Canada Stocks Little Changed as Energy Shares Drop; Banks Gain

  • National Bank 2Q profit slumps on soured energy loans
  • Growth outlook underwhelming on Japan, Europe factory data

Canadian stocks were little-changed, after erasing losses in the final hours of trading, as a selloff in energy producers was offset by a rebound in the nation’s largest lenders.

The S&P/TSX Composite Index fell 2 points, less than 0.1 percent, to 14,063.69 at 4 p.m. in Toronto, after earlier declining as much as 0.8 percent. The index capped on Tuesday a fourth month of gains, the longest stretch since April 2014. The index has surged 19 percent since reaching a two-year low on Jan. 20 and is up 8.1 percent this year, the second most after New Zealand among developed-market nations tracked by Bloomberg. Trading volume on Wednesday was 20 percent lower than the 30-day average.

The recent rally has maintained Canadian shares’ more expensive valuation relative to their U.S. peers. The S&P/TSX now trades at 21.4 times earnings, about 10 percent higher than the 19.4 times valuation of the S&P 500.

Global equities ended little changed as U.S. stocks edged higher after manufacturing data from China, Japan and Europe renewed concern over growth worldwide. The Organisation for Economic Cooperation and Development warned the global economy is slipping into a “low-growth” trap with central banks’ monetary policy losing its effectiveness and governments failing to revive demand in the wake of the 2008 financial crisis. Meanwhile, U.S. manufacturing unexpectedly expanded at a faster pace in May.

In Canada, National Bank of Canada lost 0.7 percent, clawing back some earlier losses, after second-quarter profit tumbled 48 percent after setting aside more money to cover bad energy loans. Bank of Nova Scotia fell on Monday as profit shrunk, while Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce posted better-than-expected results last week. The S&P/TSX Banks Index ended the day higher, halting a two-day slide.

Suncor Energy Inc. and Crescent Point Energy Corp. retreated more than 2.1 percent to lead energy producers lower. Crude futures in New York closed near $49 a barrel, as Canadian oil-sands operations affected by the Alberta wildfires began to reopen. OPEC producers are set to meet in Vienna Thursday to discuss the reintroduction of output ceilings. 

The rally in Canadian equities, fueled by a rebound in commodities prices and financials, is under pressure amid renewed concerns weak global growth will constrain demand for basic materials, while the prospect of higher U.S. interest rates has sent the dollar higher.

Federal Reserve Chair Janet Yellen’s comments on May 27 pointed to a likely interest-rate increase in coming months that is dependent on economic improvement. Traders have now priced in a 53 percent chance for an increase in July, according to data compiled by Bloomberg.

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