iGotPro - Leading the Way in Maximizing the Reach of Business Professionals info@igotpro.com

Energy stocks lift market as oil surges to 3 1/2-year high

May 11, 2018

With few exceptions, major global equity markets posted solid gains this week. Crude oil prices jumped to their highest level since late 2014. This comes after U.S. President Donald Trump announced the U.S. withdrawal from the Iranian nuclear deal, which includes the planned re-imposition of the sanctions that were in place on Iran from 2012-2015. Constructive talks between the U.S. and China (on trade) and the U.S. and North Korea (on reducing tensions between the countries) provided a boost to broader market sentiment. Meanwhile, second quarter earnings reporting season wound down with both corporate earnings and sales growth continuing to come in well ahead of consensus expectations.

Canada’s S&P/TSX advanced every day this week, to its best level since January. Among the major sectors, energy and materials led the index higher as oil prices climbed. Copper and precious metals rallied to their best levels in two weeks. The strength in commodities helped the Canadian dollar gain some ground against its U.S. counterpart, even as the U.S. dollar – driven by improving U.S. growth relative to most of the world – continued its advance versus other major currencies. News that a NAFTA deal could be imminent also helped the Loonie. The health care sector registered the biggest absolute gain, after pharmaceutical maker Valeant reported better than expected results and announced a name change (now Bausch Health Companies) to distance itself from past troubles. Financials were also strong, as was technology, which was led by e-commence platform provider Shopify Inc. Following a strong move last week on earnings, the company announced this week plans for its first brick and mortar location to support its clients. The interest-rate sensitive utilities sector fell as Canadian bond yields followed U.S. Treasuries higher.

Yields on the 10-year U.S. government bond edged higher, once again breaching the 3% mark, as they did three weeks ago. But softer than expected readings from both the Consumer and Producer Price Indices suggest a “Goldilocks” scenario developing, with accelerating economic growth and little inflation pressure. U.S. stocks rallied to an eight week high. Strong moves in the energy and financials sectors led the gains in the S&P 500. Not far behind was the technology sector, where many of the mega-capitalization names saw sharp advances. Apple and Amazon each climbed to new all-time highs, while Alphabet (Google) surged after displaying its advances in artificial intelligence and other technologies at its annual developer conference. As it did in Canada, the utilities sector trailed due to pressure from rising interest rates.

The good mood lifted most major international equity markets, including the United Kingdom, Germany, Japan, and China. Many emerging markets, however, which are vulnerable to higher interest rates and a rising U.S. dollar, were not so lucky. Another exception was Italy, where investors reacted negatively to news that a coalition government will likely be formed involving populist parties from both the left and the right – the Five-Star Movement and the Northern League, respectively. The pairing is seen as likely leading to a loss of fiscal discipline, the undermining of recent structural reforms, and increased tension with the European Union on a number of issues.

What’s ahead next week:

Canada

  • Teranet/National Bank Home Price Index (April)
  • Existing home sales (April)
  • Manufacturing sales (March)
  • ADP Payrolls Report (April)
  • Retail sales (March)
  • Consumer Price Index (April)

U.S.

  • Empire Manufacturing Index (May)
  • Retail sales (April)
  • Business inventories (March)
  • NAHB Housing Market Index (May)
  • Housing starts and building permits (April)
  • Industrial production and capacity utilization (April)
  • Conference Board U.S. Leading Index (April)

This weeks market closing values

EQUITY INDICES Level Change 1-week YTD 1-year 5-year
      CAD CAD CAD CAD
S&P/TSX 15,983.32 + 253.92 + 1.61% -1.39% + 2.78% + 4.89%
S&P 500 2,727.72 + 64.3 + 1.88% + 4.07% + 6.23% + 16.09%
DJIA 24,831.17 + 568.66 + 1.81% + 2.47% + 10.69% + 15.71%
FTSE 100 7,724.55 + 157.41 + 1.59% + 2.70% + 2.64% + 5.39%
CAC 40 5,541.94 + 25.89 -0.10% + 5.84% + 5.63% + 10.28%
DAX 13,001.24 + 181.64 + 0.85% + 2.12% + 4.95% + 12.82%
Nikkei 22,758.48  + 285.7 + 1.24% + 5.11% + 10.77% + 12.85%
Hang Seng 31,122.06 + 1,195.56 + 3.45% + 5.60% + 14.62% + 10.75%
CURRENCY RETURNS CAD Change 1-week Yth 1-year 5-year
US$ 1.2787 -0.0059 -0.46% + 1.72% -6.64% + 4.83%
Euro 1.5272 -0.009 -0.59% + 1.22% + 2.67% + 3.08%
Yen 0.0117 -0.0001 -0.63% + 4.85% -2.75% + 3.31%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change  
3-month   1.21 + 0 Oil $70.55 + $0.83
5-year   2.21 + 0.07 Gold $1,319.28 + $3.93
10-year   2.38 + 0.05 Natural Gas $2.73 – $0.02