Futures on Canada’s benchmark stock index showed a modest recovery on Monday, with contracts tied to the S&P/TSX Composite Index rising 0.2% to 2,147.10 points. The move clawed back some of the selling that pushed the main index down 0.76% at the close on Friday.
Friday’s decline was broad-based. A slide in gold futures and weakness across materials, clean technology and technology sectors contributed to the retreat on Bay Street. At the same time, measures of expected volatility edged higher, with the S&P/TSX 60 VIX up 0.91% to 13.24, reflecting a slightly more cautious tone among traders.
The focal point for Canada’s financial markets this week is the Bank of Canada interest rate announcement on Wednesday. Policymakers are widely expected to leave the benchmark policy rate unchanged at 2.25% for a seventh straight meeting, according to prevailing market expectations.
Markets are nevertheless pricing in further tightening over the coming year: financial pricing implies nearly 75 basis points of Bank of Canada rate increases over the next twelve months. At the same time, the central bank has signalled conditional options should external developments materially damage the Canadian economy - noting at its April 29 meeting that if new U.S. trade restrictions significantly impair Canadian economic activity, additional rate cuts could be used to support growth.
Counterbalancing that contingency, a firm labour market is pushing against the case for near-term easing. Canada’s August labour force survey, due on Friday, is expected to show an addition of 15,000 jobs after a July surge of 75,100. The unemployment rate is projected to remain at a two-year low of 6.4%, which supports the idea that policymakers have room to stand pat.
Energy names listed in Toronto were set to benefit on Monday following a sudden escalation of military activity in the Middle East over the weekend. U.S. air strikes on Iranian rocket launchers on Larak Island and subsequent retaliatory strikes on U.S. positions in Jordan coincided with a near 3% jump in global crude benchmarks, which pushed prices past $90 a barrel.
The spike in oil provides a price buffer for Canadian energy producers that had seen crude trade lower on Friday. That gain in oil contrasts with other commodities, such as gold, which retreated and contributed to last week’s broader market weakness.
Overall, markets are weighing several cross-currents: trade tensions that could sap growth, the BoC’s policy outlook underpinned by core inflation near its 2% target, a resilient labour market that reduces the immediacy of rate cuts, and a sharp move higher in energy prices after the weekend’s geopolitical developments.
Market data points cited in this report
- S&P/TSX Composite futures: +0.2% to 2,147.10 points
- S&P/TSX main index on Friday: -0.76%
- S&P/TSX 60 VIX: +0.91% to 13.24
- Benchmark crude oil: jumped nearly 3% and rose past $90 a barrel
- Bank of Canada policy rate: widely expected to remain at 2.25% for a seventh meeting
- Market-implied tightening: nearly 75 basis points of rate increases priced over next 12 months
- August labour force survey projection: +15,000 jobs; unemployment rate expected at 6.4%
Bottom line - Canadian markets opened with a modest rebound in futures as investors positioned for the Bank of Canada announcement and reacted to a sudden surge in oil prices driven by weekend military actions in the Middle East. The interplay between trade tensions with the United States, central bank policy expectations and a still-tight labour market will remain central to market direction this week.