Futures tied to Canada's primary stock benchmark moved lower on Tuesday as investors reacted to hotter domestic inflation and growing expectations that the Federal Reserve will raise rates further this year. Contracts on the S&P/TSX index fell 1.2% as of 7:05 a.m. in New York, reversing the underlying benchmark's modest recovery from a three-day skid; the TSX had closed up 0.4% on Monday at 35,002.18.
Domestic inflationary pressures intensified when Canada reported an annual consumer price increase of 3.2%, its strongest pace in 29 months. That hotter-than-anticipated reading complicates the policy calculus for the Bank of Canada, and it arrived shortly after the country's banking regulator moved to lower capital requirements last week with the stated aim of improving liquidity and encouraging lending.
The resource-heavy nature of the TSX added to the downside in futures trading as gold weakened, sliding close to 2% while the U.S. dollar climbed to a one-year high. The dollar's advance and the drop in bullion reflected shifting safe-haven flows and investor positioning amid renewed concern about monetary policy trajectories.
Global markets have been briskly repricing central bank paths following last week's Federal Reserve meeting. At that gathering a majority of Fed policymakers signaled they expect at least one rate increase this year. Since then, post-meeting remarks from Fed officials emphasizing inflation risks tied to the recent energy shock associated with the Iran conflict have pushed traders to price in a higher likelihood of additional hikes.
According to the CME FedWatch tool, market participants are now pricing in two interest-rate increases this year. That shift in expectations has been a headwind for risk assets, particularly those sensitive to higher interest rates and a firmer currency environment.
On the corporate front, Shopify is preparing to prohibit all vaping products from its e-commerce platform as soon as this week, according to people familiar with the matter. The reported decision follows pressure from a coalition of U.S. state attorneys general focused on curbing the online sale of illicit e-cigarettes. Shopify's shares were noted in trading as moving lower amid the report.
Market snapshot
- TSX futures: down 1.2% (as of 7:05 a.m. New York)
- TSX closing prior session: +0.4% at 35,002.18
- Canada annual inflation: 3.2% (29-month high)
- Gold: down nearly 2%
- U.S. dollar: at a one-year high
This combination of a hotter domestic inflation reading and the market's increased expectations for Fed tightening weighed on sentiment across equity futures and commodity markets early in the trading day.