TORONTO — Technology and materials led a broad rally that drove Canada's main stock index higher as investors continued to digest the Bank of Canada's hawkish comments as they look for signs that higher interest rates are starting to slow the economy and tame inflation.
In raising its key interest rate 50 basis points Wednesday, the Canadian central bank's governing council said it was prepared to act more forcefully if needed.
"That was certainly quite a hawkish statement to say that there is the potential for the Bank of Canada to actually untether itself from the Federal Reserve … and so I think bad news becomes good news in that backdrop," said Lesley Marks, chief investment officer at Mackenzie Investments.
Data the bank referenced such as the annual inflation running at a 31-year high of 6.8 per cent is a backward-looking number.
"So if we start to see any indication of an economy that's starting to slow, it gives the central bank some leeway to start talking down future rate increases as opposed to talking up which we saw yesterday," she said in an interview.
South of the border, U.S. employment data was weaker than expected Thursday in a sign that Federal Reserve policy is starting to work. The ADP private payroll report, which is a prelude to Friday's non-farm employment numbers for May, said only 128,000 jobs were created last month. First time jobless claims also fell last week and were below expectations.
"It's an indication that the measures that central bankers are taking are starting to work at impacting for an economic slowdown, which is what they need to do in order to bring supply and demand into balance," said Marks.
She said this bad news is good news for markets because it suggests there's "a light at the end of the tunnel," and that's what helped to drive the technology sector higher.
It was the second-best performing sector on the TSX, climbing 3.4 per cent as shares of Lightspeed Commerce Inc. and Shopify Inc. surged 10.6 and 9.6 per cent, respectively.
The S&P/TSX composite index was up 318.09 points or 1.5 per cent to 21,031.81.
In New York, the Dow Jones industrial average was up 435.05 points at 33,248.28. The S&P 500 index was up 75.59 points at 4,176.82, while the Nasdaq composite was up 322.44 points or 2.7 per cent at 12,316.90.
Materials led the 10 sectors that were up on the day as metals prices increased. The sector rose 3.6 per cent with Endeavour Silver Corp. up 14.4 per cent and Lithium Americas Corp. 10 per cent higher.
The August gold contract was up US$22.70 at US$1,871.40 an ounce and the July copper contract was up 22.4 cents at US$4.55 a pound.
Industrials was also stronger.
Energy was the lone laggard, losing 0.3 per cent despite higher oil prices as Crescent Point Energy Crop. fell 4.1 per cent.
The July crude oil contract was up US$1.61 at US$116.87 per barrel and the July natural gas contract was down 21.1 cents at US$8.49 per mmBTU.
Crude oil prices faced competing forces as the pressure from a drop in U.S. inventories was offset by OPEC and allies including Russia agreeing to raise output by 648,000 barrels per day (bpd) in July and again in August.
"That's a pretty significant increase versus their previous target, which was an increase of 432,000 barrels monthly," said Marks.
Energy has had a great run in 2022, gaining 55.4 per cent as the top performing sector, with prices approaching highs earlier in the years.
"So perhaps there's a sense that energy will take a pause here at this time."
Marks added there could a bit of a rotation with people taking profits out of the energy sector and cycling into IT stocks that have been hit really hard.
The Canadian dollar traded for 79.38 cents US compared with 79.12 cents US on Wednesday.
This report by The Canadian Press was first published June 2, 2022.
Companies in this story: (TSX:LSPD, TSX:SHOP, TSX:CPG, TSX:EDR, TSX:LAC, TSX:GSPTSE, TSX:CADUSD=X).
Ross Marowits, The Canadian Press
