The close: Rallying TSX continues rise as BoC maintains rates

Global equities erased losses for the year on Wednesday, while commodities from copper to grains surged as an improvement in the outlook for China’s economy spurred a rally in risk assets.

After roiling financial markets in the first six weeks of the year, signs that the slowdown in the Chinese economy may not be as deep as some investors expected fuelled a recovery in stocks from Asia to America. Speculation the oil market will soon find some enduring stability is also helping to prop up equities. JPMorgan’s surprise results helped mitigate some concern over what’s projected to be the worst U.S. earnings season since the global financial crisis.

‘There’s no magic number for the Canadian dollar,’ Poloz says
(The Globe and Mail)

“It’s a strong day overseas and China data was much better than expected,” Mark Kepner, an equity trader at Chatham, N.J.-based Themis Trading LLC, said. “While JP Morgan had a tough quarter, they still beat estimates. If earnings come in better than expected — with expectations so low — if we have even a decent beat, you may see us break out.”

Canadian stocks rose a fourth day, extending the longest rally in a month, as the nation’s largest lenders advanced after the Bank of Canada backed away from cutting interest rates amid signs fiscal policy is boosting growth prospects.

The Standard & Poor’s/TSX Composite Index rose 0.66 per cent, or 89.93 points, to 13,671.35 in Toronto, extending a four-day winning streak to 3.1 per cent. The S&P/TSX remains one of the best-performing developed markets in the world this year with a 5.1-per-cent gain.

The Bank of Canada kept its key interest rate at 0.5 per cent, where it’s been since cuts in January and July, in a decision released Wednesday from Ottawa. Gross domestic product will grow 1.7 per cent this year instead of the 1.4 per cent the central bank expected in January. Faster growth allows Governor Stephen Poloz to back away from his suggestion in January he was inclined to cut rates again.

Financial services stocks added 1.3 per cent, as Bank of Nova Scotia and Royal Bank of Canada added at least 0.5 per cent. Six of 10 industries in the S&P/TSX advanced.

The resource-dominant S&P/TSX remains tied to commodities prices, as crude and gold prices have found some footing in the second quarter after stumbling at the beginning of April.

Raw-material producers have been the top-performing industry in Canada this year, rallying 29 per cent. Gold prices have soared 18 per cent as investors scaled back projections for U.S. rate increases. The Canadian benchmark now trades at 21.7 times earnings, about 15 per cent higher than the 18.9 times earnings valuation of the Standard & Poor’s 500 Index, according to data compiled by Bloomberg.

Wall Street rallied for a second straight day on Wednesday, led by gains in beaten-down financial shares after JPMorgan’s quarterly results.

The Dow Jones industrial average rose 187.24 points, or 1.06 per cent, to 17,908.49, the S&P 500 gained 20.72 points, or 1 per cent, to 2,082.44 and the Nasdaq Composite added 75.33 points, or 1.55 per cent, to 4,947.42.

Futures contracts in pre-market trading held onto gains after releases showed U.S. retail sales and wholesale prices unexpectedly slumped last month, stoking speculation the Federal Reserve may slow the pace of further rate increases.

S&P 500 analysts have been projecting first-quarter profits by companies in the benchmark shrank 10 per cent in the first quarter, with bank earnings contracting by 20 per cent. That’s fueled concern on the outlook for stocks, with valuations far above their five-year average and the seven-year bull market weeks away from becoming the second-longest in history.

The MSCI All-Country World Index climbed 1.4 per cent in New York, pushing its gain since Feb. 11 to 14 per cent and erasing a slide in 2016 that reached 12 per cent. The rebound comes after the gauge plunged into a bear market two months ago.

The Stoxx Europe 600 Index rose 2.5 per cent, the most since March 11 for a fourth day of gains. Commodity producers — one of the only industry groups up for the year — were among the biggest gainers. The FTSE 100 Index, rich in resource companies, turned positive for the year.

The MSCI Asia Pacific Index jumped 1.9 per cent to the highest close since Jan. 1. The Hang Seng China Enterprises Index of mainland shares listed in Hong Kong jumped 4 per cent. The MSCI Emerging Markets Index rose for a fifth day, climbing 1.2 per cent. Russia’s Micex Index rose 1.5 per cent.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, rose 0.6 per cent, after reaching a nine-month low Tuesday. The U.S. currency added 0.7 per cent to $1.1311 per euro, its strongest in two weeks, and gained 0.6 per cent to 109.17 yen.

San Francisco Federal Reserve President John Williams’ said on Tuesday that two or three interest rate increases this year was a reasonable call. Futures contracts indicate traders assign about a 51-per-cent chance that the Fed will raise interest rates this year after liftoff from near zero in December.

Copper rose 1 per cent to $4,816 a metric ton, leading industrial metals higher after China, the world’s biggest consumer, boosted foreign purchases to an all-time high. Aluminum advanced 1.4 per cent and nickel gained 1 per cent. Iron ore closed 2.3 per cent higher in China at 419 yuan a metric ton, the highest since March 21.

Oil futures fell from fresh four-month highs in choppy trading on Wednesday as comments from Russia’s energy minister added to doubts a producer meeting set for Sunday in Doha to discuss freezing output would yield a positive outcome.

Prices fell after Reuters reported that Russian oil minister Alexander Novak told a closed-door briefing that a deal on an oil output freeze scheduled to be signed this month in Doha will be loosely framed with few detailed commitments.

The prospect of a combined OPEC and non-OPEC deal to prop up prices has boosted oil in recent weeks but analysts said that even if a deal is struck, it will do little to restore supply/demand balance.

“We have muted expectations for any meaningful impact on crude fundamentals from the April 17th Doha meeting,” Macquarie Capital analysts wrote in a note.

“We do not believe that anyone is going to cut production to get back into compliance with January levels.”

Brent crude settled down 51 cents at $44.18 per barrel, while U.S. crude settled down 41 cents at $41.76.

The news from Moscow came as data showed a bumper build in U.S. crude stocks last week. U.S. crude inventories rose 6.6 million barrels to 536.53 million barrels, the Energy Information Administration said on Wednesday, compared with analyst expectations for a 1.9 million-barrel rise.

A larger-than-expected draw in gasoline inventories and falling U.S. crude production softened the blow of soaring crude stocks. Gasoline fell by 4.2 million barrels to 239.76 million, compared with an analyst forecast for a 1.4 million-barrel draw.

“Ultimately, the downside based upon inventory figures is limited because of two factors: the strong gasoline demand and falling U.S. crude production,” said Anthony Headrick, energy market analyst at CHS Hedging.

Prices came under pressure earlier in the session, falling more than 2 per cent after comments by Saudi Oil Minister Ali al-Naimi in the al-Hayat newspaper that confirmed his country’s position that an outright production cut was out of the question.

“Forget about this topic,” Mr. al-Naimi told the newspaper when asked about any possible reduction in Saudi crude output.

Iranian Oil Minister Bijan Zanganeh does not plan to attend the Doha meeting, but Iran will send a representative, an Iranian journalist from the Seda weekly wrote on Twitter on Wednesday.

Iran has said it does not plan to participate in the freeze agreement as it seeks to boost its production in the post-sanctions era.

Morgan Stanley analysts said the market may still be underestimating the potential near-term headline upside risk of the Sunday meeting.

With files from Reuters

Courtesy: The Globe And Mail

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