Markets put a seventh straight hold at 2.25% near certain, leaving tone as Wednesday's story
The S&P/TSX composite index closed 283.44 points lower at 36,270.48 on Monday, with technology leading the declines and energy standing as the only sector in positive territory.
The Canadian Press reported the drop alongside a jump in crude prices after US forces struck Iranian rocket launchers on the Strait of Hormuz on Sunday, the first US military action against Iran in a month.
Brent crude futures settled up 2.71 percent at US$90.49 a barrel, while US West Texas Intermediate crude climbed 2.83 percent to settle at US$85.76, according to Reuters.
The strait accounts for roughly 20 percent of the world's oil shipments, AP News reported, and war-related disruption there has kept prices elevated.
Anish Chopra, managing director with Portfolio Management Corp, told The Canadian Press that "renewed tensions between the US and Iran" around shipping in the Gulf and the Strait of Hormuz "have pushed the price of crude oil higher."
The price "feeds directly into inflation expectations and into interest rate expectations," he added.
The Bank of Canada delivers its next rate decision on Wednesday, per The Canadian Press, with the benchmark rate held at 2.25 percent for close to a year.
Market odds for a seventh straight hold sat at 95 percent as of late Monday afternoon, the publication reported, citing LSEG Data & Analytics.
In a statement cited by The Canadian Press, Sébastien Mc Mahon, chief economist at iA Financial Group, said "the story is the tone, not the rate" with a hold at 2.25 percent widely expected.
Mc Mahon rules out an increase this year and points to a softer tone or an October signal as "the real headline."
The United States imposed 50 percent tariffs on roughly five percent of Canadian exports on August 22, according to The Canadian Press, with Canadian counter-tariffs scheduled to begin on September 8 and US President Donald Trump threatening steeper levies on autos and auto parts from January 1, 2027.
The Canadian dollar traded at 72.12 cents US, up from 72.00 cents US on Friday, the publication reported.
The December gold contract fell US$48.40 to US$4,481.50 an ounce, per the same report, while Reuters put spot gold down 0.1 percent at US$4,448.30 an ounce.
South of the border, the Dow Jones Industrial Average fell 0.70 percent to 53,185.90, the S&P 500 lost 0.33 percent to 7,686.14, and the Nasdaq Composite slipped 0.12 percent to 26,370.89, Reuters reported.
All three still finished August higher, with the S&P 500 up 2.6 percent, the Nasdaq up 3.9 percent, and the Dow booking a fifth consecutive monthly advance.
Fed funds futures traders are pricing 65 percent odds of a US Federal Reserve rate hike in September, up from about 35 percent before Fed chair Kevin Warsh spoke at Jackson Hole on Friday, according to Reuters.
AP News put the probability at 66 percent, citing CME FedWatch.
Warsh said in that speech, as quoted by CNBC, that "while this summer's [inflation] readings were better than expected, they do not tell me that underlying trends have meaningfully improved."
Oil at current levels is "a little high," said Tom Hainlin, national investment strategist at US Bank Asset Management, in comments carried by CNBC, though he argued the advance is not damaging enough to shift the outlook.
"The world's got enough oil for what it needs, and $80 to $90 is not so restrictive that it collapses the economy," Hainlin told the outlet, adding that crude above US$100 a barrel would start to look "pretty prohibitive."
Reuters reported the yield on the benchmark 10-year US Treasury note rose 3.6 basis points to 4.758 percent on Monday, its highest since January 15, 2025, and extended gains on Tuesday to a near 20-month high of 4.78 percent.
German and French long bond yields reached 15-year highs on Monday, according to the same outlet, and Japan's 10-year benchmark approached 3 percent.
"The macro mix is turning more challenging for duration and risk assets," Wee Khoon Chong, APAC macro strategist at BNY, told Reuters.
According to the same report, he pointed to hawkish monetary policy, geopolitical and inflation risks, and fiscal concerns as "converging to maintain the upward pressure on global term premiums and long-end yields."
US August payrolls land on Friday, with economists expecting a 58,000 increase after July's 23,000 decline and unemployment holding at 4.1 percent, Reuters reported.
US consumer price data follows on September 11.
