The Loonie and the TSX Rose While Crude Fell
Since the Friday close before Governor Tiff Macklem spoke in Bangkok, December crude has fallen 1.9%, while the Canadian dollar has gained 0.6%* and the S&P/TSX Composite has gained 0.5%*. A move in crude no longer explains the direction of either.
December WTI settled at $97.15 on Wednesday, according to Investrade. The Canadian Press reported the December contract down US$1.33 at US$97.69 on Monday morning, which puts the October 16 settlement at $99.02. The loonie traded at 71.08 US cents* on Wednesday morning against 70.65 cents on Friday, per the Canadian Press.
The S&P/TSX Composite closed Tuesday at 36,108 and traded near 36,360* on Wednesday morning, above the 36,177 close from the Friday before the Bangkok remarks.
The 36,360 reading is the 11:42 a.m. EDT level on October 21 and is not a close. October 9 followed Statistics Canada reporting a loss of 68,000 jobs in September.
A lower oil price would normally pull on both the currency and an index with a large energy weighting. Both rose instead, while Scotiabank Economics reported that pricing for an October rate increase roughly doubled, from about 9 basis points on Friday to about 18 on Monday morning. On Tuesday, Scotiabank put swaps at about 20 basis points of tightening.
Core Inflation and Jobs Did Not Supply the Push
The data released this month do not explain the repricing. Statistics Canada reported September headline inflation of 3.1%, but excluding gasoline it was 2.2%, while CPI-trim fell to 1.8% and CPI-median to 1.9%. Gasoline was up 27.8% from a year earlier. Separately, Canada lost 68,000 jobs in September and unemployment reached 6.5%.
Banks were the beneficiaries. On Tuesday, RBC rose 1%, TD gained 1.2% and both Scotiabank and CIBC added 0.9%, according to Trading Economics, and financials were among the leading sectors again on Wednesday morning, up 1.1%, per Baystreet. That pattern is consistent with a market paying for a rate path that the core inflation and jobs readings do not point to on their own.
Sources disagree on how much of that path is priced. Reuters reported on October 19 that money markets expected a hold on October 28 and a 25 basis point increase in December, while Scotiabank cites about 20 basis points of October tightening in swaps. A gap that wide means the October outcome is not priced with confidence in either direction.
Against the three major U.S. indexes, Canadian assets have lagged since the October 16 close, while gold and crude have fallen.
Friday levels for the U.S. indexes, gold and crude are derived from the changes reported by the Canadian Press on October 19. Gold is the December contract.
Two Central Banks Decide on the Same Day
The Bank of Canada decides on October 28, and the U.S. Federal Reserve concludes its two-day meeting the same day, per Investrade. The Fed raised its rate by 25 basis points in September, according to Canadian Mortgage Professional, and the 10-year Treasury yield stood at 5.145% on Wednesday, up 3 basis points. The S&P 500 closed at 7,757, up 0.59%, with the Nasdaq up 1.05% on results from SpaceX and Super Micro.
Ali Jaffery, chief economist at KPMG Canada, tied the Canadian dollar decline to the widening rate gap with the United States. The currency fell 3.5% from 0.7255 on September 8 to 0.7002 on October 12, then recovered to 0.7096 by October 20, according to PoundSterlingLive. A Bank of Canada hold alongside any further Fed tightening would reopen the gap behind the first leg down.
The working read for Thursday is that the loonie and the TSX are trading the October 28 decisions first and crude second. Brent settled at $108.79 on Tuesday, down 76 cents, and crude remains the larger daily input for energy shares. On this week of evidence it is the smaller one for the currency and the index.
Figures marked with an asterisk are as at 11:42 a.m. EDT, the latest TSX and loonie readings verified at publication. U.S. indexes, gold and crude are as at the 4:00 p.m. close.