Canada’s main stock index slipped on Wednesday due to falling commodity stocks, as investors evaluated a half-point interest rate cut by the Bank of Canada and anticipated further reductions in the future.
The Toronto Stock Exchange’s S&P/TSX composite index was down 54.78 points, or 0.22%, at 24,661.92.
The Canadian central bank slashed its borrowing costs by 50 basis points, bringing the benchmark rate to 3.75% from 4.25%, and hailed signs of the country returning to a low-inflation era.
The action came broadly in line with the market expectations and was the first bigger-than-usual move in more than four years.
Now the focus has shifted to the top bank’s December policy meeting where traders are pricing in 94.3% chance of a 25-basis-point reduction.
“The fact that the overnight rate is still above the neutral rate is supportive of more cuts,” said Ian Chong, portfolio manager at First Avenue Investment Counsel.
Neutral rates are rates that neither restrict nor stimulate economic growth. BoC estimates this range to be between 2.25% and 3.25%. With inflation slipping below the bank’s 2% target, concerns about economic growth provide the BoC with a cushion to consider more rate cuts.
Among sectors, Canada’s heavyweight energy sector fell 0.7% as oil prices dropped after industry data showed U.S. crude inventories swelled more than expected.
The materials sector fell 0.8% as gold prices slipped after hitting a record high amid uncertainty around U.S. elections, while losses in copper prices also affected the sector.
In contrast, industrials and consumer discretionary stocks rose 0.3% and 0.4%, respectively.
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Among individual stocks, First Quantum Minerals rose 1.6% after copper miner beat third-quarter profit estimates.
Domestic markets also took cues from Wall Street where the benchmark S&P 500 fell 0.45% as Treasury yields continued to rise.
Gold prices hit record highs on Wednesday, defying the dollar’s rise, which kept pressure on the yen and the euro, while global stocks edged lower amid investors’ reluctance to place major bets ahead of the U.S. election.
Investors are also rethinking how much the Federal Reserve might need to cut interest rates after the most recent U.S. economic data pointed to an economy that continues to expand and create jobs.
Markets are pricing a 92% chance of a 25-basis-point cut at the Fed’s next meeting in November and another 25-bps cut by year end. A month ago, traders were pricing in as much as a full percentage point in cuts by January. The yield on benchmark U.S. 10-year notes hit three-month highs and were last up 3.8 basis points to 4.244%.
“The yields rising are implying a pro-growth administration is potentially coming into power and there’s some fear about deficit-spending,” said Thomas Hayes, chairman at Great Hill Capital in New York.
On Wall Street, all three main indexes were trading lower, driven by losses in consumer discretionary, healthcare and technology stocks.
The Dow Jones Industrial Average fell 0.52% to 42,700.16, the S&P 500 fell 0.36% to 5,830.00 and the Nasdaq Composite fell 0.56% to 18,469.35.
The MSCI All-World index was 0.41% lower on the day, echoing weakness in Europe, where the STOXX 600 was down 0.06%.
“This week’s stock-market price action suggests that the 50th record high for the S&P 500 could be a tough ask with the U.S. election so close,” XTB research director Kathleen Brooks said.
The chances of Donald Trump beating Kamala Harris have recently edged higher on betting websites, though opinion polls show the race to the White House remains too tight to call.
The prospect of another Trump presidency has been in focus for investors, as his policies include tariffs and restrictions on undocumented immigration, among other measures, that are expected to push up inflation.
“There is an illusion that if Trump wins, you want to buy energy. Energy actually underperformed during the period from 2016 to 2020. What did outperform, and people should be buying on that basis, would be industrials like Boeing, smallcaps, and, believe it or not, emerging markets and China equities,” Hayes added.
Gold has shrugged off the strength in the U.S. dollar and rallied to a new record high of $2,757.99 an ounce. Demand for safe-haven gold is partly driven by U.S.-election worries and geopolitical tensions in the Middle East and Europe.
Bullion, which has risen 33% this year, was last down 0.8% to $2,726.51 an ounce. U.S. gold futures fell 0.1% to $2,741.50 an ounce.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.37% to 104.48.
Against the Japanese yen, the dollar strengthened 1.34% to 153.08. The euro fell 0.2% to $1.0775, its lowest since early August. Goldman Sachs said in a note on Tuesday the euro could fall by as much as 10% in a scenario under which a Trump presidency ushered in hefty tariffs and tax cuts.
Brent crude futures fell 1.14% to $75.17 a barrel. West Texas Intermediate crude dropped 1.13% to $70.93.
Reuters
