The Toronto Stock Exchange closed lower on Tuesday as sharp losses in base metals stocks outweighed gains in telecom, utilities, health care and financial shares, while investors weighed the outlook for inflation, interest rates and the Canadian economy.
The S&P/TSX Composite Index closed down 74.80 points, or 0.21%, at 34,927.38, even as most sectors ended the session in positive territory.
Telecom led gainers, up 1.24%, with Industrials, Energy, Utilities, Battery Metals Index, Health Care, and Financial, up 0.62%, 0.02%, 0.89%, 0.12%, 0.62%, and 0.34%, respectively. Base Metals led decliners, down 5.17%, while Information and Technology dropped 0.36%.
In commodities, gold fell on Tuesday as the dollar continued to climb after the Federal Reserve last week warned interest rates may rise as inflation continues to run ahead of its 2% target. The precious metal for August delivery was last seen down 1.7% to US$4,130.20 per ounce.
Meanwhile, West Texas Intermediate (WTI) oil closed lower Tuesday, falling for a third session as tankers begin moving through the Strait of Hormuz amid continued peace talks between the US and Iran. WTI crude oil for August delivery closed 0.9% lower to settle at US$73.21 per barrel, the lowest since March 2, while August Brent oil was last down 1.1% to US$77.08.
On the economic front, investors also assessed the latest inflation data for clues on the Bank of Canada's interest-rate path. Canada's consumer price index rose in May, but it may mark the peak and keep the central bank on hold, according to UBS Global Research, even as food-price inflation "is something to watch".
The bank wrote in a note sent on Tuesday that prices may have peaked because June gasoline prices have fallen roughly 8% versus May. The headline index rose 0.4 percentage point to 3.2% year over year and core CPI added 0.1 point to 1.6% annually, according to data released on Monday by Statistics Canada.
In currency markets, analysts said diverging interest-rate expectations continued to weigh on the Canadian dollar.
The Canadian dollar weakened versus its US counterpart, driven by widening interest rate differentials, Societe Generale Economics said in a Tuesday note. A larger gap between two-year U.S. Treasury and Canadian government bond yields pushed the U.S. dollar higher against the Canadian currency, with the exchange rate up to a 14-month high of almost $1.42, wrote the bank in its note.
However, markets showed little reaction to Canada's higher-than-expected May consumer price index print, said SocGen. The Bank of Canada is seen keeping rates on hold for the "foreseeable future", it added.
Additionally, provincial borrowing in Canada reached unprecedented levels as of Monday, having collectively sold $104 billion of debt worldwide, setting a new record for the first six months of the year, said National Bank of Canada Capital Markets.
On the surface, record borrowing is "no reason to rejoice," managing director Warren Lovely wrote. This year's rapid borrowing reflects unusually high financing needs, driven by wider budget deficits and spending required to support and reshape regional economies that are less productive and more exposed to trade with the US and its new tariffs, the bank said.
Meanwhile, Bank of Canada Governor Tiff Macklem pointed to persistent global economic imbalances as another challenge facing policymakers and financial markets. Global imbalances are once more exerting pressure through trade, capital flows and financial markets, prompting questions about whether they will be managed ahead of time or corrected abruptly, said Macklem on Tuesday. Market and policy consensus is growing that domestic policy distortions in major economies are driving these imbalances, he added in a speech in France made available by the central bank.
That correction will hinge on China consuming more, the US saving more and Europe investing more. Some progress is underway, but a coordinated and sustained effort will be needed for noticeable improvement, stated Macklem. As to a solution to the problem, "I see three priorities: openness, investability and transparency," said the head of Canada's central bank at a Chambre de Commerce France-Canada event in Paris.
Separately, economists also weighed proposals aimed at boosting domestic investment and economic growth.
The federal government is weighing a Canada Strong Fund that could give households the option to invest alongside Ottawa in domestic growth projects, Scotiabank Economics said. The aim is to boost participation in nation-building investments and steer more household savings toward national priorities, the bank wrote.
"The idea is novel," wrote Rebekah Young, vice-president, economic policy, as it would allow "Canadians to share more directly in the upside of the domestic growth agenda".
Also, a new survey pointed to cautious sentiment among prospective homebuyers despite signs that some see opportunities in the housing market. Royal Bank of Canada's latest home ownership poll found that while 45% of Canadians intending to purchase a home within the next two years believe now is the right time to buy, 75% said economic uncertainty is making them more cautious, reported The Canadian Press.
The survey further found that 72% of prospective buyers consider economic uncertainty the biggest challenge to purchasing a home, while 67% worry it could affect their homebuying plans, the report added.