04:27 PM EST, 11/07/2024 (MT Newswires) -- The Toronto Stock Exchange closed at a record high on Thursday as investors stayed bullish on the prospects for the U.S. economy following Donald Trump's re-election as president and the Federal Reserve's policy committee, as expected, cut U.S. interest rates by 25 basis points.

The S&P/TSX Composite index closed up 208.48 points to 24,845.93 topping the prior record of 24,822.54 set on Oct.18. Basic Metals, up 3.59% and Information Technology, up 1.66%, were the biggest gainers. Battery Metals, down 2.15%, and Telecoms, down 1.16%, the biggest decliners. Advancing listings led decliners by 1,339 to 562 with 145 closing unchanged.

The TSX gained 1.8% in the two sessions following the U.S. election, joining the Dow Jones Industrial Index and S&P 500 at record highs. The widely expected cut to interest rates by the Federal Open Market Committee is also adding to investors' appetite for risk. Another 25-point cut to rates is expected in December.

TD Economics noted today's rate decision follows recent rhetoric from Fed members who have paid closer attention to the improvement in consumer spending momentum. TD also noted there was no mention of U.S. election impacts, but its analysis shows that a broad increase in tariffs, promised by Trump. would lift inflation and force the Fed to slow the rate cutting cycle even further.

But, it said, recent inflation data have been "encouraging," with core PCE inflation cooling to 2.3% on a three-month basis.

According to TD, market expectations are still leaning towards another 25 bp cut in December (64% chance), which matches what the Fed was projecting in September. Beyond that, it said, there is less certainty, with markets signaling that the Fed would move to a cut, pause, cut pace in 2025. TD has already moved to this view, penciling in 25 bp cuts in December and January, before pausing in March.

This," it added, "suggests that the Fed will adopt a more patient approach as economic and political risks become increasingly elevated."

For Canada, the National Bank's Taylor Schleich and Warren Lovely noted while the world was digesting U.S. election results and the impact, the Bank of Canada sent out Senior Deputy Governor Carolyn Rogers for a speech on the mortgage market.

They noted prepared remarks didn't offer much insight into the policy outlook, but the Q&A gave them "a bit more to chew on". When asked on growing rate divergence between Canada and the U.S., Rogers again stressed this isn't a binding constraint right now. She said: "We set our policy rate for the Canadian economy. And there are some clear differences between [the U.S.] economy and our economy right now.... There's been a bit of worry recently about divergence but [while] there's a limit to that divergence, I don't think we're anywhere near that limit now. Over the years, we have seen rates between Canada and the U.S. diverge quite a bit more than they are now."

The National Bank duo wrote, "historically wide rate differentials are justified, poised to grow further and be sustained for longer." Will that, they asked, lead to a weaker loonie? "Yes. But we continue to argue that the impact of 'imported inflation' from a weaker C$ is overstated." So, they also asked, how far can rates diverge? They noted Rogers says Canada is not "anywhere close" to the limit, citing larger past divergences.

In the late 1990s, the BoC's overnight target was 250 bps below the Fed's, which may be the 'limit' Rogers referred to, Schleich and Lovely said: "We don't see us getting all the way back there but another 25, 50, even 75 bps isn't out of the question. BoC policy will be set based on the Canadian economy and to us, the Canadian economy still needs lower rates, whether or not the U.S. does too."

West Texas Intermediate (WTI) crude oil closed higher on Thursday rising off early lows despite rising U.S. inventories and weak demand from China, as the dollar eased with the rate cut. WTI oil for December delivery closed up US$0.67 to settle at US$72.36 per barrel, while January Brent crude, the global benchmark, closed up US$0.71 to US$75.63.

Gold prices traded higher late afternoon on Thursday as the dollar eased. Gold for December delivery was last seen up US$37.30 to US$2,713.60 per ounce, following a day-prior drop of 2.7% after the dollar rose to a four-month high after Donald Trump's victory in the U.S. presidential election.