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North American markets slip on U.S. inflation report

North American stock markets slipped Friday as a new report on U.S. inflation spooked investors.
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The S&P TSX composite index screen at the TMX Market Centre in downtown Toronto is photographed on Friday, November 11, 2022. THE CANADIAN PRESS/Tijana Martin

North American stock markets slipped Friday as a new report on U.S. inflation spooked investors.

What had been a relatively flat week for North American markets ended with some up and down activity as investors took stock of the latest producer price data out of the U.S. on Friday.

The data showed prices at the wholesale level were 7.4 per cent higher in November than a year earlier — a slowdown from October’s wholesale inflation rate of 8.1 per cent, but still slightly worse than economists expected.

“Inflation is the word of the day,” said Allan Small, senior investment adviser at IA Private Wealth. “And the numbers were hotter than expected. Down year-over-year, but hotter than expected.”

The S&P/TSX composite index closed down 22.12 points at 19,947.07.

In New York, the Dow Jones industrial average was down 305.02 points at 33,476.46. The S&P 500 index was down 29.13 points at 3,934.38, while the Nasdaq composite was down 77.38 points at 11,004.62.

Investors are nervous ahead of next week's expected interest rate decision by the U.S. Federal Reserve, Small said. Friday's worse-than-expected producer price index report heightened fears that the central bank will have to keep hiking interest rates to get inflation under control.

Stocks have recovered some of their losses recently, as inflation has slowed since hitting a peak in the summer. But it remains too high, raising the risk the Federal Reserve will have to keep hiking interest rates sharply to get it fully under control.

The U.S. Fed has already hiked its key overnight rate to a range of 3.75 per cent to 4 per cent, up from basically zero as recently as March.

The general expectation is for it to raise rates next week by another half of a percentage point.

Earlier this week, the Bank of Canada announced it would hike its own key interest rate to 4.25 per cent – the highest it's been since January 2008.

However, it's the U.S. Fed that really has an affect on market sentiment, and investors are watching closely to see if Fed chair Jerome Powell and his colleagues can raise rates at the right pace to engineer a "soft landing."

"Everybody’s saying a recession’s going to happen next year," Small said. "The question is, is it going to be mild and soft or is it going to turn out to be severe and hard? I’m in the mild and soft camp — I believe the Fed will do the right thing and we will have more of a mild recession sometime toward the end of the first quarter.”

Small said in addition to the U.S. central bank's rate announcement next week, markets will also be paying close attention to Monday's release of monthly U.S. consumer price index data. That, even more so than this week's wholesale price data, is a key inflation metric that investors watch carefully.

The Canadian dollar traded for 73.37 cents US compared with 73.63 cents US on Thursday.

The price of oil continued the downward slide it's been on for the past six weeks, with West Texas Intermediate falling from US$90 at the start of November to the low $70s this week.

On Friday, the January crude contract was down 44 cents at $71.02 per barrel and the January natural gas contract was up 28 cents at US$6.25 per mmBTU.

Oil's recent slump has largely been due to COVID shutdowns in China and concerns about a weakening economy in that country. With China beginning to loosen pandemic restrictions, Small said he believes crude oil is poised for a rally since global energy supplies remain tight.

"I think oil will perk up over the next quarter or so as China comes back on and starts rolling again,” he said. 

“This is why many people have oil investments – because it’s very hard to envision oil staying at this price when China comes back online."

The February gold contract was up US$9.20 at US$1,810.70 an ounce and the March copper contract was down half a cent at US$3.88 a pound.

Stocks moving significantly on the TSX Friday included Paramount Resources Ltd., which announced it is selling its Kaybob Duvernay oilfield assets to Crescent Point Energy Corp. for $375 million. Paramount's share price closed at $28.70 Friday, up 4.71 per cent.

Laurentian Bank's share price was up nearly six per cent Friday to $33.34, on fourth-quarter earnings showing lower expenses and higher revenue. 

This report by The Canadian Press was first published Dec. 9, 2022.

— With files from The Associated Press

Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X, TSX:LB, TSX:CPG)

Amanda Stephenson, The Canadian Press

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