Stock Market in Canada Climbs based on Anticipation of Fed Interest Rate Reduction
The Canadian stock market saw a significant milestone this week, with the S&P/TSX Composite Index reaching an intraday high of 28,063.73 on Wednesday, before settling at 27,993.43, up by 72.17 points (or 0.26%).
Several sectors performed well, with the Communication Services sector leading the pack, gaining 1.78%, followed by Consumer Discretionary (2.42%), Real Estate (1.40%), and Financials (0.63%). However, Sienna Senior Living Inc and Terravest Capital Inc saw losses of 3.38% and 9.31%, respectively, among individual stocks. Notably, Hudbay Minerals Inc saw a significant gain of 14.81%.
In terms of trade relations, China announced 75.8% tariffs on Canadian canola imports, effective from tomorrow. This retaliatory measure comes in response to Canada's tariffs on Chinese electric vehicles. This action, along with China launching an anti-dumping investigation into Canadian pea starch, puts additional pressure on the Canadian government to sort out trade friction.
Meanwhile, the trade landscape with the US remains complex. Canada is already facing 35% tariffs on exports to the US not covered by the CUSMA (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) pact. The US Treasury Secretary, Steven Mnuchin, has called for a half-point rate reduction by September, a move that could potentially influence the US dollar’s strength and, in turn, the competitiveness of Canadian exports.
The anticipated US Federal Reserve rate cuts in September could have a positive impact on Canadian stocks, particularly in sectors sensitive to interest rates such as financials and real estate. However, the overall impact on Canada-US-China trade relations would depend on concurrent geopolitical developments, trade policies, and currency movements, which are complex and multifaceted.
As for domestic industries, they continue to face pressure due to high US tariffs. This includes sectors like steel, automobile, and manufacturing, which are all crucial to Canada's economy.
The Bank of Canada's interest rate decision, scheduled for July 30, is approaching, with officials appearing divided on rate cuts. The benchmark interest rate currently hovers around 2.75%. Monitoring official Fed communications and economic reports closer to September would be necessary for precise and up-to-date information regarding the potential impact of US rate cuts on Canadian stocks and trade relations.
References: 1. Powell speech: https://www.federalreserve.gov/newsevents/speech/powell20210616a.htm
Investors might need to consider the impact of anticipated US Federal Reserve rate cuts in September on the Canadian stock market, particularly sectors like finance and real estate. The trade relationship between Canada and the US remains complex, with ongoing tariffs and the potential influence of the US Treasury Secretary's call for a half-point rate reduction by September on the US dollar’s strength and Canadian exports.
