North American stock markets rise on renewed interest rate cut fever

The S&P/TSX composite index rose 104.91 points to 16,576.20. That’s less than 100 points below April’s record intraday high. (ShutterStock photo)

TORONTO — North American stock markets closed higher Wednesday with the three main U.S. markets all hitting record highs on further anticipation of U.S. interest rate cuts later this month.

“The main theme in the market today is really one of the anticipation of easier monetary policy from major central banks and an underlying dovish bias from central banks,” says Candice Bangsund, portfolio manager for Fiera Capital.

That view followed the planned nomination by U.S. President Donald Trump of two economists for Federal Reserve governors who have in the past called for interest rate cuts, the selection of Christine Lagarde to head the European Central Bank who favours cuts to support economic growth, and weaker economic data. Private U.S. payrolls disappointed as the 102,000 increase in June was below expectations.

“So all of this taken together has boosted the case for more stimulus, which of course is welcomed by equity markets….So it’s a bit of a case on the economic front anyways of bad news in the economy being good news for the markets because it means that central bank policy will remain accommodative.”

The S&P/TSX composite index rose 104.91 points to 16,576.20. That’s less than 100 points below April’s record intraday high.

In New York, the Dow Jones industrial average was up 179.32 points at 26,966.00, an all-time high after closing early ahead of the July 4 holiday. The S&P 500 index was up 22.81 points at 2,995.82, just a fraction below the intraday record, while the Nasdaq composite was up 61.14 points at 8,170.23, a record closing.

The Canadian dollar traded for 76.49 cents US compared with an average of 76.25 cents US on Tuesday due to a weaker U.S. dollar, higher oil prices and strong trade data with the balance swinging back into surplus territory for the first time in 10 months.

Bangsund said the recovery in Canadian exports should give the Bank of Canada more flexibility to not follow other central banks in cutting rates.

Nine of the 11 major sectors on the TSX closed higher, led by interest sensitive and defensive sectors like consumer staples, real estate and utilities.

That points to some skepticism behind the market rally, she said.

“There’s still some nerves in the market. There’s still a lot of uncertainties out there,” Bangsund added, noting the results of the G20 meeting between the presidents of China and the U.S.

“Obviously the trade truce over the weekend was good news but it was by no means an all-encompassing deal that means that global trade tensions go away.”

Health care was up as Canopy Growth Corp. shares rose 1.7 per cent after the ousting of its co-CEO Bruce Linton.

The heavyweight financial sector gained 0.6 per cent with U.S. 10-year treasuries sinking below two per cent to their lowest level since November 2016.

Energy increased with TC Energy Corp. gaining 2.4 per cent after signing a deal to sell its U.S. midstream assets in Appalachian Basin for $1.7 billion.

The August crude contract recovered from Tuesday’s steep drop to climb US$1.09 at US$57.34 per barrel and the August natural gas contract was up five cents at US$2.29 per mmBTU.

The materials sector fell 0.32 per cent with Teck Resources Ltd. and Goldcorp Inc. falling two and 1.6 per cent respectively. The decreases came despite a rise in metals prices, including gold reaching its highest level since May 2013.

The August gold contract was up US$12.90 at US$1,420.90 an ounce and the September copper contract was up 1.9 cents at US$2.68 a pound.

Thursday trading in Toronto is expected to be light but Friday could prove to be an important session with the final U.S. non-farm payroll numbers being released before the Federal Reserve makes its interest rate decision.

Good payroll numbers could prompt the Fed to keep rates steady while really weak results could put the Fed in motion on cuts, said Bangsund.

“This could be a big market mover depending on what the result is.”