04:25 PM EDT, 05/30/2024 (MT Newswires) -- The Toronto Stock Exchange closed with a gain on Thursday, with strong earnings from CIBC (CM.TO) and the Royal Bank of Canada ( RY ) pushing financial issues higher.

The S&P/TSX Composite Index closed up 173.73 points to 22,071.71.

Financials, up 1.8%, and Utilities, up 1.5%, were the biggest gainers, driven by strong results from both CIBC and RBC earlier in the day. Battery Metals was the biggest decliner, down -2.7%.

National Bank noted CIBC reported Q2 2024 core cash EPS of $1.75 vs. National's $1.72 and consensus $1.65. "Overall," National said, "we believe CM will deliver on its full-year positive operating leverage target."

National raised its target to $78, from $76, and maintained an Outperform.

RBC, National also noted, reported Q2 2024 core cash EPS of $2.92 vs. National's estimate of $2.96 and consensus estimate of $2.76. Among key takeaways, National noted RBC reported stronger than expected Q2 results, "which was well-timed considering some of the more challenging performances/situations we've seen over this reporting season."

While premature to assess its success, National noted the first quarter of the HSBC Canada acquisition didn't raise any concerns. More importantly, credit performance was "positive overall," with the bank maintaining its PCL ratio guidance despite a couple large impairments in the wholesale portfolio.

Finally, investors welcomed news of a 3% dividend increase, along with a share buyback program that will effectively nullify the dillutive impact of shares issued under the Dividend Reinvestment Program over the past year or more. National raised its target to $161 from $154 and kept an Outperform rating.

Markets are also awaiting fresh U.S. inflation data on Friday that is likely to guide the course of interest rates in both the United States and, to a lesser extent, Canada, as a higher than expected PCE Index print could further stall rate cuts from the Federal Reserve and could make the Bank of Canada rethink its own rate-cut plans to avoid straying too far from the Fed..

According to Desjardins, markets are reluctant to price in major divergences in monetary policy. In highlights from its latest FX Forecasts note, Desjardins said changing monetary policy expectations are still fueling exchange rate movements. Until early this spring, it noted, investors were focused mainly on when interest rate cuts might start as it became clear that there could be significant timing differences between the Fed and most other major central banks.

"Since then," the bank added, "attention has shifted to the total number of upcoming rate cuts, and the markets seem hesitant to be on a major discrepancy."

At the time of writing, Desjardins noted, money market futures were pricing roughly one and a half rate cuts from the Fed this year. Market expectations were for two and a half cuts in the Eurozone, which "isn't a terribly large divergence" from the Fed.

The Bank of Canada (BoC) was also expected to cut rates two and a half times. The markets, Desjardins said, are maintaining a high probability that both the European Central bank (ECB) and the BoC will announce an initial rate cut in June. In other words, it added, the current expectation is that rates will come down very gradually over the rest of the year in both the Eurozone and Canada.

Desjardins noted the Bank of England (BoE) isn't likely to move any faster. Now that a general election has been called, there's little chance that the first cut will happen in June, it said, before adding that as things stand, markets have priced in one and a half BoE cuts by the end of the year.

According to Desjardins, recent economic data has given people reason to believe there will be less divergence in the monetary policies of the world's main central banks. In the U.S., it noted, the numbers point to a slowdown after several quarters of economic vigor.

Meanwhile, it added, recent data indicate that growth is picking up in the Eurozone and the U.K., boosting the euro as well as the pound. Desjardins noted Eurozone negotiated wage growth also accelerated in the first quarter.

The ECB had been keenly waiting for this information, though with hopes that wage growth would slow, it said.

Meanwhile, the coming U.S. PCE IndexI inflation report will have swaying power for the market," according to a Macquarie strategist. Lately, said Thierry Wizman, Global FX & Rates Strategist at Macquarie, traders aren't just thinking that the Fed will keep the U.S. policy rate high for longer than previously expected. They also suspect that the Fed will keep the policy rate "higher than otherwise into the second half of the decade."

According to Wizman, "a complex of unshakeable and negative structural supply side constraints (and the interaction between them) is making it so."

Should we get an in-line core PCE print (0.3%) tomorrow, it would mark a small decline from March's 0.32%, Wizman noted. But he said it wouldn't be enough of a decline to start the clock ticking toward a rate cut. For that to happen, we'd need to see PCE inflation more consistent with 2.5% inflation, that is, a sequential figure closer to 0.2%, he added.

TD Bank said all eyes here are already on the Bank of Canada as it is set to meet next week. It noted that with inflation stabilizing around the 2% target, investors are expecting that the central bank will either cut its policy rate, or at the very least, signal that a cut will happen soon.

But while TD said it is "clear" that the BoC is closing in on its first rate cut, the same cannot be said for the Federal Reserve. Strong U.S. economic growth has led to an upturn in inflation, raising expectations that the BoC will have to go it alone when it comes to initiating rate cuts, it noted. "This won't be the first time that policy divergence has happened between the two central banks. But importantly, a repeat will have knock-on effects, justifying our year-end forecast for the loonie of 70 U.S. cents," the bank added.

West Texas Intermediate (WTI) crude oil closed lower on Thursday as inflation worries offset a report showing U.S. inventories fell sharply last week. WTI crude oil for July delivery closed down US$1.32 to settle at US$77.91 per barrel, while July Brent crude, the global benchmark, closed down US$1.74 to US$81.86.

Gold edged lower late afternoon on Thursday as the dollar rose and treasury yields fell ahead of U.S. inflation data coming on Friday. Gold for August delivery was last seen down US$1.50 to US$2,362.60 per ounce.