TORONTO – Canada’s main stock index slipped lower Tuesday despite strength in energy stocks, while U.S. markets were mixed but more or less flat one day before an interest rate decision from the U.S. Federal Reserve.
Markets were in a holding pattern ahead of a much-anticipated interest rate decision from the U.S. Federal Reserve on Wednesday, said Anish Chopra, managing director with Portfolio Management Corp.
The central bank is expected to cut its key rate for the first time since it hiked rates to fight inflation.
But markets are undecided on whether the Fed will cut by a quarter of a percentage point or a larger half-point. They’re leaning toward the latter, according to data from CME Group.
In New York, the Dow Jones industrial average was down 15.90 points at 41,606.18. The S&P 500 index was up 1.49 points at 5,634.58, while the Nasdaq composite was up 35.93 points at 17,628.06.
The S&P/TSX composite index closed down 24.37 points at 23,677.70.
After a couple of weaker-than-expected jobs reports in the U.S., bets for a larger cut grew over fears the central bank had waited too long to start cutting rates.
The market believes the data shows enough of a slowdown in the economy and inflation for the Fed to make a bigger cut, said Chopra.
However, a larger rate cut could send a worrying signal, he said.
“If the Fed started out with a bigger rate cut, it’s just a more concerning sign that they are behind the curve on cutting interest rates,” he said.
New data on U.S. retail sales Tuesday didn’t move the needle, added Chopra, showing a mixed bag: shoppers spent more last month than expected, but less than expected when removing automobiles and fuel from the occasion.
The Fed is more concerned with continuing to fight inflation while avoiding too much softness in the job market, Chopra said.
“When you look at the retail sales data … it may just be an indication that the economy just isn’t slowing as quickly as some people had forecasted.”
In Canada, the Consumer Price Index reached the central bank’s target of two per cent in August.
“Gasoline prices coming down have had a big impact on inflation,” said Chopra.
The Bank of Canada has already cut rates three times this year as the Canadian economy softened faster under interest rate hikes than the U.S. economy.
The Bank of Canada has two more rate decisions in 2024, said Chopra, and some market watchers are looking at whether a half-point cut could be in the cards.
The Canadian dollar traded for 73.55 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 94 cents at US$69.96 per barrel and the October natural gas contract was down five cents at US$2.32 per mmBTU.
The December gold contract was down US$16.50 at US$2,592.40 an ounce and the December copper contract was essentially unchanged at US$4.27 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 17, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
