04:20 PM EDT, 07/22/2024 (MT Newswires) -- The Toronto Stock Exchange (TSX) closed higher on Monday following three losing sessions ahead of a hoped for cut to interest rates from the Bank of Canada this week.

The S&P/TSX Composite Index closed up 182.26 points to end at 22,872.65.

Healthcare, up 2.0%, and Utilities, up 1.3%, were the are the biggest gainers over the session, while Base Metals was the biggest decliner, down 0.59%.

In stocks, assisted reproductive technologies company Hamilton Thorne ( HTLZF ) closed up 48% and the sixth-most actively traded on the TSX with 5.78-million shares changing hands, after it said that it agreed to be acquired by a private equity firm for $2.25 per share, a 54% premium to its July 19 closing price.

West Texas Intermediate (WTI) crude oil fell for a third-straight session amid political uncertainty following President Joe Biden's decision to withdraw as the presumptive Democratic presidential candidate in the 2024 U.S. election and ahead of key inflation data coming this week. WTI crude oil for August delivery closed down US$0.35 to settle at US$79.78 per barrel, the lowest since June 14, while September Brent crude, the global benchmark, closed down US$0.23 to US$82.40.

Gold was mostly steady late afternoon, with the dollar edging down after Biden's withdrawal and endorsement of Vice-President Kamala Harris as his replacement, and ahead Friday's U.S. inflation data. Gold for December delivery was last seen up US$1.40 to US$2,448.20 per ounce.

On the home front, market focus is on the Bank of Canada, which is expected to cut rates on Wednesday despite what some see as rising inflation risk. In isolation, a 25bp rate cut would do little to boost the economy, said Royce Mendes at Desjardins.

"So it always seemed like Canadian central bankers would move at least twice before even thinking about pausing. That's exactly the way policymakers approached their decision to come off of the sidelines to continue hiking rates in 2023," he noted.

In summary, Mendes said the latest inflation data build a strong case for continuing the rate cutting cycle without delay. What comes next will be heavily influenced by incoming data, he added. The Desjardins base-case forecast assumes that the BoC will reduce rates this week, skip September, but then cut again in both October and December.

"That cadence of easing would be considered gradual by historical standards," Mendes said. "Typically, rate cutting cycles have occurred in the context of recession, with rates falling rapidly. This time around central bankers are trying simultaneously to guide inflation back to target while warding off a contraction. As a result, there's less urgency and, therefore, greater scope to calibrate policy easing more carefully."

Over the past few months, Mendes said, the market has moved closer to the Desjardins' long-held forecast for the BoC, but he added "there's still ground to cover". Desjardins expects further narrowing of that gap to be gradual. However, Mendes added, if the Bank of Canada does indicate that another rate cut is likely in September, then implied policy rate pricing could move more quickly towards the Desjardins target of 2.5% for the end of 2025.

"The probability of such an outcome is high but not yet our base case," he noted.

Should inflation continue trending lower and employment post further declines, central bankers might eventually feel compelled to cut rates again in September, said Mendes. He noted early tracking by Desjardins for third quarter GDP suggests growth of just 1%. And the Fed's recent dovish shift also eases concerns about monetary policy divergence.

"However, to retain optionality, we still believe that a signal about a third consecutive move won't be given," he said. Mendes believes the BoC will probably prefer to emphasize data dependence. "That's particularly true given the recent depreciation in the Canadian dollar, to which the Bank of Canada might not want to add any fuel," he added.

Meanwhile, David Doyle, head of economics at Macquarie, also expects the BoC to cut by 25 bps this week. During June's communication, he noted, Governor Macklem described the rate reduction at that time as "reducing restrictiveness."

Doyle said there may be some caution in the BoC's rhetoric given the rebound in monthly underlying inflation in April and May. But he added while this could impact guidance on the time and magnitude of further cuts, it is unlikely to dissuade the BoC from proceeding at this meeting. The BoC is likely to take comfort that inflation is heading back to the 2% midpoint of its target range from the rise in unemployment in recent months and the weak results from the BoC's quarterly surveys, he noted.

Looking beyond July, Macquarie anticipates a 25 bps cut in October and a further 100 bps of cuts in the first half of 2025, pushing the overnight rate to 3.25%. It anticipates the policy rate to diverge near 150 bps from the Fed Funds rate, which would mark the largest such divergence since the late 1990s. Risks to this are tilted towards an even greater divergence given the mortgage rate reset challenge that lies ahead, Doyle added.