Canada Stocks Rally as Fed Signal Boosts Prices for Oil, Metals

  • Manufacturing sales jump 2.3% in January as economy improves
  • Equities rally after Fed scales back rate hike forecasts

Canada stocks rose for the first time in three days as commodities producers gained with crude and gold after the U.S. Federal Reserve scaled back forecasts for how high interest rates will rise this year.

The Standard & Poor’s/TSX Composite Index rose 0.6 percent to 13,478.13 at 4 p.m. in Toronto, rebounding from a 0.9 percent loss in the previous two sessions. Canadian equities extended gains after the prospect for lower rates sank the U.S. dollar and in turn boosted the prices of resources from oil to copper.

The central bank’s updated quarterly projections now imply two quarter-point increases this year, down from four in December, due to the potential impact of weaker global growth and financial-market turmoil. The decision came after data in Canada, showed that a gauge of manufacturing sales jumped more than expected, hinting at improvements in the nation’s economy.

The S&P/TSX has jumped 14 percent after reaching a two-and-a-half year low in January, making it one of the best-performing developed markets in the world this year and posting returns ahead of the U.S., Germany and U.K. 

The rebound has been led by raw-materials producers, which benefited from rising prices of gold and industrial metals. The advance has left the gauge trading at 21.5 times earnings, roughly 17 percent more expensive than the valuation of the U.S. equity benchmark, the Standard & Poor’s 500 Index, data compiled by Bloomberg show. 

Canadian manufacturing sales rose 2.3 percent in January, more than four times the consensus economist forecast of a 0.5 percent advance, according to Statistics Canada data. 

“Canadian exports are starting to show signs of life, and factories are responding in kind,” said Nick Exarhos, an economist with CIBC Capital Economics, in a note to clients.

Raw-materials producers surged 3.6 percent, reversing an earlier loss, as gold climbed after the Fed decision. Barrick Gold and Goldcorp Inc. rallied more than 4.1 percent. Encana Corp. jumped 9.1 percent as energy producers also advanced.

Valeant Pharmaceuticals International Inc. slipped 2.9 percent, extending its worst loss on record yesterday. A series of analysts including Nomura Securities’ Shibani Malhotra, slashed price targets on the stock after the company provided lower 2016 outlook yesterday.

Valeant, briefly the largest company in Canada by market capitalization last year, has lost more than three-quarters of its value from an August peak as regulators and investors have scrutinized its business practices. The company has also had to grapple with an extended medical leave from Chief Executive Officer Michael Pearson, who only returned recently, while pulling its financial guidance and delaying fourth-quarter results.

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