By Myra P. Saefong, MarketWatch
SAN FRANCISCO (MarketWatch) — Canadian equities followed energy stocks modestly higher Monday, but the gains weren’t enough to make April a winning month following unexpected weak economic data.
The S&P/TSX Composite Index closed at 12,292.69, up 54.94 points, or 0.5%, after earlier tapping a low of 12,156.76. In April, the benchmark index lost 0.8%.
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The government reported the economy shrank in February by 0.2%. Economists had expected a month-on-month gain of around 0.1%.
“The unseasonably warm winter weather proved to be a net negative for Canada,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a research note. “With households spending less to heat their homes, we would have expected to see an increase in spending on other goods and services.”
Decreases in mining and oil and gas extraction, manufacturing, utilities as well as forestry and logging outpaced advances in construction, Statistics Canada reported. Mining and oil and gas extraction fell 1.6% in February.
News of a slowdown in U.S. consumer spending in March, a 29-month low for Chicago PMI in April and a 0.3% fall in Spain’s first-quarter GDP also helped put a cap on any gains. Read more on Spain’s GDP.
Prospects for a rate increase
Before the GDP data came out, the Bank of Canada had been “perceived as the leading candidate to be the first to raise rates” in the Group of Seven industrial economies, according to strategists at Brown Brothers Harriman.
However, now that first-quarter growth seems unlikely to hit the bank’s 2.5% target, “some of the fundamental justification for the recent market move to pull prospective rate hikes into July or even June feels overdone,” said David Tulk, chief Canada macro strategist at TD Securities.
“We expect that the next increase will occur in September of this year and we would need to see continued upside surprises in both the data and the international backdrop to warrant an earlier move,” he said in research note. “February GDP suggests we are not there yet.”
On April 17, the Bank of Canada kept its target for the overnight rate at 1%. Its monetary policy announcement is set for June 5.
In Toronto, the S&P/TSX Capped Diversified Metals and Mining Index , which fell 1.4%, and the S&P/TSX Capped Gold Index /zigman2/quotes/210598462/delayed XX:TORGC190 -0.30% , which lost 0.3%, were among the bigger decliners in the subsectors.
Shares of Goldcorp Inc. lost 1.4% after the company announced that the Supreme Court of Chile issued on Friday a decision suspending the approval of the environmental permit for the El Morro copper-gold project.
Other miners lost ground, with Lundin Mining Corp. /zigman2/quotes/201246870/delayed CA:LUN +2.88% down 1.6%, Inmet Mining Corp. falling 1.2% and Ivanhoe Mines Ltd. /zigman2/quotes/207656050/delayed CA:IVN 0.00% shedding 3%.
The S&P/TSX Capped Energy Index XX:TORGC187 -0.39% was the biggest gainer, tacking on 1.5% by the close, following recent strength in oil prices and a rally Monday for natural gas. Read about Monday’s energy trading.
The S&P/TSX Capped Information Technology Index XX:TORGC194 +0.97% also advanced 0.9% as Research In Motion Ltd. shares climbed 2.5%.
In currencies action, the U.S. dollar /zigman2/quotes/210561978/realtime/sampled USDCAD -0.2381% bought 98.73 Canadian cents, up from 98.10 Canadian cents late Friday.
The GDP should be placed in the context of the “very strong March employment report, that has tended to detract from February data signals that are now two months old,” said Alan Ruskin, global head of G-10 foreign-exchange strategy at Deutsche Bank. “As such, follow-through selling of CAD is seen as likely to be limited.”