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March 15, 2022

March 15: At midday: TSX falls as sliding commodities weigh on energy, material stocks

Canada’s benchmark index extended losses for a third straight session on Tuesday, as weakness in energy and metal prices due to rising COVID-19 cases in China weighed on commodity stocks.

At 10:48 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 78.98 points, or 0.37%, at 21,101.80.

The energy and materials sectors fell 3.5% and 1% respectively, tracking weakness in commodity prices.

Oil prices dropped to three-week lows and industrial metal prices fell as daily COVID-19 infections in major consumer China doubled from a day earlier to hit a two-year high.

“We’re going to have a volatile year so there’s going to be lots of moving parts,” said Greg Taylor, portfolio manager at Purpose Investments.

“TSX is definitely overweight in commodities versus other indices so as long as inflation’s a theme it should set the TSX to outperform.”

The commodity-heavy Toronto index has declined 1.1% so far this year, but has outperformed many of its global peers like the U.S. benchmark S&P 500, which is down 11.8% year-to-date, as investors embraced commodity stocks to protect their portfolios from the impact of supply shortages and soaring inflation.

Investors await key consumer price data due later in the week, while the U.S. Federal Reserve’s policy meeting due on Wednesday was also in focus.

“There’s probably not going be much volume today as investors are waiting for the Fed’s signals and see if we get any relief in the move higher in yields and the U.S. dollar,” Taylor said.

Data showed that home prices surged to a new all-time high last month and housing starts rose 8% in February compared with the previous month.

U.S. stocks gained ground on Tuesday as oil prices extended declines, while investor focus was squarely on the Federal Reserve’s two-day meeting where policymakers are widely expected to raise interest rates.

Nine of the 11 major S&P sectors advanced in early trading, with technology and consumer discretionary stocks climbing the most.

Microsoft Corp and Broadcom Inc gained 1.6% and 3.9%, respectively, providing the biggest boost to the S&P 500 and the Nasdaq.

Big banks, which tend to benefit from rising interest rates, rose. JPMorgan Chase & Co advanced 1.4%.

Delta Air Lines Inc and United Airlines jumped nearly 9% after the U.S. carriers raised their current-quarter revenue forecasts, even as they trimmed capacity.

Traders see a 91% chance of a 25 basis point rate hike by the U.S. central bank at the conclusion of its meet on Wednesday. However, focus likely will be on projections showing just how far policymakers think rates will need to rise this year and in 2023 and 2024 to tame inflation.

“We’ve been talking about the interest rate hikes for about a year now. So, to finally get it tomorrow and to put it in the rear-view mirror would be a good thing for the market,” said Christopher Grisanti, chief equity strategist at MAI Capital Management in New York.

“There’s space for the Federal Reserve to say yes, we’re worried about inflation, but we’re going to watch carefully and language like that would also be bullish.”

Data on Tuesday showed U.S. producer prices rose solidly in February, and further gains are likely from higher prices of crude oil and other commodities following Russia’s invasion of Ukraine.

The Dow Jones Industrial Average was up 247.38 points, or 0.75%, at 33,192.62, the S&P 500 was up 39.26 points, or 0.94%, at 4,212.37, and the Nasdaq Composite was up 148.51 points, or 1.18%, at 12,729.73.

Meanwhile, a steep jump in daily COVID-19 infections in China, along with a lack of progress in Ukraine-Russia talks to end their weeks-long conflict weighed on sentiment.

Talks discussing a ceasefire and a withdrawal of Russian troops from Ukraine resumed, one of Ukraine’s negotiators said on Tuesday.

Energy shares slid, with Chevron Corp down 6.1%. Crude prices slid to $100 a barrel as fresh COVID curbs in China weighed on demand outlook, after scaling as much as $139 last week on fears of supply disruptions following Western sanctions on Russian oil.

“There is some good news. Oil is down a lot today, but I don’t think the market will get any longer-term direction until there’s some clarity on the Ukrainian invasion and how that’s going to play itself out,” Grisanti added.

The CBOE volatility index, also known as Wall Street’s fear gauge, slipped but held above 30 points.

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