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TSX rises despite energy weakness, U.S. stock markets also post gain

TORONTO — Broad-based strength led by base metal, financial and tech stocks gave Canada's main stock index a boost Monday despite weakness in energy, while U.S. stock markets also rose to start the trading week, led by technology names.

It was a reprieve from the choppiness of the previous week, where the S&P/TSX composite index lost more than two per cent over the five-day stretch.

On Monday, the index ticked up 108.11 points at 20,182.76.

In New York, the Dow Jones industrial average was up 87.13 points at 34,663.72. The S&P 500 index was up 29.97 points at 4,487.46, while the Nasdaq composite was up 156.37 points at 13,917.90.

Despite the positivity on the markets Monday, it’s wise to be cautious, said Hadiza Djataou, vice-president and portfolio manager of global bonds at Mackenzie Investments. Oil is flirting with US$90 per barrel, and economic data is showing weakness in the economy, particularly in Canada where consumers are feeling the weight of higher interest rates, she said.

“We know that the pain from those hikes (is) starting to be felt."

Gas prices may send inflation higher in the short term, and wages as well as housing costs are also putting upward pressure on inflation, said Djataou. Meanwhile, the Canadian economy recently posted negative second quarter growth.

“You see that those rate hikes are starting to kick in and this doesn't bode well for the Q3 GDP number,” she said.

The Bank of Canada is likely near the end of its hiking cycle after last week’s hold, but it’s too early to say they’re done, said Djataou. Meanwhile in the U.S., the consumer is holding in better as they’re less sensitive to rate hikes. Plus, strength in equities led by tech is feeding into consumer confidence, she said.

The U.S. Federal Reserve is expected to also hold on rates next week, but a hike could still come later this year, said Djataou.

“Inflation, at this point, is kind of a moving target,” she said, adding that central banks need to keep their doors open to more hikes in order to avoid a dramatic shift in market expectations.

The Bank of Canada will be keeping an eye on the Fed because if the differential between the two banks’ key rates widens, it could put pressure on the Canadian dollar, said Djataou.

Right now, the Bank of Canada’s overnight rate is five per cent while the Fed’s federal funds target range is 5.25 to 5.50.

“I believe that that distance of half a percentage point is something that is going to be difficult to exceed without having a significant impact on the Canadian dollar,” said Djataou.

The Canadian dollar traded for 73.63 cents US, compared with 73.36 cents US on Friday.

The October crude contract was down 22 cents at US$87.29 per barreland the October natural gas contract was up less than a penny at US$2.61 per mmBTU.

The December gold contract was up US$4.50 at US$1,947.20 an ounce and the December copper contract was up nine cents at US$3.81 a pound.

This report by The Canadian Press was first published Sept. 11, 2023.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)

Rosa Saba, The Canadian Press