With the TSX down, there’s lots of catch-up opportunities in the Canadian market: Portfolio manager
Canada's main stock index posted modest gains Tuesday with strength in energy, financials, tech and base metals boosting the index ahead of Wednesday's Bank of Canada interest rate announcement, while U.S. markets ended in the green after a mixed trading day.
The S&P/TSX Composite Index was up 123.98 points, or 0.62 per cent, at 20,055.60.
In New York, the Dow Jones Industrial Average was up 10.42 points at 33,573.28. The S&P 500 Index was up 10.06 points at 4,283.85, while the Nasdaq Composite was up 46.99 points at 13,276.42.
Markets were quiet as investors await Wednesday’s interest rate decision by the Bank of Canada, said Craig Fehr, investment strategist at Edward Jones.
After a run of data showing inflation is proving sticky, investors are far from a consensus on what Wednesday will bring, he said.
“I think there's perhaps more uncertainty now that there has been in quite some time for the Bank of Canada, largely because the BOC was early to move to the sidelines,” said Fehr.
“So they're also now finding themselves a little earlier in the decision-making process of if indeed it's time to go back to rate hikes or keep the pause in play.”
While Fehr said he thinks the bank is slightly more likely to extend its pause in June than to break the pause with a hike, he said the meeting is essentially a coin flip.
But regardless of the decision, what the bank has to say will be the most important, he said.
“I think their communication is going to be perhaps the most important part to the market, which is their signalling of their willingness or propensity to move back toward rate hikes,” he said, noting “that was a door that they kept open.”
If the bank does decide to hold its pause, it will essentially be buying more time to see the effects of rate hikes on the economy, said Fehr.
“I think what … central bankers and frankly what the markets would like too is just more time to truly have an understanding of what the lag effects of this tightening have been,” he said.
Markets were similarly wan in the U.S. Tuesday ahead of the Federal Reserve’s own decision next week.
“The markets … are going to be stuck in a bit of a holding pattern for a while,” said Fehr.
After a better-than-expected employment report last week, “the markets are going to squarely shift their sights towards next week's inflation report and Fed rate announcement. And I think the combination of those two events will keep the market suspended to a degree for a little while longer,” said Fehr.
The two banks are facing similar dilemmas and conditions, but with some key differences, said Fehr. For one, the Fed has yet to pause rates while the Bank of Canada did months ago. But the Canadian consumer is more sensitive to interest rates due to differences in the mortgage market, and is holding a higher average debt load, said Fehr.
The Canadian dollar traded for 74.52 cents U.S. compared with 74.44 cents U.S. on Monday.
The July crude contract was down 41 cents at US$71.74 per barrel and the July natural gas contract was up two cents at US$2.26 per mm/BTU.
The August gold contract was up US$7.20 at US$1,981.50 an ounce and the July copper contract was essentially unchanged at US$3.77 a pound.