Strong Canadian jobs numbers help lift loonie
This is a file image of various stocks.
TORONTO -- A weak U.S. jobs report further stoked hopes of interest rate cuts, while strong numbers in Canada helped to lift the loonie to a three-month high.
"The market is really firmly pricing in probably weaker growth prospects and the significant likelihood that you're going to get more central bank easing globally and particularly in the U.S.," says Mike Archibald, Associate Portfolio Manager with AGF Investments Inc.
The futures market is pricing in two rate cuts by the Federal Reserve by September and three by the end of the year.
While no move is expected in July, cuts should be announced at the July meeting, he said.
And so there is a rotation in the market back to sectors that do well in a weaker growth market, such as technology.
Investors also have concerns about U.S. trade tariffs against China, Mexico and potentially Europe and Japan but Archibald said Fed chairman Jerome Powell cemented this week's stock market rally during a Wednesday speech in which he vowed to respond to data weakness by potentially cutting interest rates.
"That really set the market on fire again in the middle of the week and that's continuing to follow through here."
U.S. markets rebounded from a poor performance to post the best week of the year. The Dow Jones industrial average was up 263.28 points at 25,983.94 to end the week 4.7 per cent higher. The S&P 500 index was up 29.85 points at 2,873.34 for a 4.4 per cent gain on the week, while the Nasdaq composite was up 126.55 at 7,742.10 for a 3.9 per cent weekly increase.
The S&P/TSX composite index rose 1.2 per cent on the week after closing up 3.16 points at 16,230.96 on Friday. The market is now up 13.3 per cent for the year.
Canada's main stock index didn't respond much to strong Canadian employment data but the Canadian dollar rose to its highest level since March 1 on the Canadian economy adding 27,700 jobs in May and the unemployment rate falling to 5.4 per cent, its lowest level since comparable data become available in 1976. In addition, the Bank of Canada is expected to maintain interest rates at the current level.
The Canadian dollar traded at an average of 75.28 cents US, up from an average of 74.75 cents US on Thursday.
Eight of the 11 major sectors of the TSX were higher led by technology and health care.
Energy was up 0.4 per cent as the July crude contract gained US$1.40 to US$53.99 per barrel and the July natural gas contract was up 1.3 cents at $2.34 per mmBTU.
Crude oil prices rose following comments by Saudi Arabia that OPEC will continue with production cuts at its meeting at the end of the month.
Archibald said a number of oil companies didn't participate in the rally because there's a lack of interest until the federal government offers more clarity on the Trans Mountain pipeline on June 18. Encana Corp. was down two per cent while Cenovus Energy Inc. led by increasing 3.9 per cent.
Telecommunications fell the most, followed by materials despite gold closing at its highest level since Feb. 20 with the August gold contract up $3.40 at US$1,346.10 an ounce while the July copper contract was down 2.3 cents at US$2.63 a pound.
Kinross Gold Corp. shares lost 2.1 per cent, while Barrick Gold Corp. was up 3.2 per cent on the day.
He said the same sectors did well in both Canada and the U.S. but technology and health care don't represent a huge part of the Canadian index.
Archibald added that he wouldn't be surprised to see "a little bit of a consolidation" in the next week or two until the Federal Reserve indicates when it's going to start cutting rates.
"It probably stands to reason that we should see a little bit of a pause into next week."