04:22 PM EDT, 10/18/2024 (MT Newswires) -- Stock pickers here may well have been singing 'Friday I'm In Love' by British pop group The Cure as they watched the Toronto Stock Exchange end a second successive week at record close levels and seemingly at ease with the prospect of a 50 basis point cut in the benchmark interest rate next week.

The S&P/TSX Composite Index finished the day up 132.06 points. or 0.5% at a new record of 24,822.54, having ended the prior week at a then record 24,417.17. Today's gains were achieved despite a mixed performance from both sectors and commodity prices.

Douglas Porter, chief economist at BMO Economics in his weekly 'Daily Points' note said stock markets are "almost mocking the challenging seasonal factors", with the S&P 500 climbing more than 3% since the end of August, the Dow up 4%, and even the "previously laggard" TSX jumping 6%, all to record highs. "This sturdy advance has been in the face of rising geopolitical tensions and an oncoming U.S. election that is still very much a source of deep uncertainty," Porter added.

Porter said a "fundamental supportive factor" is "simply" a better than expected set of economic outcomes than expected a year ago. "Specifically," he said, "the trade off between lower inflation and softer growth has been much more favourable than anticipated."

Despite the run up to record highs, sectors were mixed. Base Metals was the biggest gainer, up near 1.5%, while Battery Metals was the biggest loser, down about the same.

Of commodities, gold traded at a fresh record high midafternoon on Friday, as the dollar and treasury yields eased while expectations for further interest-rate cuts from the Federal Reserve and safe-haven buying continue to offer support. Gold for December delivery was last seen up $27.10 to US$2,734.60 per ounce, rising off Thursday's record close of US$2,707.50.

But West Texas Intermediate crude oil closed down 2% as China's third-quarter economic growth failed to meet its target, keeping demand from the No.1 importer light. WTI crude for November delivery closed down $1.45 to US$69.22 per barrel, while December Brent crude, the global benchmark, closed down $1.39 to US$73.06.

Ahead of next Wednesday's Bank of Canada interest rate decision, Taylor Schleich and Warren Lovely at National Bank said they expect the BoC to lower its policy interest rate by 50 basis points, hastening the move away from its still highly restrictive policy setting. In September, the duo noted, Governor Macklem conceded that if growth does not materialize as expected "it could be appropriate to move faster [on] interest rates". They said while the release November 29 release of the Q3 GDP report is still some ways off, all indications point to a rate of growth that's less than half of what July's optimistic Monetary Policy Report projected. "Rather than the output gap narrowing then, it's set to grow larger, which to the Bank's way of thinking, increases the risk of inflation undershooting over coming years."

Most importantly, the pair noted, all items inflation has already fallen to, and now through, the 2% target and core pressures aren't too far behind. Meanwhile Canada's labor market outlook remains challenged based on subdued hiring intentions and job openings. "To us, the hiring pick-up in September will ultimately be viewed as noise rather than the start of a new trend." In the rate statement and press conference, they will look for the door to be left open to a similarly sized move in December as officials indicate a waning need for a restrictive policy stance. They expect balance sheet policy will again get limited airtime, with the BoC to simply reiterate that Quantitative Tightening (QT) will continue. "It's unlikely they'll consider slowing/stopping QT until early 2025 barring any unforeseen circumstances," they noted.

Back to Douglas Porter over at BMO, he said the recent 'low side' surprise in Canadian inflation was the trigger he and his team mates had been waiting for to officially change their call on next week's BoC rate decision. They now look for a 50 basis points cut to 3.75%, but are sticking with their call that this meeting will be followed by a series of 25 bp cuts, ultimately taking the overnight rate to 2.5% -- "but now getting there one meeting sooner". Given the Bank's obvious anxiousness about reviving growth and halting the rise in unemployment, Porter added, there's still a risk of even faster easing, and ultimately taking rates even lower. He noted the BoC's range for neutral is 2.25%-to-3.25%.

But Porter also noted that BMO's call is what it believes the BoC will do, and not necessarily what BMO thinks it should do. "This is a rare occasion where the two do not completely intersect..... there are a variety of good reasons for the Bank to proceed cautiously, not the least of which is the fact that U.S. growth revisions keep going up, coupled with record highs for equity markets -- far from signalling financial strain."