Oil reaches Canadian portfolios through the Bank of Canada and the loonie, not through the TSX. Tuesday made that visible: crude fell on Middle East peace talks, the TSX gained 227 points, and the rate market barely moved.
The TSX Rose While Cenovus, Imperial Oil and Suncor Fell About 4%
The S&P/TSX Composite closed at 36,171.49, up 0.63%, even as Cenovus dropped 4.4%, Imperial Oil 4.1% and Suncor 4.0%. The gains came from Celestica, up 11.9% on third-quarter results, from miners including Perpetua Resources and Denison Mines, and from BMO, up 1.2%. Gold rose US$38.10 to US$4,076.50.
U.S. crude futures settled at US$99.90, down 1.8%, as traders focused on peace talks. The oil sensitivity sat in a narrow set of names: Valero fell 9.24% in New York while the S&P 500 rose 0.60%. This morning coverage had already established that the TSX had barely followed crude all month.
Brent has gained 9.9% since September 28 while the S&P/TSX Composite has gained 1.9%, and Brent has closed above US$100 on all 19 October sessions.
Brent has closed above US$100 on all 19 October sessions in this series. The oil series is the Investing.com Brent contract and differs from the front-month quotes cited elsewhere.
Over 20 Sessions, Oil Explains Less Than 1% of Daily TSX Moves
The correlation between daily Brent and TSX percent changes since September 29 is -0.09, an R-squared of 0.008. Oil rose 9.9% across the period, and the index gained 1.9%.
On the five sessions when Brent moved more than 3%, the TSX moved between a 0.97% decline and a 0.30% gain. Tuesday paired a Brent decline of 0.94% with a TSX gain of 0.63%. A market that does not trade oil through equities is trading it somewhere else.
Across 20 sessions since September 29, daily Brent moves explain 0.8% of daily TSX moves, with a correlation of -0.09.
The correlation between daily Brent and S&P/TSX Composite percent changes is -0.09, and a linear fit explains 0.8% of the variance in TSX moves. Returns are simple close-to-close changes.
The Oil Shock Lands at the Bank of Canada and the Loonie
September CPI rose 3.1%, but gasoline, up 27.8% year over year, is the difference between that and the 2.2% rate excluding gasoline. The Bank of Canada preferred measures sit lower: CPI-trim at 1.8% and CPI-median at 1.9%.
A hike to 2.50% from 2.25% on Wednesday is priced at roughly 75%, per a Finwire market report, against the 78% to 80% in swaps pricing cited this morning. Crude fell, yet the two-year Government of Canada yield slipped less than 1 basis point to 3.367%.
The loonie weakened 0.3% to 1.4050 per U.S. dollar, about 0.6% below the five-week high of 1.3966 reached Friday, as the U.S. dollar rose on firm business equipment spending. The Bank of Canada decides at 9:45 a.m. ET and the Federal Reserve at 2 p.m., with a December Fed hike priced by CME FedWatch. A hike to 2.50% would still leave the policy rate 125 to 150 basis points below the Fed range of 3.75% to 4.00%.
The signal on Wednesday morning is not the TSX. It is whether the statement and Monetary Policy Report treat gasoline or the trim and median measures as the inflation problem. A hike, with Brent above US$100 for 19 straight sessions, confirms the odds; a hold forces the roughly 75% embedded in the two-year yield to reprice, and the yield and the loonie are where it would show.