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TSX Closed Down Nearly 250 Pts Today, Leaving it 400 Pts Off Recent Record High; RBC and Other Top Canadian Banks In Focus

Canada's main stock market, the Toronto Stock Exchange, hit its lowest levels in more than two weeks on Friday, having just recently hit record highs. Today, the resources heavy index lost around 250 points or 1.5% to close at near 15,534.5. About 400 points off the record high 15,943 hit on February 21.

Financials and Energy stocks both took about 80 points off the table. And Materials accounted for about 20 points of the losses.

Reflecting that in commodity prices, gold futures rose for a fourth consecutive week and reached three month highs on Friday as the USD weakened amid uncertainty about the timing of interest rate increases and the timing/content of economic policy changes under new President Trump in the States. Gold for April gained 0.6% in settling at near US$1,258.30 an ounce. Silver for March jumped more than 1% today in settling at near US$18.30 an ounce. Both gold and silver jumped about 1.5% over the week. For its part, gold has slipped back a little bit in electronic trade, since settlement.

Elsewhere, oil prices fell about 1% today on concerns about rising U.S. supplies, although both brent crude and U.S. West Texas Intermediate gained about 1% over the week.

Not even better than expected Canadian inflation data could help sentiment for stocks, although it did give the Canadian dollar a boost, temporarily at least. CPI jumped to 2.1% year-over-year from 1.5% in December as energy price inflation surged to 12%. Today's reading is well above the consensus forecast of 1.6% and marks the first time inflation has exceeded 2% since October 2014. Perhaps overshadowing that news, the federal government revealed that Canada posted its eight straight budget deficit in December.

Top story of the day may have involved Royal Bank of Canada (RY.TO, RY), which lodged Q1 diluted EPS of $1.83, beating a forecast $1.77. This follows on CIBC's (CM.TO, CM) massive Q1 beat on Thursday. RBC also declared an increase to its quarterly common share dividend of $0.04 per share, or 5%, to $0.87 per share, payable on and after May 24, 2017, to common shareholders of record at the close of business on April 25, 2017.

In reply, Barclays has kept an Underweight rating on RBC compared to a Neutral industry view, but lifted its target by $3 to $87.

Andy Nasr, VP and Investment Strategist at Sentry Investments, said on Canada's BNN TV early today that RBC's result is a good example of why so many Canadian investors hold and will continue to hold Canadian bank stocks, despite concerns about an over heating housing market for example. Nasr said they consistently deliver with mid single digit to high single digit earnings growth, relatively predictable RoEs and strong balance sheets. "You are seeing all these things come together in this earnings release," he added. Nasr said his firm does hold RBC, one of the few Canadian banks that "we like" because of the US exposure with a strong franchise and good management. Nasr also said he is not concerned about high valuations, adding it reflects the strong run up in US banks based on expectations for higher US rates. Nasr noted the RoE improved.

On US exposure, Nasr said the key is that Canadian banks still remain relatively under penetrated in the US. He said for the most part they have under used balance sheets when it comes to leveraging and maximising their potential to expand in the consumer and corporate market there.

In related news, RBC has put its Asian wealth management business under review, which could lead to its sale, four people familiar with the matter told Reuters.

Meanwhile, Nasr at Sentry Investments also said on BNN TV that CIBC probably should lift its offer for PrivateBancorp ( PVTB ) given the value of the US bank is now higher than it was when the Canadian bank made its bid. "It's difficult to say because you have seen the whole financial sector run up and I can understand why there would be pressure on them to raise their price, and why it would make more sense to pay up in this environment. Especially given low regulations and the prospect for higher rates, relatively strong consumer and corporate balance sheets," Nasr said. "Yeah, I think they probably will."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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