TSX reaches record highs as markets bet on possible Fed rate cuts

Canada's main index of stocks hit a new record on Tuesday. Energy stocks helped to boost the index as investors assessed domestic annual inflation figures amid optimism about a policy cut made by the U.S. Federal Reserve last week.

If gains continue, the S&P/TSX Composite Index of the Toronto Stock Exchange is poised to close at a record level for a fourth consecutive session.

The markets remained focused on the U.S. Federal Reserve’s policy decision scheduled for Wednesday. Policymakers are expected offer the first rate cut in over four years.

Markets are more inclined towards a larger half-point rate reduction. The odds for this are 67%.

Kevin Headland is the co-chief investment strategy at Manulife Investment Management. He said that the market would be satisfied with a 50 basis point reduction as long as the market does not expect a prolonged or more severe economic downturn.

Canada's domestic market assessment

Annual inflation rate

The Bank of Canada has set a target rate of 2% for the month of August.

The BoC Governor held a policy meeting in early this month.

Tiff Macklem

The risk of the inflation rate falling below target was highlighted due to the weak economic growth.

The Canadian swaps market has a 43% probability of seeing a Bank of Canada interest rate cut of 50 basis points in October.

On TSX the energy sector was the leading sector that gained 0.6% in response to the rise in oil price.

Canada's largest exports are crude oil and gold.

Prices of West Texas Intermediate crude futures have risen by 1.14% on the oil markets. Brent crude rose by 0.76%. Gold fell 0.2%.

The TSX has risen 13.3% this year. (Reporting and editing by Leroy Leo, Tasim Zaid, and Nikhil Sharma from Bengaluru)

(source: Reuters)