04:14 PM EDT, 06/20/2024 (MT Newswires) -- Canada's main stock market, the Toronto Stock Exchange (TSX), closed higher on Thursday, rising off a 14-week low on higher commodities and a belief among some market watchers that Canada will see another rate cut next month.

The S&P/TSX Composite Index closed up 64.45 points to 21,581.35

Health Care and Base Metals the biggest gainers at the close, up 1.6% and 1.7%, respectively.

West Texas Intermediate (WTI) crude oil closed at a seven-week high on Thursday on expectations summer demand is on the rise amid tight supply while U.S. inventories fell last week. WTI crude for July delivery closed up US$0.60 to US$82.17 per barrel, the highest since April 29, while August Brent crude was last seen up US$0.44 to US$85.51.

Gold traded higher mid-afternoon on Thursday even as the dollar and yields rose despite weak U.S. economic data. Gold for August delivery was last seen up US$22.80 to US$2,369.70 per ounce.

But natural gas traded lower as the first named tropical storm of the season brought lower temperatures to Texas, cutting into cooling demand, even as dangerously hot weather continues in the Northeast.

On rates, Desjardins in its last 'Economic & Financial Outlook' said with inflation continuing to cool in Canada, a second cut seems likely in July, with more cuts follow. All told, it added, Canadian policy rates are expected to come down 100 basis points in 2024 and 150 basis points in 2025. In the U.S., where inflation has been stickier, Desjardins said the Fed will probably wait to make its first cut in November when it meets right after the presidential election. It is expected to cut again in December and follow that up wit additional reductions in 2025 to gradually bring the federal funds rate closer to neutral, the bank added.

However, Desjardins also noted that even as interest rates are likely to move lower over the next couple of years as inflation slows, there will be "offsetting headwinds to growth." It said these include a wave of mortgage renewals in 2025 and 2026 at much higher interest rates than when households took out their mortgages during the pandemic. At the same time, it added, population growth will slow as the federal government caps the number of newcomers to Canada.

Meanwhile, RBC in a Canada Rates Outlook note titled 'Go your own way' noted visible divergence in macro conditions, including growth and the labor market, between Canada (weaker) and the U.S. (stronger) has intensified over the last 12-18 months, culminating in a widening inflation differential. According to RBC, 'Macro 101' indicates that this makes sense.

It said: "Canada is locked in a below-trend growth phase, a loosening in the labor market, and subdued price pressures that support an easier monetary policy setting. Markets are too sanguine on the ability of the BoC to materially diverge from the Fed, while we believe the current setup and history tells a different story."

RBC added: "The BoC should be comfortable going its own way and out-cut the Fed (assuming nothing 'breaks') this year and to the end of the cycle. Bond yields will continue to be affected by the gravitational pull from the U.S., but domestic macro conditions for duration are better than they have been in a while. CA-US spreads could tread water with greater risks that GoC's outperform; Canada underperformance is only possible if U.S. hard-landing risks emerge. Into an easing cycle, the curve 'should' steepen, at least that is the unequivocal consensus view, but we think it will be very modest (if at all) and carry-adjusted risk-reward favours flatteners."

BMO's Robert Kavcic in an overnight note, said Canadian stocks, "always a valuation darling but rarely an outperformer, have returned to their lagging ways." Since the end of April, he noted, the TSX has struggled to stay positive, while the S&P 500 has pushed nearly 10% higher to record levels. As is often the case, Kavcic said, this is mostly the result of composition. He noted banks and energy have struggled heading into the summer, which is "always a tough backdrop" for the TSX. In the meantime, he added, technology has lurched more than 20% higher in the S&P 500 (with a more than 30% weight).

Even within the S&P 500, outsized gains in a few technology names are playing a big role, Kavcic said, while noting the standard index is up almost 10%, the equal-weight S&P 500 is up just 2% since the start of May.