8, 2022.
Companies in this story: (TSX:AAV, TSX:CVE, TSX:SHOP, TSX:LSPD, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press