Stock indexes in Canada and the U.S. closed down Friday on geopolitical tensions, while the loonie surged higher after Statistics Canada said the inflation rate jumped in June.
Data from June showed the country’s annual inflation rate rose to 2.5 per cent for the month, up from a 2.2 per cent reading in May to hit its highest mark in more than six years.
A separate release showed retail trade expanded by two per cent in May, thanks to stronger sales at vehicle and auto parts dealers as well as gas stations. It marked a rebound from April, when sales contracted by 0.9 per cent.
The combined indicators helped push the Canadian dollar up 0.65 of a US cent to average 76.09 cents US as it improves the chances of another rate hike, said Philip Petursson, Chief Investment Strategist at Manulife Investments.
“With the retail data that came out and the inflation data that came out, it would lead to a conclusion that the Bank of Canada could continue to raise rates, and an October rate hike is on the table.”
Weakness in the U.S. dollar following President Donald Trump’s questioning of federal reserve rate decisions also helped the loonie, said Petursson.
Trump’s comments on potentially more tariffs against Chinese goods also weighed on markets with both Toronto and New York markets down, though investors continue to struggle to decide how much weight to put on them, he said.
“The market is trying to figure out what it all means, and it’s clearly, given by the ups and downs, it’s not an easy thing to assess.”
The S&P/TSX composite index closed down 107.55 points at 16,435.46 with all major indexes in the red. For the week the index was down 0.76 per cent as concerns about auto sector tariffs and slides in commodity prices put pressure on the index.
In New York, the Dow Jones industrial average closed down 6.38 points at 25,058.12. The S&P 500 index was down 2.66 points at 2,801.83 and the Nasdaq composite index closed down 5.10 points at 7,820.20.
The slight pullback in markets came as positive earnings and other indicators came up against increased political uncertainty, said Petursson.
“There isn’t anything from the fundamentals, you know valuations or economic or earnings that would suggest there’s any concerns out there, it’s all geopolitical risk out there.”
He said U.S. investors have been selling some of their positions in mutual funds and exchange-traded funds and putting their cash aside as the continued uncertainty weighs.
“I would take that to mean the equity investor perhaps is suffering from an exhaustion of the geopolitical rhetoric that’s been going on over the past several months.”
The September crude contract closed up two cents at US$68.26 per barrel and the August natural gas contract ended down a penny at US$2.76 per mmBTU.
The August gold contract closed up $7.10 at US$1,231.10 an ounce and the September copper contract was up six cents at US$2.76 a pound.
Aimia Inc. closed up 42 cents, or 18.26 per cent, at $2.72 after the Aeroplan parent company unveiled its plans for the loyalty program once its exclusive partnership with Air Canada ends in 2020. Aimia announced Thursday evening that it plans to offer charter flights to its most popular destinations as it expands the program to broader travel rewards, including hotels, cars and entertainment.