04:25 PM EDT, 08/19/2025 (MT Newswires) -- The Toronto Stock Exchange closed lower on Tuesday, falling or the third time in four sessions since posting a record close, as a September rate cut didn't become any more likely after today's inflation update, while National Bank has noted a flight of capital out of Canada into the United States despite a brewing trade war between the nations.

Neither was the resources heavy S&P/TSX Composite Index helped by lower commodity prices today, closing down 98.97 points to 27,823.88, with most sectors lower. Information Technology, Health Care and Base Metals were all down at least 1%. Among gainers, Industrials was up near 1.1% and Telecom up 0.35%.

Among individual stocks, Air Canada ( ACDVF ) closed up 1.15%. Early Tuesday morning, Air Canada ( ACDVF ) and its Flight Attendants' union reached a mediated settlement, ending a strike which had halted operations since early Saturday. Flights are set to resume tonight, but it will take 7 to 10 days to fully recover operations. This comes after Air Canada ( ACDVF ) yesterday morning formally suspended its Q3 and full-year guidance to reflect the labor disruption. The company was previously guiding to 2025 EBITDA in a range of $3.2-$3.6 billion.

National Bank maintained its Outperform rating and $26.00 target on Air Canada ( ACDVF ) shares. The bank said: "For now our forecast is unchanged, but we expect to refine our estimates once there is more clarity on the pace of operational recovery. In addition, we suspect Air Canada ( ACDVF ) may provide an update on the estimated financial impact from the disruption in the coming weeks."

In economics, specifically on inflation, David Doyle, head of economics at Macquarie Group, noted Canada's inflation measures released today softened modestly in July, with trim/median averaging +0.18% MoM. Encouragingly, he said, its three-month average has fallen to the lowest pace since September 2024, suggesting reduced momentum. Doyle noted the YoY measure was stable at 3.05%, and base effects suggest a moderation ahead. Traditional core, excluding volatile food and energy, was even softer at +0.06% MoM and +2.5% YoY. Headline inflation slowed to a 1.7% annualized pace.

Underlying measures are likely to moderate further ahead, Doyle said, noting the output gap is "sizeable" as evidenced by elevated unemployment and subdued private sector wage growth, while shelter disinflation has further to run. "Weak market rents, soft housing activity, and challenged home prices should feed through into measured inflation over time. While the trade war may result in further price pressures in durable goods, there is an offset from the improved performance of CAD over the past six months," he added.

Doyle noted today's data led the OIS market implied probability of a September cut to rise to 36%, from 29%. Macquarie continues to see two further cuts ahead (a total of 50 bps). Its base case is these will occur in October and December. While the door to a September cut has widened further, the decision will hinge on incoming data, most importantly the August CPI and Labour Force Survey as well as the Q2 GDP release, Doyle added.

Elsewhere, Derek Holt, Head of Capital Markets Economics at Scotiabank, said while measures of core inflation were softer in July, he added "it's just one set of readings" ahead of a lot of further information on the road to the next BoC decision on Sept.17. "That's probably why the market reactions were fairly muted," Holt said, before adding: "There are also serious questions to be raised regarding data reliability."

Meanwhile, on capital flight, Warren Lovely, Managing Director at National Bank of Canada, noted StatCan's latest securities transactions data revealed foreign investors technically resumed buying Canadian portfolio assets in June. "Hold the applause," he said, "as Canada's capital flow picture remains sobering (and potentially problematic for issuers with sizeable borrowing requirements). Notwithstanding the 'positive' symbol, at barely $700 million, June's net foreign buying of Canadian assets was relatively muted, reversing but a fraction of the divestment that had piled up in the preceding four months. Since President Trump moved back into the White House and clouds formed over many an outlook, non-residents have cooled on Canadian exposure. Never has the first half of a calendar year produced such tepid foreign interest."

"Meantime," Lovely added, "domestic investors (in aggregate) have seemingly failed to employ a 'buy Canadian' (or 'sell American') philosophy in their own portfolio dealings. We explored this curiosity last month ... The

pattern remained intact through June, when Canadian investors steered another $23 billion to the U.S. That means Canadians have accumulated a rather stunning $124 billion of American securities since Mr. Trump placed this nation's economic future in doubt. With nonresident investors aloof and Canadians adding foreign assets, the country has suffered a major capital drain. The cumulative outflow over the latest five-month period is in fact unprecedented."

Returning to foreign investor flows, Lovely noted the net divestment story is concentrated in equities, with non-residents technically accumulating near $7 billion of Canadian bonds in June. Granted, Lovely said, that net buying was expressed in international markets. "As a reminder," he added, "June is hardly a 'normal' month for Canadian bond flows, as a heavy concentration on GoC coupon/maturities tends to trigger passive foreign divestment out of CAD-denominated product. And so it was this June."

According to Lovely, a "seasonal lightening up of CAD-denominated bonds in June is hardly shocking". Still, he said, the situation bears scrutiny. Lovely noted the federal government's ambitious plans imply meaningful net borrowing needs, and prior large-scale foreign buying succeeded in absorbing a very material share of net GoC debt issuance, almost 75% in calendar 2024 "believe it or not". But, Lovely said, with non-residents having backed away, at least temporarily, domestic investors must "clean things up". Consider, he noted, in the first half of 2025, domestics sopped up $100 billion of net GoC supply. That annualized ask was a "very brisk" 6% of GDP, beyond the net funding needs emanating from other sectors, be it non-central governments, public sector entities or private corporations. "If sustained," Lovely added, "foreign investor apathy could be problematic if not downright frightful. Timely trade deal certainty alongside needed budgetary clarity could go some way to avoiding a more adverse scenario."

Of commodities, gold moved lower late afternoon Tuesday, sticking to a tight range as the dollar moved up from early weakness after U.S. housing starts rose to a five-month high in July, topping expectations, while safe-haven buying eases on hopes for an potential ceasefire in Russia's war on Ukraine. Gold for December delivery was last seen down $18.10 to US$3,359.90 per ounce, remaining within the tight range it has mostly stuck to since April.

Staying on gold, Douglas Porter, chief economist at BMO Capital Markets, noted that China's number one import from Canada is gold (per China's statistics), and not a food or energy product. He said: "That fits with a broader theme that gold and other precious metals have quietly moved into being a very large portion of overall Canadian exports, now more than 6%, a doubling in the share from just two years ago."

Also, West Texas Intermediate crude oil closed lower on easing geopolitical risk as hopes rise for an end to Russia's war on Ukraine following a day-prior White House meeting between U.S. President Donald Trump, Ukrainian President Volodymyr Zelensky and European leaders. WTI oil for September delivery closed down $1.07 to settle at US$62.35 per barrel, while October Brent crude was last seen down $0.94 to US$65.66.