TORONTO — North American stock markets gave up some of the previous day’s gains after a slowing but still warm U.S. jobs report bolstered expectations that the Federal Reserve will make aggressive rate hikes. of interest.
Hopes that the central bank would take a break from raising rates were fueled on Thursday by falling private payroll figures from ADP. But Friday’s nonfarm payrolls numbers were stronger than expected with 390,000 jobs added in May and April’s number rose.
“I think people are trying to convince themselves to play, but the bottom line is inflation is still high, central banks need to be more aggressive,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
He said everyone at the central bank who spoke this week, including Dovish Vice President Lael Brainard, said interest rates needed to keep rising. The Bank of Canada raised rates this week by 50 basis points and said it needed to keep its foot on the pedal and perhaps become more aggressive.
As a result, 10-year US Treasury bond yields rose nearly 3%, 10-year Canadian government bonds rose to 3.07% and the US dollar strengthened.
Cieszynski said the jobs report seals the deal that there will be at least two 50-point base rate hikes at upcoming Fed meetings.
“I mean there’s nothing in there for the Fed to rethink anything,” he said in an interview.
Although the US central bank has said it does not plan to exceed half a percent at a time, it could end up making a longer series of 50 basis point increases that would drag the increases longer.
Investors fear that rising interest rates will slow the economy, but push it into recession.
The S&P/TSX Composite Index closed down 241.08 points at 20,790.73, ending a volatile week a little higher.
In New York, the Dow Jones Industrial Average was down 348.58 points to 32,899.70. The S&P 500 index fell 68.28 points to 4,108.54, while the Nasdaq composite fell 304.17 points or 2.5% to 12,012.73.
The weakness pushed US markets a bit lower for the week.
Technology was the weakest sector on the TSX, losing 3.7%, with Shopify Inc. losing 11.2%.
It fell due to higher bond yields and the fact that it is just a “higher beta sector,” Cieszynski said.
“When people are confident and enthusiastic, tech is one of the places they go and when they really retreat, tech is one of the first places they leave.”
Nine sectors lost ground, with health care falling 3.4%, while Canopy Growth Corp. fell 8.5%. BRP Inc. plunged 10.4% after reporting a sharp decline in quarterly earnings to depress consumer discretionary.
Lower bullion prices hurt the materials sector with Ero Copper Corp. down 5.4%.
The August gold contract was down US$21.20 at US$1,850.20 an ounce and the July copper contract was down 8.1 cents at US$4.47 the pound.
Consumer staples ended the day higher and energy edged higher as crude oil prices hit their highest level in nearly two months.
The July crude oil contract rose US$2.00 to US$118.87 a barrel after approaching US$120 earlier in the day. The July natural gas contract rose 3.8 cents to US$8.52 per mmBTU.
Shares of Baytex Energy Corp. rose 7.1% while Tamarack Valley Energy Ltd. increased by 5.1%.
On Thursday, OPEC and its allies, including Russia, agreed to increase production in July and August. That should weaken crude prices “unless some think it won’t be enough,” Cieszynski said.
Rising crude prices could soon push gasoline prices to record highs.
The Canadian dollar was trading at 79.50 US cents against 79.38 US cents on Thursday.
It’s been a choppy week and there isn’t much economic data next week to shake up markets, he said.
“Earnings season is over, the big week of economic news is over. And now we’re going to have a few days where investors kind of have to sit down and chew it all up.”
Employment figures for Canada for the month of May will be released next Friday.
Cieszynski thinks the numbers could be reasonably good as the economy is still reopening and energy prices are quite high.
“So it looks to me like things are starting to bounce back a bit, so we could do well between high energy prices, high other commodity prices and just the economy reopening and people going back to work. .”
This report from The Canadian Press was first published on June 3, 2022.
Companies in this story: (TSX:SHOP, TSX:BTE, TSX:TVE, TSX:ERO, TSX:DOO, TSX:WEED, TSX:GSPTSE, TSX:CADUSD=X).
Ross Marowits, The Canadian Press