TSX higher amid hopes for U.S. interest rate reductions

Investing.com - Canada’s main stock exchange inched higher on Wednesday, pointing to an extension to gains logged in the prior session that were fueled by bets that the Federal Reserve would slash interest rates in September.

By 4.01, the S&P/TSX 60 index standard futures contract had risen by 4.5 points, or 0.27%.

The S&P/TSX composite index was up 72 points or 0.26% at 27,993.43. Index ended higher by 146 points, or 0.5%, on Tuesday, surpassing an all-time peak notched last week.

Mild U.S. inflation figures in July were seen as possibly giving Fed officials the green light to restart borrowing costs cuts the central bank previously put on hold in December.

In theory, a rate reduction could spur investment and spending in the United States. Canada, which sends roughly three-fourths of its exports to its southern neighbor, much of which are exempted from sweeping U.S. tariffs under a North American trade pact, could stand to benefit from a possible uptick in growth.

U.S. stocks climb

U.S. stock index rose, adding to recent gains as mild inflation data bolstered prospects for a Federal Reserve rate cut next month.

The Dow Jones Industrial Average gained 463 points, or 1.04%, the S&P 500 index climbed 20 points, or 0.32%, and the NASDAQ Composite rose 31 points, or 0.14%.

All three of the major averages on Wall Street rallied by more than 1% on Tuesday, with the benchmark S&P 500 and tech-heavy Nasdaq notching fresh record closing highs, after tame consumer price growth bolstered expectations that the Federal Reserve will cut interest rates at its upcoming meeting next month.

Fed rate cut expectations grow

Data released on Tuesday showed that U.S. {{{{{consumer prices}}}}} held steady at 2.7% on an annual basis, unchanged from June, but marginally lower than economists’ predictions of 2.8%.

Excluding volatile food and energy prices, {{{{{core CPI}}}}} climbed 0.3% month-on-month and 3.1% annually, above the 3.0% expected.

“Inflation was broadly in line with expectations as tariffs continue to be largely absorbed within U.S. corporate profit margins,” ING analysts said in a note.

“This gives the Fed the room to respond to the weaker jobs backdrop and cut interest rates from September,” they added.

Analysts at BCA Research agree that the tepid inflation reading "tips the scales in favor" of a 25-basis point cut at the Fed’s next meeting in September, with officials at the central bank opting to prioritize supporting a weakening labor market over still above-target price gains.

Cisco’s earnings in focus

On the earnings calendar, Cisco Systems (NASDAQ:CSCO) is set to kick off a string of releases from companies whose reporting quarter finished at the end of July.

The results, due out after the closing bell, are anticipated to beat expectations thanks partially to "general strength" in Cisco’s firewalls business and cybersecurity subscribers, according to analysts at Piper Sandler.

"Cisco is still experiencing net-momentum into the second half, with early networking prints a good signal for the space and 2026 likely a good refresh period," the analysts led by James Fish wrote.

Elsewhere, shares of Cava fell sharply premarket after the Mediterranean food chain reported lower-than-expected second-quarter revenue driven by weak same-store sales growth. The company also lowered its full-year forecast for same-store sales.

Crude falls after IEA report

Oil prices fell after the IEA lifted its forecast for global oil supply this year, while also lowering demand expectations.

At 12.05 ET,Brent Oil Futures dropped 1.6% to $65.07 a barrel, and U.S. West Texas Intermediate Crude Oil WTI Futures futures dipped 1.84% to $62 a barrel.

The International Energy Agency now expects world oil supply to rise by 2.5 million barrels per day (bpd) in 2025, up from 2.1 million bpd previously forecast, in its latest monthly report, published earlier in the session, citing an increase in production hikes by the Organization of Petroleum Exporting Countries.

The IEA also lowered its demand forecast this year, now seeing global demand rising by 680,000 bpd this year, down from 700,000 bpd previously forecast.

Gold edges up

Gold prices pushed up in early European trading, supported by hopes for Fed policy easing, while investors also looked ahead to U.S.-Russia talks due later this week.

Spot Gold Futures had risen by 0.28% to $3,408.80 an ounce, while gold futures for December climbed by 0.5% to $3,416.70/oz.

Following Tuesday’s muted inflation figures, markets are now pricing in a more than 96% probability of a September cut, according to CME’s FedWatch Tool. Lower interest rates reduce the opportunity cost of holding non-yielding assets such as gold, making bullion more attractive to investors.

However, gold’s advance was tempered by geopolitical developments, with traders closely watching Friday’s summit between U.S. President Donald Trump and Russian President Vladimir Putin in Alaska.

The meeting will focus on the war in Ukraine, and market participants are weighing the possibility of proposals for a ceasefire.