Treasury
TSX Closer: Index Drops as Investors Assess Bank of Canada's Hold, Inflation and Trade Risks
The Toronto Stock Exchange dropped on Wednesday as weakness in base metals and financial stocks offset gains in energy shares, while investors digested the Bank of Canada's latest decision to hold interest-rates unchanged and assessed the competing risks of slowing economic growth, elevated inflation and ongoing trade uncertainty.The S&P/TSX Composite Index closed down 260.37 points, or 0.76%, to 34,151.032, with sectors mixed over Wednesday's session.Base Metals led decliners , down 3.46%, while Health Care, Battery Metals Index, Industrials, and the Financial were down 1.36%, 1.80%, 1.26%, and 0.22%, respectively. Energy led gainers, up 1.63%, with Information and Technology, up 0.54%, Utilities, up 0.47%, and Telecom, up 0.39%.The BoC on Wednesday kept irates unchanged, including the key overnight rate at 2.25%, as expected. This was the fifth consecutive decision to maintain rates on hold. Since the BoC's April policy decision, the economic impact of the ongoing conflict in the Middle East has increased, wrote the central bank in its statement.Higher energy prices and disruptions in global supply chains are weighing on global growth and pushing up inflation. At the same time, the U.S. administration continues to propose new tariffs and trade policy uncertainty remains elevated. Against this backdrop, the Canadian economy has remained soft and inflation has increased. The BoC noted it expects the economy to remain in excess supply.The central bank expects consumer price index inflation to hover close to 3% in the coming months before easing gradually toward 2%. The BoC reiterated it is committed to keeping inflation close to the 2% target over time.Uncertainty is unusually elevated, and the risks could shift, said Governor Tiff Macklem in his press conference. On Canada slipping into a technical recession, Macklem said that the country's economy is weak, but "it is not clearly in recession"."There's been a lot of volatility, month to month, quarter to quarter, but when you look through the bumps, I mean the economy hasn't really grown in the last year, but it hasn't shrunk either," Macklem added.TD said the BoC's decision to hold rates reflects the need to balance weak economic growth against inflation risks stemming from higher oil prices and ongoing trade uncertainty. The bank expects the central bank to remain on hold through the rest of the year as excess economic capacity helps contain broader inflation pressures.CIBC said the Bank of Canada remains "very patient" as it weighs inflation risks from higher oil prices against growth risks tied to trade uncertainty and potential new tariffs. The bank expects rates to remain unchanged through 2026, with current policy settings supporting an economic recovery later this year and into 2027 if oil and trade uncertainties ease.Meanwhile, the Bank of Montreal said the policy statement was matter-of-fact, with no big surprises. "The BoC expects growth to rebound in Q2, but "the economy is expected to remain in excess supply", said BMO.The extra line about the economy being "weak" is a touch more dovish, but there's still concern about the potential for rising inflation from higher energy prices, according to the bank. BMO continues to expect the BoC to stay on hold through the rest of the year.A hold on rates was widely expected, but the focus was always going to be on how the bank's Governing Council would describe the evolving risks, said National Bank of Canada. In April, markets seized on Macklem's "consecutive" rate hikes threat in the scenario where oil prices remain elevated and higher energy prices lead to higher generalized inflation, noted the bank.Despite a steady dose of mostly soft inter-meeting economic and inflation data, the BoC is continuing to warn that tighter policy may be needed, stated National Bank. However, the shock of explicitly stating this has worn off and bond yields edged down moderately after the dust on the decision settled. The bank judged that the near-term hike scenario is growing less likely and it still expects the BoC to remain sidelined through year-end.Government of Canada bond yields lowered after the hold decision. While the tone from the BoC was neutral and little changed relative to the April decision, financial markets appear to have been expecting a more hawkish tone and as a result bond yields moved lower as expectations for rate hikes this year were slightly reduced, stated CIBC.In commodities, gold traded at the lowest in more than six months as the metal falls out of favor with traders, who are moving to the dollar as a hedge as a report showed U.S. inflation rose again last month, heightening expectations the Federal Reserve will raise interest rates to check rising prices.Gold for July delivery was last seen down US$155.80 per ounce to 4,1130.80 per ounce, the lowest since Nov. 24. The drop comes as the U.S. Bureau of Labor Statistics reported the May Consumer Price Index rose at a 4.2% annualized rate, up from 3.8% in April but matching expectations, according to MarketWatch.Meanwhile, the West Texas Intermediate crude oil rose on renewed fighting between the United States and Iran, while a report showed U.S. oil inventories fell for an eighth week. WTI oil for July delivery closed up US$1.83 to settle at US$90.03 per barrel, while August Brent oil was last seen up US$2.23 to US$93.78.On the trade front, Scotiabank said Canada's export markets continue to diversify away from the United States, although the U.S. remains by far the country's largest trading partnerThe share of Canadian exports bound for the United States is gradually trending lower, averaging 76% in 2024 and 72% last year, and coming in at 69% in April 2026, according to Scotiabank. This has been driven by a decline in exports to the U.S. and increasing exports to other regions, mainly Europe, noted the bank.In April, exports to the U.S. rose 4.8% month over month and were up 5.7% compared with 2024. Exports to other countries dropped 4.8% month over month but were up 48.3% from 2024, though much of this has been driven by elevated overseas exports of gold.
S&P/TSX CompositeS&P/TSX Composite$CXY