Canada's main stock index retreated from recent highs on Wednesday, with the Toronto Stock Exchange's S&P/TSX Composite index falling 0.5% to 34,128.67 points at 11:03 a.m. ET, as reported by Reuters. The index had closed at a three-week high on Tuesday before Wednesday's decline, highlighting the market's volatile nature amid current economic uncertainties and geopolitical developments. The broader Canadian equities markets traded just below their March 2 record high, helped by an upbeat earnings season largely driven by energy companies and miners.
Technology stocks dropped 2% to touch a one-month low, with major companies experiencing significant declines. According to Reuters, microchip maker Celestica, content and technology company Thomson Reuters and software firm OpenText fell 2.6% to 4.7% each. The Canadian technology sector has fared the worst on TSX this year, declining nearly 20%. Brian Madden, CIO at First Avenue Investment Counsel, noted that "the Canadian technology sector is seen more a victim of artificial intelligence than a beneficiary given a high concentration of software companies." He added that "it was down a lot in the first quarter and hasn't really recovered quite as smartly as the U.S. tech sector has."
The market decline was primarily attributed to U.S. producer prices posting their biggest increase in four years in April, as reported by Reuters. Kevin Headland, co-chief investment strategist at Manulife Investments, noted that "I would expect some of the issues are around inflation pressures" and highlighted that U.S. PPI came in a lot higher than expected. The inflation surge, boosted by soaring costs for goods and services, has created concerns about potential interest rate impacts on the Canadian market. Gold miners fell 1.4% as prices of the precious metal dropped after hotter-than-expected U.S. producer prices data reinforced expectations of a tighter monetary policy.
The financials sector declined 1.1%, with particular weakness in consumer lending companies. According to Reuters, goeasy Ltd shares ended 5.1% lower after the consumer lender reported a deeper than expected loss, contributing significantly to the sector's underperformance. The banking sector faces challenges as the gap between Canada's 2-year and 10-year yields has narrowed to about 60 basis points from 85 basis points at the start of the year, affecting the yield curve that banks typically prefer to be steep.
Oil prices were largely unchanged but held above $100 a barrel as investors monitored a fragile Middle East ceasefire and awaited a high-stakes summit in Beijing between President Trump and China's Xi Jinping. According to Reuters, investors have priced in two interest rate hikes from the Bank of Canada after the surge in oil prices boosted the inflation outlook. The central bank's latest meeting minutes showed that policymakers felt they could afford to be patient on moving rates but that the situation might change quickly. The yield curve is pretty flat and of course ideally what you want to see is a bit of a steep yield curve for the banks, creating additional pressure on financial sector performance.
