Canada’s main stock market overcame a blip that saw it record a single digit loss yesterday to prevent a six in a row of winning sessions, recovering with the oil price on Friday to post fresh gains of near 123 points and leave the overall index near two month highs and short of the 20,200 mark.
But while noting a rebound in oil today was a boost to the resources heavy Toronto Stock Exchange — although gold was lower — it was likely optimism around inflation relief that mostly boosted sentiment among market watchers and players. The TSX was up 2.65% over the week and now stands more than 4% higher year to date.
Douglas Porter at BMO Economics in his weekly “Talking Points’ note, noted markets were back in rally mode this week after the briefest of lulls, finding fresh fuel from a series of favourable inflation results. According to him, “the topper” was the “mild” U.S. October CPI reading. He said Canada’s October CPI report on Tuesday is also expected to see a minimal monthly rise and a “hefty” drop in the headline to just above 3%, down 5 ppts from last year’s peak. “Suffice it to say that in the post-war era, the advanced economies have never before been able to cut inflation so heavily and so quickly in the absence of a full-blown recession,” Porter added.
Meantime, Porter said the renewed drop in oil prices to around $75 and a near-two-year low on wholesale gasoline prices points to further near-term inflation relief. Combined with some softer U.S. economic data this week — “a dip in October retail sales, a back-up in jobless claims, and a sag in industrial production” — yields took a big step down, with 2s and 10s falling nearly 20 bps, and 5s dropping even further. This fired up equities, with the MSCI World index now up 8% from the lows reached just three weeks ago, and up almost 13% for all of 2023, Porter added.
Porter noted: “Markets have now turned their attention, in laser-like fashion, to when the Fed and other central banks may start cutting rates. While we are now more optimistic that inflation can be quelled without severe damage, we continue to believe that the Fed and others will err on the tight side. Accordingly, even with the much better recent inflation news, we look for rate cuts to only begin in the second half of next year.
Of commodities today, gold closed with a loss, surrendering early gains despite a falling dollar, while treasury yields were mixed. Gold for December delivery closed down $2.60 to settle at US$1,984.70 per ounce, after earlier touching US$1,996.40.
But West Texas Intermediate crude oil closed higher, rebounding from a near 5% drop a day earlier that sent prices to the lowest in four months following reports OPEC+ will consider additional steps to support prices when it meets later this month.
WTI crude for December delivery closed up $2.99 to US$75.89 per barrel, while January Brent crude, the global benchmark, closed up $3.19 to settle at US$80.61.
Reflecting that, Energy led most sectors higher, up 2.8%, while Base Metals still carved out a 1.1% gain.
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