04:38 PM EDT, 06/10/2025 (MT Newswires) -- (Adds Bank of Montreal commentary in paragraphs four to seven inclusive)

The Toronto Stock Exchange closed higher on Tuesday, but fell just short of last week's record close as National Bank says Canadian investors have "sat relatively comfortably in the unknown" on interest rates, while adding "the BoC has been happy to keep them there".

The S&P/TSX Composite Index ended Tuesday's session up 50.5 points at 26,426,31, single digit points below a Friday's record. One of three days last week it posted such a record. Lower commodity prices likely helped in keeping the resources heavy index from posting a fresh one today.

Most sectors were up, led by Health Care up near 2.4%, and with both the Battery Metals Index and Energy up more than 1%. Base Metals was flat to lower.

Robert Kavcic, Senior Economist at BMO Economics, in a note entitled 'TSX: Eh-Ok" published after the close of trade Tuesday noted the TSX is "bouncing around" record highs despite ongoing uncertainty over the economic fallout from the trade war. Kavcic noted that since the start of November, just before the U.S. election, the TSX has outperformed both the S&P 500 and the EAFE index. "Not bad for a country highly exposed to U.S. trade," he said.

Kavcic cited some factors, including: "the worst case outcome was priced in back in early April and, through a combination of carve outs for U.S. tariffs on Canada, and a presumed eventual trade deal, the ultimate reality will bite much less hard".

Kavcic said: those areas that are still under heavy tariff pressure, such as steel, aluminum and autos, are a small slice of the Canadian equity market. "The TSX is notoriously not a perfect reflection of the underlying Canadian economy."

And, Kavcic said, Canadian stocks were relatively cheap coming into 2025, while "support from past BoC easing is still trickling out." He added "Unlike the Fed the BoC has carved rates down to neutral territory."

National Bank on Tuesday published a note entitled 'Be certain of BoC uncertainty'. The bank found the Bank of Canada "isn't just more uncertain than the FOMC". It said: "Uncertainty surrounding BoC decisions has proven more pronounced than any other advanced economy central bank."

To quantify its claim, National Bank calculated the percentage of time central bank expectations for the next meeting deviate from a 'certain' outcome. It defined certainty as OIS (overnight indexed swaps) pricing plus or minus five basis points of a possible outcome (i.e., no change, increments of 25 bps). By this definition, it said, for over 90% of 2025, markets have been unsure how the next BoC decision would play out. Over the past year, it added, this percentage exceeds 75%. According to National Bank, this finding is "robust to the size of the certainty band" (e.g., if certainty were defined as plus or minus 10 bps of an outcome, the BoC is still most uncertain).

"Uncertainty does not necessarily mean volatility, however. BoC rate expectations have not swung as wildly inter-meeting as others, this year or last," National Bank said, before adding: "Put differently, Canadian investors have sat relatively comfortably in the unknown, and the BoC has been happy to keep them there."

True to form, National Bank said, expectations for the BoC's July decision opened as a 'coin flip' immediately after last week's meeting. It noted that while Friday's jobs data pushed markets in the direction of a hold, this meeting is still too close to call. Another jobs report, two inflation reports, April GDP and a Business Outlook Survey will all have serious sway, National Bank said. It added: "We still believe a cut next month is more likely than not, which brings us to the benefits of persistent uncertainty. There are clear and frequent opportunities in trading near-dated BoC meetings for those with strong conviction on the rate path. However, you'll also need the stomach to weather the notorious volatility of Canadian economic data."

In a separate note also published today, National Bank said in Canada new and pre-existing labor market slack still needs to be addressed in its view. Indeed, it noted, of the 38 OECD economies, only three have endured a larger unemployment rate increase (from the post-COVID trough) than Canada. "Unfortunately, we fear Canada's labour market will get worse before it gets better which should intensify calls for Bank of Canada support in the months ahead," the bank added.

Of commodities today, gold futures edged down mid-afternoon on Tuesday as the market watches trade talks between China and the United States that are now in their second day. Gold for August delivery was last seen down US$10.60 to US$3,344.30 per ounce.

Also, West Texas Intermediate crude oil fell for the first time in four sessions on Tuesday, amid uncertainty around the talks between China and the States. WTI oil closed down $0.31 to settle at US$64.98 per barrel, while August Brent crude was last seen down $0.03 to US$67.01.