Canadian markets fall after report that inflation rose, U.S. markets also move lower

Canada’s main stock index fell 1.3 per cent Tuesday in a broad-based decline after the latest inflation print came in higher than expected, while U.S. stock markets also moved lower.

The S&P/TSX composite index closed down 273.94 points at 20,218.89.

A hotter-than-expected inflation reading “really spooked” Canadian equity markets Tuesday, said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.

Year-over-year inflation was four per cent in August, higher than the 3.8 per cent increase Bay Street economists were expecting on average.

It marked the second consecutive month that inflation rose.

Investors are now digesting the idea that another interest rate hike from the Bank of Canada could be in the cards, he said.

Meanwhile, U.S. markets were tepid the day before the U.S. Federal Reserve announces its latest interest rate decision.

In New York, the Dow Jones industrial average was down 106.57 points at 34,517.73. The S&P 500 index was down 9.58 points at 4,443.95, while the Nasdaq composite was down 32.05 points at 13,678.19.

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The American central bank is expected to hold its key rate steady, said Burkett, but as always, investors will be interested in what officials have to say about the path ahead.

The Bank of Canada is in a trickier spot than the Fed, he said. It’s under pressure to keep the difference between its key rate and that of the Fed small in order to avoid more weakness for the Canadian dollar. That’s because a weaker Canadian dollar contributes to higher inflation, he said.

“There’s a real risk in Canada that monetary policy makers fail to contain inflation and end up bearing inflation anyway, because our failure to do so would play out in currency markets.”

But the Canadian consumer is also more sensitive to rate hikes because of the way our real estate market works, said Burkett. Further hikes pose a risk to the housing market, he said.

South of the border, Instacart made its debut on the Nasdaq. Shares in the grocery delivery company surged 30 per cent shortly after trading began, before closing up more than 12 per cent.

Reaction to the launch was not as celebratory as the last IPO in the U.S. Semiconductor firm Arm Holdings Inc. made a splash last week, sparking gains across the markets that day.

Instacart is quite a different company from Arm, despite them both being in the tech space, said Burkett, and it wasn’t as high-profile of a debut.

But the fact that both companies launched in a year that’s seen fewer IPOs than usual shows there’s still interest in tech stocks despite market uncertainty, he said.

The Canadian dollar traded for 74.48 cents US compared with 74.12 cents US on Monday.

The November crude contract was down 10 cents at US$90.48 per barrel and the October natural gas contract was up 12 cents at US$2.85 per mmBTU.

The December gold contract was up 30 cents at US$1,953.70 an ounce and the December copper contract was down three cents at US$3.75 a pound.

— With files from The Associated Press