The main stock index in Canada, the S&P/TSX composite index, experienced a sharp decline on Tuesday as the latest inflation reading came in higher than expected. The index closed down 1.3% or 273.94 points at 20,218.89. This drop can be attributed to the hotter-than-expected inflation reading, which has spooked the Canadian equity markets.
In August, year-over-year inflation was reported at four percent, surpassing the average expectation of 3.8 percent among economists. This marks the second consecutive month of rising inflation. As a result, investors are now considering the possibility of an interest rate hike from the Bank of Canada.
The U.S. stock markets also moved lower in response to these developments. The Dow Jones industrial average was down 106.57 points at 34,517.73, the S&P 500 index was down 9.58 points at 4,443.95, and the Nasdaq composite was down 32.05 points at 13,678.19.
While the U.S. Federal Reserve is expected to keep its key rate steady, the Bank of Canada finds itself in a more challenging position. It is under pressure to minimize the difference between its key rate and that of the U.S. Federal Reserve in order to prevent further weakness for the Canadian dollar. This is important because a weaker Canadian dollar can lead to higher inflation.
The risk for Canada lies in the possibility that monetary policy makers fail to contain inflation, resulting in higher inflation nonetheless due to its impact on currency markets. Rate hikes also pose a risk to the Canadian housing market, which is more sensitive to changes in interest rates than its counterparts in the United States.
In other market news, grocery delivery company Instacart made its debut on the Nasdaq, indicating ongoing interest in tech stocks despite market uncertainty.
As the trading day concluded, the Canadian dollar was trading at 74.48 cents US. Additionally, the November crude contract was down 10 cents at US$90.48 per barrel, the October natural gas contract was up 12 cents at US$2.85 per mmBTU, the December gold contract was up 30 cents at US$1,953.70 an ounce, and the December copper contract was down three cents at US$3.75 a pound.
Sources: The Canadian Press
– S&P/TSX Composite Index: The main stock index in Canada that measures the performance of Canadian equity markets.
– Inflation: The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.
– Interest Rate Hike: An increase in the interest rates set by central banks, which can affect borrowing costs for individuals and businesses.
– Bank of Canada: The central bank of Canada responsible for overseeing monetary policy to promote economic growth and stability.
– U.S. Federal Reserve: The central bank of the United States responsible for implementing monetary policy and maintaining the stability of the financial system.
– Canadian Dollar: The currency used in Canada.
– Tech Stocks: Stocks of technology companies.
– Dow Jones Industrial Average: A stock market index that measures the performance of 30 large, publicly-owned companies listed on stock exchanges in the United States.
– Nasdaq: A stock exchange in the United States that is home to many technology and growth companies.
– Groceries Delivery Company: A company that provides delivery services for groceries ordered online.
– Instacart: A popular grocery delivery company.
– MMbtu: Million British thermal units, a unit of energy.
– Copper Contract: A contract that gives the holder the right to buy or sell copper at a specified price and date in the future.
Sources: The Canadian Press