Toronto Market Ends Lower as Inflation Data Lifts Bond Yields

Toronto Market Ends Lower as Inflation Data Lifts Bond Yields
Toronto Market Ends Lower as Inflation Data Lifts Bond Yields

Canada’s main stock index fell Tuesday, giving up some of the previous day’s big gains, as higher-than-expected domestic inflation data reduced expectations for the Bank of Canada to cut rates again of interest next month.

The Toronto Stock Exchange’s S&P/TSX Composite Index ended down 60.11 points, or 0.3%, at 21,788.48, after posting its biggest gain in seven weeks on Monday.

Canada’s annual inflation rate accelerated to 2.9% in May, from 2.7% in April, after showing signs of slowing since the start of the year.

This has led investors to estimate that there is less chance that the Bank of Canada will cut interest rates for a second time in its next monetary policy decision on July 24, compared to 65% before the data, and to an increase in long-term borrowing costs. However, around two rate cuts of 25 basis points are expected between now and December.

“The fact that rates are rising is putting some pressure on stocks today,” said Angelo Kourkafas, senior investment strategist at Edward Jones.

“This introduces a little more uncertainty, but doesn’t change the fact that earnings are accelerating, interest rates and the policy rate are falling, and the economy continues to grow.”

Separate forward-estimate data showed Canadian manufacturing sales rose 0.2% in May compared to April.

The interest rate-sensitive real estate sector fell 0.8%, while the consumer discretionary sector finished down 1.6%.

The materials group, which includes metal miners and fertilizer companies, fell 1% as gold and copper prices lost ground.

The price of oil also fell to $80.83 per barrel, a drop of almost 1%, weighing on the energy sector. It fell 0.5%.

Technology was a bright spot, rising 1.2%, and the defensive consumer staples sector added 0.8%. (Reporting by Fergal Smith in Toronto and Nikhil Sharma in Bengaluru; Writing by Vijay Kishore and Alistair Bell)

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