Canada Stocks Rise Third Day After Returning to Bull Market

  • S&P/TSX up 21% from January low as commodities lead rally
  • Oil producers rally as Abu Dhabi sees crude at $60 a barrel

Fresh off capping a four-month rally that returned them to a bull market, Canadian stocks advanced a third day as commodities rose after Federal Reserve Chair Janet Yellen said interest rates will rise gradually without specifying the precise timing.

The S&P/TSX Composite Index rose 0.4 percent to 14,276.16 at 4 p.m. in Toronto, the highest level since August, rebounding into the close after briefly paring gains in afternoon trading. The index is up 21 percent from its Jan. 20 low, after climbing out of a bear market on Friday. Trading volume today was 3.2 percent less than the 30-day average.

The recent rally has extended Canadian shares’ more expensive valuation relative to their U.S. peers. The S&P/TSX now trades at 21.8 times earnings, about 11 percent higher than the 19.5 times valuation of the S&P 500 Index.

Global stocks advanced a third day after Yellen’s comments acknowledged impediments to U.S. growth while remaining upbeat about the economy’s outlook. Traders are pricing in a 22 percent chance for an increase in July, down from better than 50 percent odds a day ahead of the jobs report, according to data compiled by Bloomberg.

Commodities entered a bull market, ending a five-year rout as prices from soybeans to zinc rose to help the asset class outperform bonds, currencies and equities in 2016. The Bloomberg Commodity Index, which tracks a basket of 22 resources from crude to soybeans, closed 21 percent above its low on Jan. 20 to meet the common definition of a bull market. Prices remain down about 50 percent from the highest levels seen in 2011.

In Canada, energy producers climbed 1.6 percent to the highest level in almost a year with all but two companies in the group advancing. Crude closed at a 10-month high in New York, settling at $49.69 a barrel as Abu Dhabi forecast prices could surge as high as $60 a barrel with the global glut shrinking faster than expected.

First Quantum Minerals Ltd. and Teck Resources Ltd. jumped at least 7.4 percent to lead raw-materials producers higher. Iron ore futures jumped in China while zinc advanced an eighth day, the longest streak since December 2013. Nickel also advanced.

Potash Corp. of Saskatchewan Inc. jumped 6.2 percent, the most since February, for a third day of gains. The market is overthinking the implications surrounding the delayed China potash contract, said Scotiabank analyst Ben Isaacson. While there are rumors China will seek a bid price of $180 per metric ton, Isaacson estimates the contract will end up being closer to $210 per metric ton.

Canadian equities have been one of the top-performing markets this year, second only to New Zealand among developed nations with a 9.7 percent advance, a sharp rebound after falling the most since the 2008 financial crisis in 2015. Raw-materials producers have led the broader rally, soaring 44 percent this year for the best year-to-date performance in three decades.

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