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Rising crude oil, gold prices help cushion S&P/TSX composite from blow from Ukraine

A sign board displays the TSX in the Richmond Adelaide Centre in the financial district in Toronto on Wednesday, September 29, 2021. THE CANADIAN PRESS/Evan Buhler

TORONTO — Canada's main stock index was cushioned from moving heavily into the red as fears about sanctions against Russian oil lifted crude prices and powered the energy sector to its highest level since 2015.

The talk of curtailing Russian oil imports created additional worries than seen over last couple of weeks over fears that higher oil prices would increase inflationary pressures that may impact consumers and temper growth.

"So then that S word, stagflation, comes into play as well," said Mona Mahajan, senior investment strategist at Edward Jones.

The TSX's higher exposure to energy and materials is helping the Toronto market to rise slightly year-to-date even while U.S. markets have decreased with the S&P 500 and Nasdaq composite in correction territory.

The S&P/TSX composite index closed down 98.03 points or 0.5 per cent at 21,304.40.

In New York, the Dow Jones industrial average was down 797.42 points or 2.4 per cent at 32,817.38. The S&P 500 index was down 127.78 points or nearly 3.0 per cent at 4,201.09, while the Nasdaq composite was down 482.48 points or 3.6 per cent at 12,830.96.

Mahajan said the U.S. economy came into this geopolitical crisis stronger than European markets. In the last week, the TSX was up one per cent, the S&P was down three per cent but European markets were 11 per cent lower. 

"So I think you're just seeing a flight to safety broadly, but I think the TSX may be included in that safe haven basket to some extent," Mahajan added.

Energy was the big mover Monday, gaining 3.0 per cent as crude oil prices moved above US$130 per barrel before losing some of the day's gains.

The April crude oil contract was up US$3.72 at US$119.40 per barrel and the April natural gas contract was down 18.3 cents at US$4.83 per mmBTU.

Oil prices helped producers with shares of Vermilion Energy Inc. up 12.9 per cent, MEG Energy Corp. 7.9 per cent higher and Suncor Energy Inc. rising 5.1 per cent.

Although there has been some talk about crude moving to US$200 per barrel, that's not the base case for Edward Jones, said Mahajan.

She said markets tend to overshoot to the upside and getting to the US$150 per barrel level is "within the realm of possibilities."

But she said there are opportunities, especially in the mid- to longer-term to bring on supplies including from Iran, strategic reserves and OPEC.

"We do think some of the supply challenges can be met and so we don't see necessarily see that dramatic overshoot (in the) $200 range. And so we're hopeful that this remains contained."

And while higher crude prices help energy companies, the extra input costs are a problem for the transportation sector, including airlines and railways.

The industrial sector was slightly lower on the day as Cargojet and Air Canada were down 16.5 and 10.6 per cent, respectively.

The Canadian dollar slipped despite higher crude prices as the U.S. dollar gained during the ongoing uncertainty as the world's reserve currency. The loonie traded for 78.29 cents US compared with 78.43 cents US on Friday.

Materials was also higher as gold prices move closer to the record high set in August 2020. Gold is typically seen as a hedge against inflation.

The April gold contract was up US$29.30 at US$1,995.90 an ounce after hitting an intraday high of $2,007.50 that's just about $67 off the record. The May copper contract was down 20.7 cents at US$4.73 a pound.

Alamos Gold Inc. was up 5.5 per cent while Franco-Nevada Corp. was 4.1 per cent higher.

Utilities and consumer staples were also higher as a safe-haven play as investors moved to defensive asset classes. But that may not last, said Mahajan.

"If this overhang eventually does get removed with the Russia-Ukraine crisis, we may not see that traditional flight to safety and those two sectors may not hold up as well, but for now I think there's a little bit of hide out in the defensive assets."

Technology lost ground with Lightspeed Commerce Inc. off 6.3 per cent and Shopify Inc. falling 6.0 per cent.

The heavyweight financials sector was down 1.6 per cent because of a flattening of the yield curve and some concern emerging about exposure to Russia by some European banks, especially in France and Italy, said Mahajan.

This report by The Canadian Press was first published March 7, 2022.


Ross Marowits, The Canadian Press

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