S&P/TSX composite makes moderate gain after rate decision, U.S. markets also rise

Markets
04-05-2024

March 6, 2024

Canada’s main stock index posted modest gains Wednesday after the Bank of Canada continued to hold its key lending rate steady, while U.S. markets also moved higher, recovering some of Tuesday’s losses.

The S&P/TSX composite index closed up 68.03 points at 21,593.96.

In New York, the Dow Jones industrial average was up 75.86 points at 38,661.05. The S&P 500 index was up 26.11 points at 5,104.76, while the Nasdaq composite was up 91.96 points at 16,031.54.

Central bank officials on both sides of the border spoke Wednesday about the need for caution ahead of highly anticipated interest rate cuts.

The Bank of Canada held its interest rate steady at five per cent, a move that surprised practically nobody, said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.

However, he said the commentary from Bank of Canada governor Tiff Macklem was more hawkish than he expected, as the governor said it’s still too early to consider lowering the policy interest rate.

“With inflation still close to three per cent and underlying inflationary pressures persisting, the assessment of governing council is that we need to give higher rates more time to do their work,” said Macklem.

While inflation is receding and the overall economy has weakened more than that of the U.S., Canada’s housing market remains strong, said Burkett.

Macklem is likely concerned that talking about rate cuts too soon “will spur on the Canadian housing market, which really hasn’t reacted the way anyone would have guessed, given the magnitude and rapid nature of the barrage of rate hikes,” he said.

Meanwhile, U.S. Federal Reserve chair Jerome Powell’s testimony before Congress seemed more dovish on cuts than Macklem’s, said Burkett.

Powell said the Fed needs more confidence inflation is moving sustainably toward its target before it can start cutting rates.

Despite the U.S. economy’s strength compared with Canada, Burkett thinks the Fed could cut rates before its northern neighbour because of the differences in its housing market, where mortgage terms are significantly longer.

“I think there’s more sensitivity in our housing market because we didn’t see the same correction that they saw in the U.S. during 2008,” he added.

Wednesday saw fresh data on U.S. job openings, which were relatively flat at the end of January compared with a month before. It also saw the Fed’s latest report on business and economic conditions, which said economic activity increased slightly since early January while there were signs of easing in the tight labour
market.

The Canadian dollar traded for 73.92 cents US compared with 73.63 cents US on Tuesday.

The April crude oil contract was up 98 cents US at US$79.13 per barrel and the April natural gas contract was down three cents at US$1.93 per mmBTU.

The April gold contract was up US$16.30 at US$2,158.20 an ounce and the May copper contract was up three cents at US$3.88 a pound.

— With files from The Associated Press



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