TORONTO – Canada’s main stock index started the second half of the year with a broad rally that mirrored the performance of U.S. Canada Day markets on Friday.

The S&P/TSX Composite Index closed up 167.50 points at 19,028.86 after hitting an intraday high of 19,129.70.

US stock markets were closed for the Independence Day holiday but gained around 1% to end the week.

Key energy and materials sectors dominated the Toronto market which faced light trading, said Mackenzie Investments chief economist Todd Mattina.

“They’re the big leaders and of course they’re big components of the TSX, so those are two of the big driving factors,” he said in an interview.

Markets are emerging from a very weak first half, with the TSX finishing its weakest quarter since before the pandemic, while US markets suffered their worst six-month period in decades on fears that rising interest rates does not plunge the economy into a recession.

Mattina does not see the weakness of the first half persisting throughout the year. In fact, he said there had already been some surprises for investors with yields on 10-year US Treasuries falling in two weeks to 2.88% after peaking at 3.5%.

“Investors holding traditionally balanced stock and bond portfolios are once again enjoying some diversification benefits as bond yields have fallen over the past few weeks, so this has been a welcome sign I’m sure. for many investors.

Energy rose 2.7% as crude oil prices rose on continued concerns over supply constraints caused by the war in Ukraine, reduced potential demand due to an economic slowdown and persistently high inflation.

The August crude contract rose US$2.23 from Friday’s price of US$110.66 a barrel and the August natural gas contract rose 15.1 cents to $5.88 US per mmBTU.

Vermilion Energy Inc. jumped 8.7% on the day.

“Even in a world of slowing economic growth, inflation expectations are still high and sticky, and there are plenty of downside risks in the direction of energy price shocks from Europe and of the war in Ukraine, so there are many risks to the inflation outlook,” Mattina said.

The Canadian dollar was trading at 77.72 cents US against 77.60 cents US on Thursday.

Materials rose 2.2% on higher bullion prices, with shares of New Gold Inc. rising 8.0%.

The August gold contract was up US$6.80 at US$1,808.30 an ounce and the September copper contract was down 3.7 cents at US$3.57 per pound .

The coming week will see investors scan the minutes of the last US Federal Reserve meeting for any signs of a possible easing of interest rate hikes. The Fed and the Bank of Canada are each expected to approve additional three-quarter percentage point hikes this month, but further action is unknown.

Mattina said central banks are grappling with the choice of raising rates aggressively to bring inflation down or taking a more gradual approach given growing signs of an economic slowdown.

These scenarios have different implications for investors with sharply falling bond yields and shaky stock markets.

“The Fed is very keen to ensure that it remains credible as an inflation fighter. If it were to see long-term inflation expectations unanchor from its 2% target, it should raise rates even more aggressively, so they need to send a very strong message to investors that they are going to be credible in bringing down inflation.”

The United States will also release job openings and labor turnover survey data for the month of May on Wednesday. Recent data showed how hot the job market is with about two open positions for every unemployed person, Mattina said.

The week will culminate with employment data from Canada and the United States that will provide important guidance for the Bank of Canada’s upcoming interest rate decisions.

This report from The Canadian Press was first published on July 4, 2022.

Companies in this story: (TSX:VET, TSX:NGD, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press

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