04:22 PM EDT, 07/16/2024 (MT Newswires) -- The Toronto Stock Exchange's S&P/TSX Composite Index closed at a fresh record on for the fifth-straight session on Tuesday. ending the day up 243.71 points to close at 22,995.39, with traders buoyed by the increased likelihood of a second-straight interest rate cut in Canada next week and a rate cut in the United States in September.

Information Technology and Industrials were the top trading commodities, up 3.1% and 1.4% respectfully. Battery Metals, down 1.7%, and Energy, down 1.2%, were the leading decliners on the day.

West Texas Intermediate (WTI) crude oil fell for a third-straight session early on Tuesday, dropping to the lowest in nearly a month as weak growth in China, the No.1 importer, raises demand concerns. WTI crude for August delivery closed down US$1.15 to US$80.76 per barrel, the lowest since June 21. September Brent crude, the global benchmark, closed US$1.12 to US$83.73.

Gold traded at a record high mid-afternoon on Tuesday on rising hopes for a cut to U.S. interest rates even as the dollar rose after U.S. retail sales unexpectedly climbed in June. Gold for August delivery was last seen up US$43.00 to US$2,471.90 per ounce, passing the prior record of US$2,461.70 set on May 20.

According to CIBC, the inflation data for June gave the Bank of Canada "what it needed" in order to cut interest rates at next week's meeting. CIBC noted headline CPI decelerated by two ticks to 2.7% annualized, in line with the consensus expectation. But more important for policymakers, their preferred measures of core inflation, CPI-trim and CPI-median both showed a monthly advance of 0.2% (seasonally adjusted), down from a 0.3% pace in the prior month. Other key core measures improved, with CPIX decelerating to a 0.1% m/m pace, and CPI ex. mortgage interest costs at 1.9% y/y. "This shows that the prior month's upside surprise in inflation was just a blip in a broader trend of disinflation as demand in the economy remains under pressure," CIBC said.

CIBC said the report confirms that the weak demand backdrop is bringing inflation down towards target. In Q3, the bank added, headline inflation should decelerate sharply on base effects, while it expects to see more measured progress in core measures, helped by an easing in mortgage interest costs. The BoC's latest round of business and consumer surveys showed that inflation expectations are easing off on balance, which will also provide the BoC with more comfort to continue to cut rates, and it's also looking like they will have to worry less about policy divergence with the Fed that is set to cut in September.

According to Derek Holt, Vice President & Head of Capital Markets Economics at Scotiabank, the "proper way" to look at the core gauges in today's CPI data is to consider the monthly SAAR readings.

"They were hot again," Holt said, noting both trimmed mean and weighted median CPI were up by 2.9% SAAR following the prior month's 4.1% readings for both. He added: "Underlying inflation has pivoted higher again over the past two months. It's not screaming hot like it was earlier in the post-pandemic period, but it's hot enough to merit concern that inflation risk remains alive and kicking in Canada."

Holt, in noting the BoC delivers its next policy decision one week from tomorrow along with a full forecast update, asked himself: Are two hot back-to-back readings for the BoC's preferred core gauges enough to derail another cut? He answered: "I don't think so."

Holt said several arguments work in favour of continued easing: One, BoC confidence that macroeconomic re-balancing will sustainably achieve 2% inflation into next year. "We'll see, but that's their bias," Holt added. Two, Macklem has sounded extremely dovish. Three, the BoC delivers fresh forecasts next week.

Meanwhile, in terms of the U.S., Rosenberg Research said the retail sales data for June were a "huge upside surprise," especially given what the merchants have been saying in their earnings reports and the loss of pricing power seen in the latest CPI release.

The research noted headline sales came in flat but that beat the consensus estimate of -0.3%, and May was revised higher to +0.3% from +0.1%. The ex-auto segment rose +0.4% MoM (consensus was +0.1%) and May was taken up to +0.1% from -0.1%. Strip out autos and gas, and the number was a "hefty" +0.8%, which was four-times the market expectation of +0.2% and, yet again, May was revised higher to +0.3% from +0.1%. The research also noted the core control group that feeds into consumer spending data in the GDP accounts "zoomed ahead" +0.9% and "massively" beat consensus estimate of +0.2% (and builds on a +0.4% May gain).

According to Rosenberg Research, the "only fly-in-the-ointment" was that real retail sales came in flat in June and the annualized trend is "fractionally negative" at -0.7%. For the second quarter, it noted, real retail sales (inflation adjusted) fell -0.6% at an annual rate and that followed a -4.4% Q1 contraction. The research noted this was the first successive decline 2022 Q3. And there is practically zero momentum being built into Q3. "So, yes, a far stronger than expected number, but the overall pace is still on the soggy side."

Still, the research said, even though Q2 real sales dipped, consensus forecasts for GDP growth are bound to rise on the back of this unexpected number and the upside revisions.

"Obviously not the greatest news for the Treasury market but the stock market loves it because the number does suggest that the 'no landing economy' persists. The Fed is very likely to cut rates in September in any event because we know inflation is back to trending down and the labor market is cooling off," it added.

Elsewhere, National Bank has released its Monthly Equity Monitor for July-August 2024. National noted July has been good for the S&P/TSX so far, with the Canadian benchmark up 3.6%, its best performance in four months. But as with the U.S., National remains skeptical about the outlook for Canadian equities. Firstly, earnings expectations are "almost as ambitious" as in the U.S., with EPS growth of 11% expected next year despite the economy continuing to slow. Secondly, virtually all of the expected EPS growth will be in the form of margin expansion, as sales growth is only forecast at 2.2%. National said: "In order to meet the earnings growth target, profit margins would therefore have to rise to a record high. That is a very tall order indeed given that pricing power is limited in a lower inflation environment. Moreover, improvement in operational leverage will be difficult in a slowing population growth context."

At this stage, National is maintaining its defensive asset allocation, underweighting equities and overweighting bonds and cash. National added as the economy surprises to the downside and the Fed moves closer to cutting interest rates, it believes equity investors are "overly optimistic about the ability of central banks to quickly reignite economic acceleration and stabilize the labour market".