Energy stocks boost S&P/TSX composite as oil prices rise — along with inflation fears

MONTREAL –

The second quarter kicked off with a bang Monday after a spike in oil costs boosted Canada’s principal inventory index by practically 180 factors, at the same time as fears of additional inflation and a looming recession grew.

The S&P/TSX composite index closed up 178.39 factors at 20,278.28.

The bounce got here after main oil-producing international locations led by Saudi Arabia stated they have been reducing provides of crude. The announcement Sunday by producers within the OPEC plus cartel that they’d minimize manufacturing by multiple million barrels a day got here as a shock and underlined worries about the place the worldwide financial system is likely to be headed.

In principle, much less oil flowing to refineries ought to imply increased gasoline costs for drivers and will increase inflation in Canada, the U.S. and Europe.

That concern registered on New York’s Nasdaq composite index Monday, which closed the day down 32.45 factors at 12,189.45. The S&P 500 index inched up 15.20 factors to 4,124.51, whereas the Dow Jones industrial common rose 327 factors to 33,601.15.

“For Canada, it’s certainly a positive given that energy stocks are a big part of the Canadian marketplace,” stated Anish Chopra, managing director with Portfolio Management Corp.

“But this makes the Federal Reserve’s fight against inflation more challenging, with oil output cuts and the price of oil going up. That’ll feed into inflation, which could feed into higher rates,” he stated in a cellphone interview.

“Higher rates tend not to be great for technology shares.” Hence the dip Monday on the Nasdaq composite, which is heavy in tech shares. North of the border, the know-how index had fallen barely as nicely.

The Bank of Canada and the U.S. Federal Reserve have already elevated charges at a feverish tempo over the previous 12 months in hopes of undercutting excessive inflation. Higher charges can obtain that by slowing the financial system, however they threat inflicting a recession down the road.

An additional increase to the energies and metals sectors Monday got here from Teck Resources Ltd., which stated it had rejected an unsolicited takeover provide from Swiss mining big Glencore. “That’s also driving the performance of the TSX on the commodities side,” Chopra stated.

More broadly, the wobbly financial atmosphere is already obvious in sputtering manufacturing output and job losses at tech companies, he stated.

Canadian manufacturing exercise slumped final month to its lowest degree since June 2020 after two months of progress, as output and new orders fell amid financial uncertainty, in line with new knowledge from S&P Global. The S&P/TSX composite noticed the industrials sector slide Monday.

In the U.S., manufacturing exercise in March hit its lowest degree in practically three years, with the likelihood for additional decreases forward, in line with an Institute for Supply Management survey.

The news from OPEC on Sunday fanned fears about stubbornly excessive inflation triggering additional price hikes and an eventual recession.

That angst had already elevated final month because the second- and third-largest U.S. financial institution failures in historical past had depositors speeding to tug their cash out of Silicon Valley Bank and Signature Bank.

Worries over “contagion,” and the opportunity of wider-spread financial institution failures, spurred a continent-wide market selloff earlier in March. Crude oil additionally took a nosedive over fears that the general financial system was in jeopardy.

Oil, which continues to be down considerably from the heights reached final June, constructed on a rally final week with the benchmark West Texas Intermediate rising greater than six per cent Monday.

The May crude contract was up US$4.75 at US$80.42 per barrel and the May pure fuel contract was down 12 cents at US$2.10 per mmBTU.

The Canadian greenback traded for 74.42 cents US in contrast with 73.89 cents US on Friday.

The June gold contract was up US$14.20 at US$2,000.40 an oz and the May copper contract was down 5 cents at US$4.05 a pound.

This report by The Canadian Press was first revealed April 3, 2023.

— With information from The Associated Press