TSX slides to one‑month low as materials sink and loonie softens after Bank of Canada warning
The Bank of Canada is holding rates steady – but warning it stands ready to hike if the Iran war’s energy shock turns into persistent inflation, just as the S&P/TSX Composite suffers its worst day in two weeks.
The bank kept its key policy rate at 2.25 percent on Wednesday, as expected, while Governor Tiff Macklem cautioned he is prepared to raise borrowing costs if higher energy prices spill over into broader price pressures, according to Reuters.
The bank said the Middle East conflict will drive up gasoline prices and boost inflation in the short term, even though inflation had hovered near its 2 percent target for almost a year before the war.
Reuters reports that Macklem said the Governing Council will “look through the war's immediate impact on inflation” but will act if high energy prices risk “persistent inflation.”
He said, “I don't think you measure this in weeks ... We have got some time to make that assessment.”
He also noted that “we can raise the policy interest rate to cool inflation,” but could reduce it if energy prices ease and economic conditions worsen.
Desjardins economist Royce Mendes wrote that the tone “reinforces our view that the Bank of Canada is willing to look through the impacts of higher energy prices on CPI so long as the conflict doesn't last for too long,” and that he still expects the policy rate to remain unchanged through the rest of the year.
Even so, money markets that had priced in a likely December hike increased their bets on an increase from June onwards, with expectations for a full 25‑basis‑point move in December rising sharply, Reuters said.
The Canadian dollar weakened after the announcement, slipping to about 73.01 US cents from roughly 73.00 US cents the previous day, and later trading near 72.96 US cents, according to BNN Bloomberg.
Equities reacted quickly.
BNN Bloomberg reported that the S&P/TSX Composite index fell 1.87 percent to 32,312.67, a new one‑month low and, as Reuters noted, its worst day in two weeks.
All TSX subsectors were negative, with basic materials the biggest weight.
Reuters added that the TSX materials index, which houses metal miners, dropped 5.6 percent and briefly touched its lowest level since January 8.
Market breadth was weak: on the Toronto Stock Exchange, falling stocks outnumbered gainers 664 to 275, with 91 unchanged, according to Investing.com.
The S&P/TSX 60 VIX, which measures implied volatility on index options, rose 3.78 percent to 20.03.
Gold, typically a haven in geopolitical stress, also sold off.
BNN Bloomberg said the April gold contract fell US$112.00 to US$4,896.20 an ounce, while Investing.com reported April gold futures down 3.91 percent, or 195.60, to US$4,812.60.
Reuters noted that spot gold and silver each slid more than 3 percent to a one‑month low after the US Federal Reserve decision.
Stock‑level moves were stark.
Investing.com said MDA Ltd rose 5.80 percent to 46.16, ATS Corporation gained 4.12 percent to 43.73, and Methanex Corporation climbed 3.57 percent to 72.62.
On the downside, Boyd Group Services Inc fell 13.17 percent to 192.84, while Seabridge Gold Inc. dropped 12.36 percent to 37.00 and Discovery Silver Corp declined 11.96 percent to 7.88.
Reuters added that Boyd slumped after missing earnings estimates.
BNN Bloomberg reported that Alimentation Couche‑Tard also missed analysts’ third‑quarter revenue expectations and fell 5.1 percent, dragging the consumer staples sector 2.2 percent lower.
Behind the Bank of Canada’s caution is a rapid rise in energy prices driven by the US‑Israel war on Iran.
CNBC reported that Brent crude futures rose 3.83 percent to US$107.38 per barrel, while Investing.com said the May Brent contract jumped 7.67 percent to US$111.35 and crude for May delivery in the US rose 3.94 percent to US$99.29.
Reuters later reported Brent at US$112.19 and US crude around US$97.07 after Iran accused Israel of striking facilities at the South Pars gas field and vowed attacks on oil and gas targets across the Gulf.
Inflation pressure was already building before the conflict.
CNBC said the US producer price index rose 0.7 percent in February, more than double the 0.3 percent expected, and that wholesale inflation accelerated to 3.4 percent.
Todd Schoenberger of CrossCheck Management called the “hotter‑than‑expected number” “specific to tariffs” and argued, “This is structural inflation, not temporary, and is likely going to impact monetary policy deep into the third quarter.”
For central banks, the combination of slowing growth and rising prices is a familiar threat.
As Reuters reported, Macklem said “economic weakness combined with rising inflation is a dilemma for central banks.”
He noted that raising interest rates to slow inflation can weaken the economy, while cutting rates to support growth “risks pushing inflation well above target.”
