TSX Closer: Market Finishes The Week Strong as a Potential Interest-Rate Cut Looks To Remain Distant

The Toronto Stock Exchange's S&P/TSX Composite Index closed higher on Friday, ending the session up 83.86 points at 21,969.24 on big gains for mining stocks.

The biggest gainers for the day base metals, up 3.428%, and battery metals, up 3.102%. The only decliners were Telecoms (-0.321%) and Utilities (-0.222%).

West Texas Intermediate (WTI) crude oil rose on Friday on expectations for higher demand and tight supply, even as hopes for stimulus from lower U.S. interest rates further dimmed after the Fed's preferred inflation gauge came in hot for the third consecutive month as widely expected.

WTI crude for June delivery closed up US$0.28 to settle at US$83.85 per barrel, while June Brent crude, the global benchmark, was closed up US$0.49 to US$89.50.

Gold prices were higher mid-afternoon on Friday, climbing for a second day as treasury yields fell after a key U.S. inflation measure rose above expectations.

Gold for June delivery was last seen up US$9.10 to US$2,351.60 per ounce.

Despite today's gains and even after the index hit record highs earlier in April, the TSX is still down near 1% for the month.

One reason behind the recent fluctuations in the stock market would appear to be lingering uncertainty around the timing and pace of an expected rate cut path, not just in Canada but in the United States too. And this uncertainty has led BMO Economics on Friday to push back the timing of a second rate rate cut here.

This stems from BMO's Chief Economist Douglas Porter in his weekly "Talking Points" note asking himself: Where does a "steady-for-longer" Fed leave the Bank of Canada?

"In a tough spot, to be sure," Porter said, noting Canada has had a "very, very different" inflation performance this year - the three-month trend on trim CPI is a "mere" 1.4%, three full points below the U.S. core PCE Index, and giving out a "diametrically opposed message so far in 2024."

Beyond currency concerns, Porter noted the two major issues "gnawing at the BoC and boxing in rate cut aspirations" are wages and housing, Porter said: "While the Bank keeps talking about calming wage pressures (I.e., a rapidly rising jobless rate), the reality on the ground is less helpful. Fixed-weight earnings are still trending higher, unit labor costs remain on a tear due to paltry productivity, and the average wage settlement is still nearly 5%. Meantime, there is the evergreen concern that even a whiff of rate cuts will fan the housing embers."

According to Porter, the "quasi" minutes of the April BoC meeting suggested these concerns will translate into only a gradual climb down in rates. He said BMO is "still clinging to" its long-standing call for a rate cut in June - he noted the market still sees it as a count toss - but added BMO is pushing back the second move to September ("in sync with the later first move by the Fed").

This, he noted, runs against the Bank's usual pattern of moving in pairs, "but it truly is different this time."

In terms of key economic data, BMO Economics, in looking at today's U.S. Personal Income & Consumption data for March, said the bottom line is that the surprising strength of the U.S. labor market despite rapid interest rate hikes is allowing consumers to keep spending, although households are also relying on savings to support spending with the saving rate falling to 3.2% from 3.6%.

"The offshoot is that interest rates are likely going to stay higher for longer," it said.