TORONTO – Canada’s main stock index closed slightly higher Wednesday after the U.S. Federal Reserve kept its key interest rate unchanged but indicated it’s prepared to cut it if economic stimulus is needed.
The decision to hold the rate steady took some market watchers by surprise, said Michael Currie, vice-president and investment adviser at TD Wealth.
“The big story is that they obviously held the line on interest rates. They indicated that there was likely no interest rate cuts in 2019, that surprised a few people.”
Despite some indications of no imminent rate cut, the market is betting there’s an 82 per cent chance of a rate cut in July and a 60 per cent chance in December, said Currie.
“The Fed’s saying one thing, the market’s definitely saying the other thing.”
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There has, however, certainly been a change in tone from the Fed, he said.
“They’re definitely at least thinking, or considering cutting rates, whereas in the past they hadn’t really said that.”
The mixed news saw the S&P/TSX composite index inch up 8.44 points to close at 16,511.79, after having one of its biggest one-day gains of 2019 on Tuesday.
Information technology saw the biggest index gains on the TSX at 1.92 per cent, pushed up in part by Shopify’s 6.8 per cent gain after it announced it had launched a fulfilment network.
The energy index was down 0.89 per cent after oil slipped 14 cents at US$ 53.97 per barrel and the July natural gas contract closed down 5.2 cents at US$ 2.28 per mmBTU.
Oil dropped on OPEC uncertainty, despite news from the U.S. of higher than expected crude inventories and gasoline demand, said Currie.
“The news seems to be all about OPEC, whether they can get their act together. They announced they were having a meeting in July, but they’ve still got Saudi Arabia, Iraq and the Emirates on one side, everybody else is on the other side.”
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In New York, the Dow Jones industrial average closed up 38.46 points at 26,504.00. The S&P 500 index ended up 8.71 points at 2,926.46, while the Nasdaq composite was up 33.44 points at 7,987.32.
The Canadian dollar traded at an average of 74.95 cents US, up from 74.66 cents US on Tuesday after Statistics Canada said the consumer price index rose 2.4 per cent in May compared with a year ago.
The higher-than-expected inflation rate could make it harder for the Bank of Canada to cut rates.
“We know the U.S. of course wants to lower rates. Canada probably wants to do the same, but if you’re seeing an uptick in inflation it puts a lot of pressure on them to keep rates the same,” said Currie.
The August gold contract ended down US$ 1.90 at US$ 1,348.80 an ounce and the July copper contract was down 2.3 cents at US$ 2.68 a pound.
Index and currency in this story: (TSX:GSPTSE, TSX:CADUSD)