Canada Stocks Halt 3-Day Gain as Bank of Canada Warns on Economy

  • Central bank holds rates as inflation, growth outlook weaken
  • Miners fall after three-day rally of more than 7 percent

Canadian stocks slipped after a three-day advance as a rally in materials producers faltered and consumer shares slumped after the Bank of Canada warned risks of weak inflation and slower economic growth have increased.

The S&P/TSX Composite Index fell 0.1 percent to 14,796.65 at 4 p.m. in Toronto. The benchmark for Canadian equity had advanced 1.5 percent in the prior three days to the highest since June. The index remains the second-best performing developed market in the world, just behind New Zealand, with an advance of almost 14 percent this year. Canadian stocks are more expensive than their U.S. peers, with a price-earnings ratio of 23.5 for the S&P/TSX, opening up a 14 percent premium over the S&P 500 Index.

Alimentation Couche-Tard Inc. lost 2.2 percent, the biggest drop since June, as consumer staples companies led declines. The convenience store and gas station operator will have to sell two sites in Ontario and Quebec to win approval from Canadian competition regulators to buy certain Imperial Oil Ltd. assets.

Materials producers ended the day down 0.2 percent, paring an earlier loss, after surging 7.2 percent in the prior three days. New Gold Inc. dropped 7.2 percent, the most since May, to lead declines. The gold producer estimates an increase in capital costs during the development of a mine.

Raw-materials producers remain the top-performing industry in Canada this year, fueling a rebound in the S&P/TSX after slumping the most since the 2008 Financial Crisis last year. The group, led by surging gold producers with gold on track for its best annual rally since 2010, is still up 55 percent and set to halt the longest yearly losing streak since 1988.

On Wednesday, the Bank of Canada maintained interest rates at the current 0.5 percent benchmark lending rate, in the central bank’s first decision since July. Canada’s economy contracted by the most since 2009 in the second quarter, yet there were glimmers of optimism as the May Alberta wildfires played a large role in that weakness. Traders are now pricing in an almost 10 percent chance of a rate cut in October, up from 5.7 percent a day ago according to data compiled by Bloomberg.

“Today’s statement seemed a bit more dovish than might have been expected,” said Avery Shenfeld, chief economist at CIBC Capital Markets in a note to clients. “Financial vulnerabilities related to household debt were still mentioned, a reason why rate cuts aren’t in the offing any time soon.”

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