International
TSX Closer: Index Down a Second-Straight Session, This Time More Likely On a Local Issue
The Toronto Stock Exchange fell again Tuesday, following Friday's tumble ahead of the holiday weekend in Canada, but this time it was lower on a more local issue as market watchers are divided over whether to prepare for the Bank of Canada turning more dovish or hawkish on interest rates.The S&P/TSX Composite Index closed down 92.11 points, or 0.27%, to 33,741.24, adding to the 435 points lost Friday when rising global bond yields sapped investor appetite for equities, with elevated oil prices reigniting concerns around the outlook for higher inflation.Still, the S&P 500 and the Nasdaq fell near 0.7% and near 0.8% respectively today. Also, most sectors on the TSX were higher Tuesday, led by Energy up 2.3%, even with oil prices lower. In contrast, the Battery Metals Index crashed 7.6%, while Base Metals was down by more than 4%, with gold down.In commentary on the broader market, Edward Jones in a summary of its 'Weekly market wrap' dated May 15 noted markets this year have been "robust". In fact, it said, despite near 10% corrections in both the S&P 500 and the TSX in March, and ongoing uncertainty around the Iran war and oil prices, stocks are back near record highs. Then in noting there is an old adage that says, 'Sell in May and go away', Edward Jones asked: should investors take that approach this year?"Overall," it said, in answering its own question, "a lot of good news is reflected in markets, and we may see a period of sideways movement or consolidation of recent gains."Nonetheless, we don't yet see the conditions in place for a deep or prolonged downturn in markets -- and as we know from history, time in the markets is a better strategy than trying to time yourself in and out of markets."While we don't recommend selling investments, we do suggest reviewing your investment strategy: To help ensure you are well diversified and seeking opportunities if market volatility does arise, in accordance with your goals and risk tolerance."On the economics front, data released early today showed Canada's inflation measures were softer than anticipated in April. Headline inflation accelerated to 2.8% year on year due to gasoline. The average of trim/median rose by 0.16% MoM and 2.05% year on year. Traditional core (ex. food/energy) was 0.0% MoM and up 1.5% year on year.Royce Mendes, Head of Macro Strategy at Desjardins, wrote underlying inflation is "screaming" for a more dovish Bank of Canada. "Having had nightmares about another round of persistently high inflation, Canadian monetary policymakers can now rest easier," he said, following the release of the CPI data.The latest CPI data suggest underlying price pressures remain "extremely muted", he said, noting the Desjardins bias-adjusted median and trimmed mean measures now point to an average annual rate of just 1.6%, well below the simple average of 2.1% for the unadjusted measures.According to Mendes, the bias-adjusted measures of inflation Desjardins has developed do a better job of accounting for skew in the distribution of price changes. "The last time the gap between the bias-adjusted and unadjusted metrics was this wide in early 2024, it confirmed our thesis that the Bank of Canada was set to embark on an aggressive easing cycle. While rate cuts are not yet on the table, market-implied pricing for two rate hikes seems misplaced. An honest assessment of underlying inflation would have the Bank of Canada turning more dovish. With the unemployment rate elevated and savings diminished, higher gasoline prices may be chewing through household finances in a way that reduces spending and inflationary impulses in other categories," Mendes added.Elsewhere, Derek Holt, Scotiabank's Head of Capital Markets Economics, said Canada is emerging from a prior soft patch on high frequency core inflation measures, "but hardly at a screaming pace" thus far. A lot of data still lies ahead and nothing is settled by one report, he added.Looking ahead, David Doyle, Head of Economics at Macquarie Group, anticipates some firming in inflation ahead as pass through from higher oil prices occurs and the output gap shrinks amidst economic improvement. Macquarie's baseline remains for 50 bps of BoC hikes by end-year with the most likely timing for the first 25 bps hike in September.Of commodities, West Texas Intermediate crude oil eased Tuesday after the United States extended a ceasefire with Iran, in favor of continuing peace talks with the country. WTI oil for June delivery closed down $0.89 to settle at US$107.77, falling off the highest since April 7. July Brent oil was down US$1.70 to US$110.40.Gold moved lower by midafternoon Tuesday as the dollar and yields continued to climb on rising concerns higher interest rates are coming as oil prices rise due to the war on Iran. Gold for June delivery was down US$45.80 to US$4,509.50 per ounce.
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