04:23 PM EDT, 05/15/2024 (MT Newswires) -- Canada's main stock market, the Toronto Stock Exchange, on Wednesday closed up 41.42 points, with the S&P/TSX Composite Index closing at 22,284.76, leaving it largely unchanged after the first three days of the week, reminiscent of the U2 song 'Running to Stand Still' and leaving the index close to 200 points under the record high struck last week.

This after eagerly awaited inflation data out of the United States left market watchers here little wiser as to when the Fed is likely to start cutting rates, and still nervous on the prospect of the Bank of Canada cutting first.

The main differentiator between today and the prior two sessions is that the resources-heavy TSX was boosted by both higher oil and gold prices. And just about most sectors were higher, led by the Battery Metals index. Health Care was the biggest percentage loser.

Of commodities today, West Texas Intermediate crude oil closed with a gain as the U.S. reported a key inflation measure eased last month and a report showed a drop in US inventories, while the International Energy Agency lowered its 2024 demand forecast. WTI crude oil for June delivery closed up $0.61 to settle at US$78.63 per barrel, while July Brent crude, the global benchmark, closed up $0.37 to US$82.75.

Also, gold prices had traded higher Wednesday as a tepid U.S. inflation report revived hopes the Federal Reserve will be able to begin lowering interest rates this year and pushing down the dollar and yields. Gold for June delivery was seen up $32.80 to US$2,392.70 per ounce.

The US Bureau of Labor Statistics on Wednesday reported the April consumer-price index rose by 0.3% from March, down from a rise of 0.4% a month earlier and under the consensus estimate for a 0.4% rise, according to Marketwatch. The core index, which excludes volatile food and energy prices, rose 3.6% annualized, matching expectations and down from a 3.8% pace in March. Still, while today's U.S. CPI in-line reading "provides reassurance", a first rate cut in rates is not likely until 2025, according to a Macquarie economist..

David Doyle, head of economics at Macquarie, said "encouragingly" there was a deceleration in services pricing with this apparent in both the rent/OER component and services ex rent/OER. And when put together with the inputs from the PPI earlier this week, Macquarie's analysis suggests the underlying data are consistent with a ballpark reading of +0.25% MoM in the core PCE for the month, the Fed's preferred inflation measure.

Such a figure would be slightly above, "but roughly consistent with", the monthly forecast Macquarie outlined in late April. Consequently, Macquarie's baseline case for FOMC policy is unchanged on the release. It sees a rate cut as only likely in 2025. "However," Doyle added, "as was the case with April's employment report, these data should provide reassurance to Chair Powell that current guidance that the next move is likely to be a cut remains appropriate."

Elsewhere, Desjardins noted there's "some progress" on the CPI results for April, but "not enough to bring the Fed to cut its key interest rates any time soon". Desjardins said: "It's comforting to see that retail sales rose at a slower pace, but we'll need to see the trend continue for several months before we're convinced that consumption is really calming down-especially since spending on services has been ramping up over the last few quarters."

And Derek Holt, Vice-President and Head of Capital Markets Economics at Scotiabank, noted markets "expressed mild relief" toward a pair of US inflation and consumer spending prints that "change nothing yet" for the FOMC. Holt said the result had markets "gently piling into" the US front-end, driving a weaker dollar, and putting a bid to US equities. "That's a sensible market reaction in a positioning sense that has been programmed to be surprised by higher core inflation readings this year which didn't happen this time, but it's not going to sway the Fed any time soon," he added.

All of which makes timely the release of a note from TD Economics today. In it, TD addresses issues impacting the economic and financial outlook, and in one section asks itself: 'Will the Bank of Canada be able to cut rates if the Fed doesn't?'

"Yes," TD said, before adding: "If there is one thing we have learned since central banks started hiking rates, it's that interest rates affect economies differently." TD noted the Canadian economy has grown below its trend growth rate for nearly two years. This economic weakness has led Canadian inflation to ease relative to the U.S. TD said: "The BoC needs to respond to what is happening at home. If it believes that it has curbed economic growth enough to ensure inflation is on a sustainable path back to 2%, it should cut rates -- even if the Fed doesn't."

According to TD, the pertinent question is not "if" the BoC can cut ahead of the Fed, but by "how much". Historically, it said, a 100 to 125 basis point spread between the Fed and BoC policy rates appears sustainable. Anything beyond that would only be temporary, or else the BoC would risk sending the loonie below the psychological 70 U.S. cent level, it added.

TD's forecast points to a widening policy rate gap, with the BoC expected to cut in July and start speeding up the pace of cuts at the end of 2024. On the other side of the border, TD sees the Fed taking its time, with December as the most likely start date for that first cut. TD said that means the spread between the BoC and Fed policy rates would hit 125 bps, before the Fed starts to accelerate its own rate cutting pace. This, it added, implies that the BoC will be managing monetary policy according to what is happening in Canada, with an eye fixed on what's happening in the U.S..