TSX resumes record climb, loonie falls after BoC says open to rate cuts

TORONTO — Canada's main stock index resumed its climb to record highs midweek as the Bank of Canada said it was finally open to lowering interest rates.

The central bank kept interest rates on hold Wednesday at 1.75 per cent in the face of a slower-than-expected start to 2020 for the Canadian economy, but governor Stephen Poloz left the door open to a rate cut if the weakness is more persistent than expected.

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In its latest quarterly forecast, the central bank predicted the Canadian economy will grow by 1.6 per cent this year, down 0.1 of a percentage point from its projection in October.

The Bank of Canada is recognizing that the Canadian economy is slowing, said Anish Chopra, managing director with Portfolio Management Corp.

"Does it slow down really quickly in which case they would cut (interest rates) quickly or if it's slowing more slowly they'll just take more time to assess the situation," he said in an interview.

The bank's comments helped to bolster the S&P/TSX composite index, which gained 27.58 points to a record close of 17,599.86 after hitting a record intraday high of 17,666.45.

It also caused the Canadian dollar to hit a one-month low of 76.24 cents US compared with an average of 76.53 cents US on Tuesday.

Chopra said it's difficult to say how much of the TSX's gains were due to the Canadian central bank when other markets were also up.

"It would be hard to try to separate the news from the Bank of Canada and the strong global market reaction today offsetting yesterday," he said before markets lost some of their large morning gains toward closing.

In New York, the Dow Jones industrial average was down 9.77 points at 29,186.27. The S&P 500 index was up 0.96 of a point at 3,321.75, while the Nasdaq composite was up 12.96 points at 9,383.77.

U.S. markets initially climbed strongly on positive earnings results including IBM and reduced concerns about the spread of the coronavirus, said Chopra.

"I think investors are just getting a better handle on the implications of that...offsetting yesterday's decreases for sure."

With many companies reporting positive results, investors are satisfied that earnings are coming in appropriately, he added.

"And you've got some of the geopolitical issues around Iran seem contained, the issue around the coronavirus seems more contained and there were recession fears last year and certainly late in 2018 but investors don't seem as much concerned about a recession."

Seven of the 11 major sectors of the TSX were higher, led by telecommunications, health care and technology.

Rogers Communications Inc. gained 3.2 per cent after the Toronto-based telco said it plans to spend nearly $3 billion on capital investments this year assuming there's no negative changes to the regulatory environment.

The heavyweight financials sector was higher as the prospect of lower interest rates is helpful for borrowers and reduces bank credit losses.

Energy was the weakest sector on the day, falling as shares of Crescent Point Energy Corp. lost 2.7 per cent, ahead of declines by Fronterra Energy Corp. and Husky Energy Inc.

The key sector dropped on lower crude oil prices after the International Energy Agency said the global market was in surplus, along with concerns that the coronavirus would reduce global demand as travel would decrease.

The March crude contract was down US$1.64 at US$56.74 per barrel and the February natural gas contract was down one cent at US$1.905 per mmBTU.

Materials was also down on lower metals prices as Turquoise Hill Resources Ltd. and Goldcorp Inc. were down 2.2 and 1.6 per cent respectively.

The February gold contract was down US$1.20 at US$1,556.70 an ounce and the March copper contract was down 2.85 cents at US$2.765 a pound.

This report by The Canadian Press was first published Jan. 22, 2020.

Companies in this story: (TSX:RCI.B, TSX:TRQ, TSX:G, TSX:CPG, TSX:FEC, TSX:HSE, TSX:GSPTSE, TSX:CADUSD=X)

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