TSX falls as higher oil prices clip central bank pivot hopes

By Fergal Smith

TORONTO (Reuters) - Canada's main stock index fell on Thursday as investors weighed the potential for higher oil prices to worsen the inflation outlook, with declines in the financial and consumer staples sectors offsetting gains for resource shares.

The Toronto Stock Exchange's S&P/TSX composite index ended down 256.08 points, or 1.3%, at 18,979.01. That was the second straight day of declines for the index after it rallied 5% over the course of Monday and Tuesday.

Wall Street's major indexes also closed lower as concerns mounted ahead of closely watched monthly nonfarm payrolls numbers that the Federal Reserve's aggressive interest rate stance will lead to a recession.

"We had a bit of relief rally (earlier in the week) on the expectation that we might get a bit of a pivot from the Fed and peak in inflation," said Greg Taylor, a portfolio manager at Purpose Investments. "I think with the move higher in oil yesterday there was a bit of second guessing of that (notion)."

The Bank of Canada has also been raising rates at a rapid pace. Its governor, Tiff Macklem, made clear that the central bank will not yet be pivoting away from its hawkish stance.

Heavily-weighted financials were among the biggest drag on the Toronto market, falling 2.6%, while the consumer staples sector was down 2.9%.

Energy rose 1.9% as oil settled 0.8% higher at $88.45, adding to its gains on Wednesday when OPEC+ agreed to cut production targets by 2 million barrels per day, the largest reduction since 2020.

The materials group, which includes precious and base metals miners and fertilizer companies, added 1.5% and healthcare ended 8.7% higher.

It included sharp gains for cannabis producers, with Tilray Brands Inc up 32.6%, as President Joe Biden took steps to overhaul U.S. policy on marijuana.

(Reporting by Fergal Smith; Additional reporting by Shashwat Chauhan in Bengaluru; Editing by Shinjini Ganguli, Uttaresh.V and Deepa Babington)