TSX trades higher as investors examine BoC cuts, await Fed

Investing.com - Canada’s main stock exchange gained slightly on Wednesday as the Bank of Canada cut its key interest rate by 25bps, in-line with expectations. Investors were also keen on the U.S. Federal Reserve’s rate decision, as the central bank also cut by the expected 25bps.

By the 4:00 ET close, the S&P/TSX 60 index had risen marginally by 1.4 points, or 0.1%. The S&P/TSX composite was higher by 6.4 points or 0.02%, having closed lower by 0.4% at 29,315.23 on Tuesday. 

The Bank of Canada cut its key interest rate by 25 basis points to 2.5% on Wednesday, citing softening economic conditions and diminished inflation pressures. The move, widely anticipated by analysts, reduces the overnight rate from 2.75%, with the Bank Rate at 2.75% and the deposit rate at 2.45%. 

“First, Canada’s labour market has softened further,” said BoC Governor Tiff Macklem, noting that job losses have been especially pronounced in sectors tied heavily to U.S. trade, including autos, steel, and softwood lumber.

“Second, although there are still some mixed signals, on balance, recent data suggest the upward pressures on underlying inflation have diminished,” he said.

In response, CIBC economists Andrew Grantham and Katherine Judge pointed out, "the press conference gave little away in terms of whether policymakers foresee further cuts ahead, making it clear that the Bank remains data dependent and will take decisions one step at a time." CIBC projects another 25bp rate cut in October, saying, "in our view the economy is losing resilience and inflation will continue to be contained by the elevated unemployment rate and removal of retaliatory tariffs."

U.S. stocks mixed

U.S. stocks were fairly mixed on Wednesday as investors digested a 25bps cut from the Federal Reserve and Fed Chairman Jerome Powell’s subsequent comments.

At the 4:00 ET close, the Dow Jones Industrial Average was higher by 260.4 points or 0.6%. Conversely, the tech-heavy NASDAQ Composite dropped 72.6 points or 0.3%, and the bellwether S&P 500 index dropped 6.3 points or 0.1%. 

The main averages on Wall Street sank in the prior session, while the U.S. dollar slipped to fresh 52-week lows — signs of caution ahead of the Fed’s impending announcement.

Fed policy outlook in focus

The Federal Reserve lowered interest rates by 0.25% on Wednesday for the first time in nine months and sees the need two more rates cuts this year as worries of softening in the labor market, which threatens the economy, outweigh concerns about inflation still running above the central bank’s target.  A rate cut was largely expected and priced in for weeks leading up to the meeting.

For the labor market, which is now driving monetary policy decisions, Fed members see the unemployment rate unchanged at 4.5% for this year, and to decline slightly to 4.4% in 2026, down from 4.5% previously. The downtick in unemployment is forecast continue to 2027, with members now expecting a 4.3% unemployment rate in 2027, down from 4.4% previously.   

In his press conference that followed the decision, Powell characterized the Fed’s decision to ease as a "risk-management cut." The fed chief also downplayed the idea that the first cut opens the doors to a deep rate-cutting cycle. "I don’t think we can say" that policy no longer restrictive policy

Crude slightly higher

Oil prices started slightly gaining after declining throughout the day. Prices were previously falling on heightened concerns over disruptions in Russian production.

Brent futures gained 0.04% to $67.93 a barrel, and U.S. West Texas Intermediate crude futures were higher by 0.1% to $64.05 a barrel, as of 5:50 ET.

The benchmarks settled more than 1% higher on Tuesday, climbing to two-week highs, due to concerns that Russian supplies may be disrupted following Ukraine’s drone attacks on critical export ports and refineries.

Oil was also encouraged by U.S. industry data showing an outsized 3.2 million barrel draw in inventories over the week to September 12. This data, from the American Petroleum Institute, usually heralds a similar reading from official inventory data, which is due later on Wednesday.

Gold retreats after all-time highs

Gold prices edged down from record highs ahead of the release of the Fed’s rate decision and policy outlook.

Lower interest rates typically boost gold by reducing its opportunity cost, weakening the dollar, and lifting its appeal as an inflation hedge and safe-haven asset.

Spot gold was last down 0.08% at $3,660.04 an ounce, after hitting an all-time peak of $3,702.95 on Tuesday. 

Elsewhere, analysts at Deutsche Bank raised their forecast for gold next year, saying a recent surge in the yellow metal has "further headroom to run" thanks partially to the prospect of easing U.S. interest rates and ongoing challenges to the Federal Reserve’s independence.