Why the TSX took a dive in early trading

The main Toronto stock index took a dive this morning, dragged down by gold and energy companies. At that time, the S&P/TSX composite index was down 129.27 points to 14,948.73, after 90 minutes of trading.

In New York, meanwhile, the Dow Jones industrial average had gained 57.01 points to 21,377.05. The S&P 500 index had climbed 7.85 points to 2,417.60 and the Nasdaq composite index had risen 38.46 points to 6,127.92

At the same time, the Canadian dollar had gained ground, following a stronger-than-expected jobs report that boosted expectations that the Bank of Canada will raise its key interest rate next week. The loonie was trading at 77.58 cents US earlier today, up from an average price of 77.24 cents US on Thursday.

Also in early trading, the August crude contract was down US$1.61 to US$43.91 per barrel and the August natural gas contract was up two cents to US$2.90 per mmBTU. The August gold contract was down US$9.00 to US$1,213.20 an ounce and the September copper contract was down two cents at US$2.64 a pound.

But at close on Friday, the S&P/TSX composite index had nearly recovered by moving up to 15,027.16 — compared to an open of 15,037.16 and one-day low of 14,915.78. The Canadian dollar, along with the S&P 500, Dow Jones and Nasdaq, retained Friday gains.

Canadian oil news

Apache Corp. says it has sold its assets in British Columbia, Alberta and Saskatchewan for close to $1 billion in a strategic exit from Canada.

The Houston-based oil and gas company said late Thursday that leaving Canada was part of its goal of streamlining its portfolio to focus on projects in the United States, United Kingdom and Egypt.

Apache said the sell-off will mean a significant reduction in asset retirement obligations and annual overhead costs, as well as improve the revenue and cash generated on the energy it produces.

It said the $125 million in spending planned for 2017 and 2018 in Canada would be redirected to other areas of its portfolio.

The company said its selling off its Canadian assets in a trio of deals worth about $927 million to Paramount Resources, Cardinal Energy Ltd., and an undisclosed privately owned company, with the Cardinal deal already closed.

Paramount said Thursday that along with buying Apache assets in Alberta and B.C. for about $460-million, it was also merging with Trilogy Energy Corp. in an all-share deal.

Central bank forecasts

In a Friday report, CIBC chief economist Avery Shenfeld says the Bank of Canada should hike next week — which would help encourage financial stability — but he cautions that BoC governor Poloz hasn’t been known for having a clear communications policy. In the report, Shenfeld notes, “We caution that next week’s decision is still not quite a sure thing,” given Poloz has surprised markets in the past.

Nonetheless, the implied probability of a hike rose to 93% from 83% in the Overnight Index Swap market, on the back of Canada’s strong employment news, reports forexlive.com. It finds other measures show an even higher probability.

Read: Canada adds 45,300 jobs, nudging unemployment rate down

Both RBC and TD — in Friday economic updates — call for a BoC hike. RBC says “the Bank of Canada might not be overly concerned about [Friday’s] wage [growth] number,” adding that “judging by today’s report and last week’s survey, we think the labour market is giving a green light for the Bank of Canada to raise rates next Wednesday.”

For its part, TD says the latest employment data is “unlikely to carry much weight on [the BoC’s] decision, given it continues the trend of robust job gains, and the weak wage backdrop was present ahead of the change in communication strategy last month.” The bank adds, “[…] the market has already braced for this by pricing in a hike for next week.”

Going forward, says Shenfeld, “A second hike in the final quarter of the year will likely see the overnight rate back to 1%. Since the Fed will also be hiking in Q4, we should be done with the lift to the Canadian dollar from the change in Bank of Canada policy. In 2018, look for only a slow crawl higher from both central banks, with a hike every six months or so.”

According to CME Group’s FedWatch tool, the Fed is most likely to make its next move in December 2017 or afterward.

However, in a separate report, Desjardins senior economist Francis Généreux forecasts that weak wage growth would be one hurdle to the Fed normalizing its policy — despite recent hiring strength.

Read: U.S. hiring grew at stronger pace in June