TORONTO — Canada's main stock index ended a fairly flat week lower on the eve of the federal election as the loonie hit a three-month high.
The Canadian dollar has risen to its highest level since July 22 in part due to waning expectations of domestic interest rate cuts this year that's caused a narrowing of the difference in two-year bond yields in Canada and the U.S., says Kevin Headland, senior investment Strategist at Manulife Investment Management.
"As long as the expectations are not there for a Bank of Canada cut then that spread should remain very tight and put some upside pressure to the Canadian dollar," he said in an interview.
The Canadian dollar traded for an average of 76.15 cents US compared with an average of 76.09 cents US on Thursday.
The S&P/TSX composite index closed down 49.18 at 16,377.12, just 38 points lower than where it ended last Friday.
In New York, the Dow Jones industrial average was down 255.68 points at 26,770.20. The S&P 500 index was down 11.75 points at 2,986.20, while the Nasdaq composite was down 67.31 points at 8,089.54.
Headland said investors are tiring of the constant back and forth in the trade battle between the U.S. and China and uncertainty around Brexit, while some Federal Reserve member comments were viewed as less dovish.
China's economy also grew last month at just six per cent year-over-year — its slowest pace in nearly 30 years — which heightened concerns about slower global growth.
That shouldn't be a surprise given the trade war between the world's two-largest economies, said Headland.
"A rational examination should not be surprised but perhaps the market sees any type of negative headline as a negative to the overall market."
Eight of the 11 major sectors on the TSX ended the day lower, led by consumer discretionary, technology, health care and energy.
Technology fell in line with movement in the United States while the consumer sector was hurt by a near 26 per cent drop in Gildan Activewear shares after it lowered its 2019 guidance on a drop in its profit outlook for the third quarter.
The energy sector was down 1.1 per cent as Encana Corp. and Crescent Point Energy Corp. lost 3.6 and 2.7 per cent respectively. Most of that was due to lower crude oil prices on an unexpected increase in U.S. inventories.
The December crude contract was down 15 cents at US$53.78 per barrel and the November natural gas contract was up 0.2 of a cent at US$2.32 per mmBTU.
The Canadian election is being watched closely by the country's energy producers, who are largely hoping for a Conservative majority even though polls suggest a minority government headed by either the Conservatives or Liberals, said Headland.
"Any of the uncertainty regarding the election has probably already been priced in for quite some time and... investors have been sitting on the sidelines for quite some time until we get some clarity on the results for Monday."
"I don't think we're going to get any type of major policies, unfortunately, perhaps for the energy sector either positive or negative after the election."
Materials was slightly higher even as gold prices inched lower.
The December gold contract was down US$4.20 at US$1,494.00 an ounce and the December copper contract was up 3.85 cents at US$2.64 a pound.
This report by The Canadian Press was first published Oct. 18, 2019.
Companies in this story: (TSX:ECA, TSX:CPG, TSX:GIL, TSX:GSPTSE, TSX:CADUSD=X)