Weakness in energy and base metals prices sent Canada's main stock index lower on Tuesday, while U.S. stocks rose, a day ahead of the Bank of Canada's much-anticipated interest rate decision.
The S&P/TSX composite index fell 138.51 points to 21,978.18.
In New York, the Dow Jones Industrial Average rose 140.26 points to 38,711.29, the S&P 500 rose 7.94 points to 5,291.34 and the Nasdaq Composite added 28.38 points to 16,857.05.
Kevin Burkett, portfolio manager at Burkett Asset Management in Victoria, said U.S. markets are grappling with economic news that has “become increasingly negative recently.”
He added: “We're in a market where bad news is good news” as investors look for signs that the Federal Reserve may soon start cutting interest rates.
The latest data showed that the number of job openings posted by U.S. employers at the end of April was lower than economists expected.
Burkett said investors are likely viewing the report as another sign of the economic weakness they are expecting.
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However, he added that there are also concerns that the economy could be overly weak as the lagged effects of rate hikes kick in.
“We want the economic data to cool, we want inflation to reach target because that will lead to rate cuts. But we’re concerned that there could be an overshoot,” he said. “We’re particularly concerned about that because I think the lag time for rate hikes is longer than most people expect.”
A more important report on the U.S. labor market will be released on Friday, the May jobs report.
Burkett said the labor market was the strongest area, which surprised market watchers.
North of the border, the Bank of Canada is widely expected to begin cutting its benchmark interest rate on Wednesday, though that is not set in stone, Burkett said.
He said if the central bank does not cut rates this week, a cut in July is almost certain.
However, Burkett added that the fact that the U.S. will not cut interest rates until at least the fall complicates the Bank of Canada's decision, and the divergence in the policies of the two central banks could have a negative impact on the Canadian dollar.
Oil prices continued to fall on Tuesday, weighing on the Toronto Stock Exchange Energy Index, which fell more than 2%.
“The same negative macro news that raises the odds of a rate cut tomorrow is also weighing on expected demand for energy products, weighing on oil prices,” Burkett said.
The July crude contract fell 97 cents to $73.25 a barrel, and the July natural gas contract fell 17 cents to $2.59 per 1,000 cubic feet.
The Canadian dollar traded for 73.09 cents US compared with 73.34 cents US on Monday.
The August gold contract fell $21.90 to $2,347.40 an ounce, while the July copper contract fell 13 cents to $4.54 a pound.
— Associated Press
© 2024 The Canadian Press
