04:19 PM EST, 02/12/2025 (MT Newswires) -- The Toronto Stock Exchange closed lower for a second straight session on Wednesday amid concern the chances of a larger interest-rate differential between Canada and the United States will grow in the coming months following hotter than expected U.S. inflation data.

Not helped by lower commodity prices, the resources heavy S&P/TSX Composite Index lost 68.72 point to close at 25,563.11. Among sectors today, Energy, down 2.2%, was the biggest decliner. Base Metals and Telecoms, up 0.37% and 1.12%, respectively, are the biggest gainers

According to veteran market watcher David Rosenberg, while crosscurrents abound, the Fed hawks have gained the upper hand after today's U.S. consumer inflation release. Rosenberg noted the U.S. January Consumer Price Index (CPI) came in hotter than expected, with the headline index spiking +0.5% month-over-month in January, above the consensus estimate for 0.3% rise, the fastest pace since August 2023, while the core measure, excluding food and energy, rose +0.4% month-over-month, above consensus for a 0.3% rise, while the print was double December's 0.2% reading and the highest since March 2024.

"Let me say at the outset that the risks of the next Fed move being a hike just took a giant leap forward this morning. We must keep in mind that the discouraging CPI data took hold before any of the tariffs kicked in. Jay Powell's life was just made a tad tougher -- as is the case with all of us expecting the easing cycle to be rekindled in the second half of the year. Bad for bonds, bad for stocks, but great for the U.S. dollar and cash yielding a safe 4.35% is looking like a home-run safety valve," Rosenberg noted.

He also noted the headline inflation rate ticked higher to +3.0% year-over-year from +2.9% in December; the core inched up to +3.3% year-over-year from +3.2% as well but was "considerably" above the +3.1% consensus estimate.

"Let me add why a rate hike is not my base case. The Fed knows from the 2019 experience that the initial impact of tariff hikes on prices was not long-lived, and that we ended up with a greater depressing impact on investment and output. The Fed waited for many months to see if there was a persistent wage response, and there wasn't any. That is because inflation expectations were well contained, and the Fed Chairman yesterday stated the very same thing at his Congressional testimony. If, and only if, we begin to see a wage response from this price data and the tariff file, then expect our base case to change," Rosenberg added.

Meanwhile, National Bank noted in 2018, trade-related "jawboning" from the first Trump Administration ratcheted up, ultimately culminating in the implementation of steel and aluminum tariffs. Canada was subjected to these tariffs for about a year and retaliated in kind. "Looking back on the 2018-19 episode," National said, "targeted industries and some regions were impacted. But the overall fallout from that earlier tariff episode was generally contained."

But, the bank added, "Markets may have taken the latest steel/aluminum tariff noise in stride, but Canada's outlook is massively contingent on evolving trade policies."

Brian Belski, Chief Investment Strategist at BMO Capital Markets, said while BMO continues to urge discipline and fundamentals in the face of persistent and often elevated trade noise, its work shows this uncertainty has led to "select outlook paralysis" among trade-exposed industries in the TSX. "From our perspective," Belski said, "this "paralysis" is leading to a phenomenon of very beatable earnings in the second half of the year, especially when trade issues resolve. As such, we believe investors should be looking for high-quality Canadian companies with long-term fundamental growth profiles that may have been unjustly punished during recent trade consternation."

Of commodities, West Texas Intermediate crude oil weakened following three days of gains as a report showed a rise in U.S. oil inventories last week. WTI crude oil for March delivery closed down $1.95 to settle at US$71.37 per barrel. April Brent crude was last seen down $1.79 to US$75.21.

Gold prices continued to retreat from Monday's record high late afternoon on Wednesday as treasury yields surged after U.S. inflation advanced at a faster-than-expected pace last month. Gold for April delivery was last seen down $7.80 to US$2,924.80 per ounce, after closing at a record US$2,934.40 on Monday.