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Treasury
TSX Closer: The Index Down Modestly For a Second Straight Session As Middle East War Casts a Shadow
The Toronto Stock Exchange posted a modest drop for a second-straight session Friday with BMO's Douglas Porter noting "as much as the equity market wants to move on from the [Middle East] conflict, a renewed spike in oil beckons if the U.S. and Iran can't soon reach some kind of arrangement on the Strait" amid reports the two sides will meet for talks in Pakistan this weekend.The S&P/TSX Composite Index closed down 8.82 points at 33,904.11, with sectors mixed. The Battery Metals Index was the biggest loser, down 2.5%, while Health Care was the biggest gainer, up near 4%.Looking ahead, the key question for policymakers is whether the war on Iran can be resolved in time to avert another big step up in oil prices and "keep consumers on track", said BMO Capital Markets chief economist Porter in his weekly 'Talking Points' note. Porter wrote: "While the current stalemate in the Strait (of Hormuz) is not overly rattling oil, many analysts have noted that true physical shortages are poised to emerge very soon if the crude doesn't begin to flow from the Gulf. As much as the equity market wants to move on from the conflict, a renewed spike in oil beckons if the U.S. and Iran can't soon reach some kind of arrangement on the Strait. And even the AI boom may not be able to override another sharp run-up in energy costs."The Bank of Canada is expected to stay firmly on hold next week, so the "big debate" is whether Governor Macklem will "lean hawkishly" in his remarks, with the market still pricing in a hike later this year, noted Porter. He said this week "brought a couple of big strikes against the hawks". First, CPI was "nicely" below expectations in March at 2.4% y/y, and all measures of core came in "mild". That's three consecutive months of "decent" CPIs, with prices ex food, energy and taxes up at a mere 0.5% annual pace over that time. Second, the looming USMCA review surged back onto the front page, with some "heated rhetoric" on both sides, pointing to some turbulence ahead. Porter noted Canada's lead negotiator counselled calm, but businesses may heed that call to hold their nerve by also holding their spending. "With trade uncertainty still dragging heavily on Canada's economy, we continue to believe that the best course of action for the Bank is zero action," Porter said.National Bank published a BoC preview entitled 'Keep calm and look through inflation' in which it said the central bank is set to leave its overnight target unchanged at 2.25% on April 29, a decision widely expected by forecasters and OIS markets. This would mark the fourth consecutive hold after policymakers first declared in October that policy is at "about the right level" to keep inflation near target and support the economy's transition, National Bank noted.Traders have stripped out the three hikes that were "briefly" priced for 2026, but a tightening bias clearly remains, according to National Bank, which doesn't expect Governing Council to explicitly endorse this, instead reiterating that policy is appropriately calibrated. They will continue to look through the war's "immediate" impact on inflation while also assuring that they will not let higher energy prices spread or become persistent inflation, National Bank added.The BoC's statements will acknowledge weaker than expected growth and sluggish job market performance, National Bank said. On the other hand, it should concede that before the war, business confidence was improving even with the "layers of uncertainty" weighing on the economy, it added.Despite the surge in gasoline prices, recent inflation data has been "encouraging" as underlying price pressures continue to cool, National Bank noted. For now, soft core inflation supports looking through the headline CPI spike, the bank said. In an updated MPR, expect the all-items inflation outlook to be marked up reflecting higher gas prices, it added.However, revisions to core inflation projections should be minimal, National Bank said, adding the GDP growth profile is likely to be downgraded "modestly" with Q4 2025 performance weaker than expected, Q1 2026 tracking below earlier estimates and the labour market underwhelming. "The Bank may note that risks to growth are skewed lower and risks to inflation are skewed higher."Of commodities today, Energy was down 1.35% as West Texas Intermediate crude oil fell following reports that said Pakistani officials expect another round of peace talks between the United States and Iran. WTI crude oil for June delivery closed down US$1.45 to settle at US$94.40 per barrel, while June Brent oil was last seen up US$0.15 to US$105.22.Base Metals lost 0.6% even with gold steady as the dollar and yields eased on reports that Iran is ready to resume negotiations with the U.S to end their war. Gold for May delivery was up US$12.80 to US$4,76.80 per ounce.
S&P/TSX CompositeS&P/TSX Composite$CXY
Treasury
USD/CAD Likely To Remain Range Bound In Short Term, RBC says Ahead of Federal Govt and BoC Updates
RBC Capital Markets expects a "steady" Bank of Canada next week, with communications from the central bank "likely to lean more hawkish" than at the March meeting, given data has stabilized over the last month.RBC in its regular 'CAD Weekly Soundbites' note Friday said its view remains the BoC is on hold in 2026 and hikes in 2027, with risks of hikes being brought forward into the second half of 2026 greater ("but a slow burn evolution") than the ("small") chance of cuts this year. The annual review of the neutral rate should see no change to the 2.25-3.25% range, it added.On CA/US spreads, RBC noted uncertainty on the Iran conflict has seen CA rates outperform US counterparts, with the CA/US 10y spread at -84bp from -79bp last Friday.From a technical perspective, RBC's George Davis said a daily close below fanline resistance at 3.44% would sustain the recent downtrend in CA 10-year yields, exposing the recent low at 3.39% and the March 18 low at 3.36% thereafter. Initial support is located at 3.50% and 3.55%, with a return above 3.62% required to nullify the bullish view for bondds.Ahead of the BoC meeting, RBC noted, Tuesday's fiscal update from the federal government is "more likely to see an improved fiscal track". For the fiscal update, RBC does not anticipate major changes to spending plans after the governing Liberal Party secured a majority in parliament earlier this month. Risk skew is to lower deficits/better fiscal numbers in both the just completed FY25-26 and the current FY26-27, RBC said.USD/CAD is likely to remain range-bound in the short-term, unless the US-CA rates spread narrows more quickly than priced, or markets attach a higher risk premium on U.S. assets, RBC added.
$CXY$USD/CAD
Treasury
US Treasury Closing Levels
3:00 Friday vs 3:00 Thursday2yr 100-05 vs 100-03; 3.744% vs 3.821%5yr 99-25+ vs 99-21; 3.918% vs 3.984%10yr 98-17 vs 98-14; 4.308% vs 4.319%30yr 97-14 vs 97-13; 4.914% vs 4.914%2/10 53.245 bps vs 49.630 bps5/30 99.402 bps vs 96.410 bps