The TSX spent most of Monday doing what it has done throughout this conflict cycle: recovering off a geopolitical shock by treating energy sector strength as a net positive for the composite. After Friday's 800-plus point selloff, the composite opened up roughly 267 points to approximately 34,680, with base metals, technology, and the energy sub-index all contributing. The pattern is by now familiar. Iran-Israel escalation lifts WTI, WTI lifts Suncor and CNQ, energy sector outperformance cushions the composite against whatever financials and rate-sensitive names are doing. It has worked every time the conflict has escalated since February.
Today it worked again. But today was also the day before the Bank of Canada's June 10 rate decision, and the oil that drove the recovery is the same oil that has pushed Canadian headline CPI to 2.8%, the highest print in two years.
The Contradiction the Market Is Accepting
The market's implicit position on Monday was internally contradictory: oil is high enough to make energy stocks attractive, but not high enough to force the BoC to hike. Both conditions can't hold indefinitely. The BoC's April MPR baseline assumed Brent crude would average around $90 per barrel in Q2, then decline gradually toward $75 by mid-2027. Brent opened Monday above $98 before settling near $94. WTI settled near $91. The BoC's own inflation projections from April forecast CPI peaking near 3% in April before declining to 2.5% by June. April came in at 2.8%. May CPI releases June 22, two weeks after Wednesday's decision.
The composite is betting that Wednesday's decision is a hold and Macklem's language stays in "wait and see" territory. Bond markets are pricing approximately 96% probability of no change, with only 4% implied odds on a hike. RBC Economics expects a fifth consecutive hold, noting that while headline CPI has moved above the 2% target, core inflation measures surprised to the downside in April, and there is little evidence of oil-driven energy inflation filtering into broader goods and services.
That is a reasonable read. The problem is that it is a read built on April data, with May data still two weeks away and the Hormuz closure still functionally in place.
What the Hormuz Chart Shows That the Recovery Narrative Is Missing
WTI has traced a remarkable arc since the conflict began: from $74.66 in early March, to $107 at the late April peak, down to a recent low near $87, and back up to an intraday high of $95.38 on Monday before settling near $91. The market has been trying for six weeks to find the price at which Hormuz disruption risk is fully priced. It has not found it, because the answer depends on a ceasefire timeline that keeps changing. Monday's morning spike above $94 came directly from Iran-Israel missile exchanges that are technically the first military engagement since the April ceasefire came into effect. Trump posted on Truth Social that both sides were "looking to do an immediate CEASEFIRE" and that "final negotiations on Peace are proceeding." By afternoon, Iran had said its operations ended. Oil came off. The composite held most of its gains.
WTI's behaviour since the April 8 ceasefire traces this dynamic in compressed form across 24 trading sessions.
The April 17 collapse of 12% followed Iran's foreign minister declaring the Strait open. The spike to $107 on April 29 came after Trump extended his blockade threat. Monday's session represents the first retest of the $90-plus range since the early June pullback from May highs.
The structure of Monday's trade was telling: oil opened sharply higher, the TSX followed energy into positive territory, then as Trump's ceasefire language softened the afternoon tone, WTI pulled back from its intraday high and the composite moderated its gains but held them. What the TSX recovery represents, in other words, is not a clean "geopolitical risk off" trade. It is something more complicated: a market that has internalized the Hormuz cycle deeply enough that it can trade the reversal of the morning's spike while remaining net positive on energy sector outlook. That is a sophisticated position. It is also a position that does nothing to resolve the problem sitting 48 hours ahead.
Why Wednesday's Language Matters More Than Wednesday's Decision
The Bank of Canada's April MPR built its inflation trajectory on an assumption that Brent crude would average around $90 per barrel in Q2 and decline toward $75 by mid-2027. Brent crossed $98 on Monday morning before settling near $94. The BoC's April forecast saw CPI peaking near 3% in April, declining to 2.5% by June. April CPI came in at 2.8%. May CPI does not release until June 22, ten days after Wednesday's decision.
Macklem and Rogers will hold at 2.25%. That is not the question. The question is what language accompanies the hold. The April statement signalled explicitly that both cuts and hikes remain on the table. Bond markets currently price only a 4% probability of a hike at any meeting through July. Interest rate swap markets, according to Globe and Mail data from the past week, are now pricing between two and three quarter-point hikes by the end of 2026, starting in October, which is a material shift from where they were in May.
The trajectory the market is assigning to the BoC over the next six months now sits squarely on a Hormuz resolution timeline. A durable ceasefire deal that gradually reopens the Strait would ease oil prices, ease headline CPI, and give Macklem a clean path to remaining on hold through year-end. The data from Monday's session, where oil was up 4% in Asian trading and still settled above $91 after a partial ceasefire signal, suggests that resolution is not yet visible in the data the BoC will have in hand on Wednesday.
The Baystreet analysis from earlier this week put it cleanly: a credible deal that reopens the Strait would likely send oil lower and USD/CAD higher in the near term, as the energy premium supporting the Loonie unwinds faster than the interest rate differential narrows. The Loonie closed at 1.3951 to the U.S. dollar on Monday, its weakest level in eight weeks. Canada's Q1 GDP contracted at an annualized 0.1%, a second consecutive quarterly decline. CAD weakness and economic contraction are pulling in the same direction as a hold. But 2.8% CPI and $91 oil are pulling in the other direction. Macklem will have to acknowledge both.
TSX Energy's year-to-date performance against the BoC's rate path expectations, against the backdrop of the WTI price arc since February, is the cross-desk picture that ties today's recovery narrative to Wednesday's policy question. The closing data from Monday quantifies the gap between where the BoC assumed oil would be and where it actually is, and that gap is the only thing in the June 10 statement that markets do not yet have a clear view on.
The BoC's April MPR forecast assumed headline CPI would peak near 3% in April and decline toward 2.5% by June. April's actual print of 2.8% tracks just below that forecast ceiling. May CPI releases June 22, ten days after Wednesday's decision, and is the next real test of whether the decline materializes.
The synthesis from today's close is this: the market is betting that Macklem can absorb 2.8% CPI and $91 WTI without changing his language materially from April. That bet may be correct. But the Iran-Israel missile exchange of June 7-8, which technically breaks the April 8 ceasefire arrangement, adds a new variable. If the Strait remains near-closed through the May CPI print and that number confirms a third month above 2.4%, the "transient energy shock" framing in the BoC's statement will become very hard to maintain at the July meeting. Wednesday is the last time Macklem can speak before that data lands. The advisory implication for June 10 is not the rate change: it is what language Macklem uses around the forecast path, and whether the bond market's hike pricing for October and December starts moving.