Canadian stocks and bonds rallied on Wednesday, while the loonie touched a near two-week low against its U.S. counterpart, after the Bank of Canada became the first central bank among G7 countries to cut interest rates, raising prospects for Canada’s economy. Wall Street also advanced, with the S&P 500 and Nasdaq indexes closing at record highs, powered mainly by technology stocks as markets digested U.S. economic data that could support a much-expected start to the Federal Reserve’s policy easing cycle.
The S&P/TSX composite index ended up 166.84 points, or 0.8%, at 22,145.02, clawing back much of its losses since the start of the week.
The Canadian central bank lowered its benchmark interest rate by 25 basis points to 4.75%, its first cut in four years.
“It was clearly a positive development for equity markets and bonds,” said Angelo Kourkafas, senior investment strategist at Edward Jones in St. Louis, Missouri. “It is consistent with a soft landing scenario that the Bank of Canada is willing to start (to) normalize policy while economic growth still is holding up.”
All 10 major sectors on the Toronto market moved higher, including the interest rate-sensitive real estate sector and resource stocks, as commodity prices climbed.
The Canadian 2-year bond yield fell as much as 12.7 basis points to 3.929%, its lowest level since Feb. 1, as investors bet that the BoC would ease rates further in the coming months.
Swaps markets are pricing in a total of 75 basis points of cuts this year, compared with 50 basis points of easing for the Federal Reserve.
That prospect of interest rate divergence weighed on the Canadian dollar, which fell about two-tenths of a U.S. cent.
The Federal Reserve’s next policy meeting is June 11-12, when it is widely expected to leave rates unchanged. The Fed will also hold a policy meeting in late July, followed by its meeting on Sept. 17-18.
In domestic economic data Thursday, the Canadian services economy grew in May for the first time in a year as firms saw an increase in new business and hired workers at a faster pace,
On Wall Street, technology stocks led advances among the 11 S&P 500 sectors, followed by equities in communications and industrials sectors. Consumer staples stocks were the biggest losers.
The May private payrolls report on Wednesday was the latest data to suggest an easing in U.S. labour market tightness that could propel the Fed to begin cutting rates this year. A report on Tuesday showed job openings fell in April to the fewest in more than three years.
“We’re seeing the economic data starting to ease up a little bit and the repercussions for that is that you’re seeing the pressure on rates come off the boil a little bit mixed in with the potential for weaker economic data, which is a pretty good recipe for the bond market,” said Jack Janasiewicz, a portfolio manager at Natixis Investment Managers Solutions in Boston.
U.S. 10-year Treasury yields fell to a two-month low on Wednesday after a report pointed to weaker-than-expected job growth ahead of Friday’s highly anticipated government employment report for May.
The Dow Jones Industrial Average rose 96.04 points, or 0.25%, to 38,807.33, the S&P 500 gained 62.69 points, or 1.18%, to 5,354.03 and the Nasdaq Composite gained 330.86 points, or 1.96%, to 17,187.91.
The S&P 500′s previous record-high close was 5,321.41 on May 21, and the Nasdaq’s previous record close was 17,019.88 on May 28.
Chip stocks leapt 4.5%, buoyed by gains to Nvidia and Taiwan Semiconductor Manufacturing.
Nvidia’s market valuation hit the US$3 trillion mark for the first time as the chipmaker overtook Apple to become the world’s second-most valuable company.
Hewlett Packard Enterprise rose 10.7% after forecasting third-quarter revenue above Street expectations, helped by upbeat demand for its AI servers.
Dollar Tree slipped 4.9% after a disappointing quarterly profit forecast. The budget retailer said it would explore options that include a potential sale or spinoff of Family Dollar.
Intel gained 2.5% after buyout firm Apollo Global Management agreed to purchase a 49% equity interest for $11 billion in a joint venture related to the chipmaker’s Ireland manufacturing unit.
CrowdStrike Holdings jumped 11.9% after forecasting second-quarter revenue above estimates when markets closed on Tuesday.
Advancing issues outnumbered decliners by a 2.39-to-1 ratio on the NYSE. On the Nasdaq, 2,759 stocks rose and 1,492 fell as advancing issues outnumbered decliners by a 1.85-to-1 ratio. The S&P 500 posted 24 new 52-week highs and 9 new lows while the Nasdaq Composite recorded 62 new highs and 116 new lows. Total volume of shares traded across U.S. exchanges was about 10.8 billion, compared with the 12.6 billion average over the last 20 trading days.
Reuters, Globe staff
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