Canadian stock market experiences a rise, fueled by optimism surrounding potential interest rate cuts by the Bank of Canada and the Federal Reserve
The Bank of Canada (BoC) made a significant move this week, lowering its key policy rate to a three-year low of 2.5%. This unanimous decision comes as the BoC seeks to address economic softness and cooling in the labour market.
In a related development, the U.S. Federal Reserve also expressed a dovish sentiment and projected two more cuts for the year. This decision follows a similar trend, with central banks worldwide responding to economic challenges.
The BoC's decision had a noticeable impact on the Canadian stock market. The S&P/TSX composite index in Canada rose by 0.3% to 29,420.03 points on Thursday. However, some sectors felt the brunt of the interest rate cut. Mining stocks such as Seabridge Gold, Orla Mining, and G Mining saw a decline, with losses ranging from 2% to 3%. Miner Endeavour Silver Corp dropped 4.5%.
On a positive note, technology stocks rose 1.3% after weakness in the previous session. Notable gainers include Blackberry, up 3.3%, and Shopify, which rose 2%. Electronic equipment company Celestica added 1.1%.
The interest rate cuts and the changing economic landscape have not gone unnoticed. Canadian Prime Minister Mark Carney, formerly Bank of England Governor, has emphasised the shifting economic risks, including a weakening labor market and reduced inflation pressure. He highlighted the changing outlook and suggested the economy is losing resilience, with contained inflation due to higher unemployment and tariff removals.
As the U.S.-Mexico-Canada free trade deal is set for review next year, Prime Minister Carney is seeking a common front ahead of trade talks with the US. He recently arrived in Mexico City to discuss these matters.
Angelo Kourkafas, senior investment strategist at Edward Jones, mentioned that markets continue to ride positive momentum after central banks showed willingness to respond to economic softness. However, he also noted that the TSX has been riding the gold wave, and a potential pullback in gold could have an impact on the material sector.
As gold prices pulled back from a recent rally, it's worth noting that there has been a significant rally in gold since the 1970s. Whether this trend continues remains to be seen.
In summary, the BoC's decision to lower its key policy rate to 2.5% reflects a global trend of central banks responding to economic challenges. The impact on the Canadian stock market was mixed, with some sectors feeling the brunt of the rate cut, while others saw gains. The interest rate cuts and the changing economic landscape have been met with cautious optimism, with investors and policymakers keeping a close eye on the evolving situation.
