04:22 PM EDT, 04/10/2024 (MT Newswires) -- The Toronto Stock Exchange's S&P/TSX Composite Index closed Wednesday down 162.65 points to 22,199.63, following off a record as major lenders weighed in on whether the Bank of Canada needed to hold the line on interest rates or contemplate a cut come June after leaving its 5.0% benchmark rate unchanged.

Energy and Battery Metals were the sole sub indices to post gains in the session, up, +1.83% and +2.82% respectively; with Health Care the biggest decliner, -2.18%

West Texas Intermediate oil closed higher on Wednesday, climbing off session lows set as both US March inflation and crude-oil inventories rose more than expected, after a report Iran is planning a major drone or missile attack on Israel.

West Texas Intermediate crude for May delivery closed up US$0.98 to US$86.21 per barrel, after earlier touching US$84.55. June Brent crude, the global benchmark, was last seen up US$1.08 to US$90.50.

Gold prices fell on Wednesday, dropping off a record high as the dollar and treasury yields surged after the United States reported inflation rose more than expected last month, cutting hopes for near-term cuts to interest rates from the Federal Reserve.

Gold for June delivery was last seen down US$14.00 to US$2,348.40 per ounce.

National Bank in its Monthly Equity Monitor for April 2024 published today noted that, breaking with the rest of the world, the S&P/TSX started April in positive territory, led by energy and materials. It said the strong performance of the materials sector mirrors that of the S&P/TSX gold sector, which has been buoyed by soaring gold prices. The current geopolitical backdrop and the upcoming U.S. elections continue to favour the shiny metal, it added.

As for broader trends on the S&P/TSX, National said a "key wildcard" could very well be the federal budget on April 16 as higher income taxes on corporations and wealthy individuals could be on the horizon to pay for new spending. "We don't even rule out an increase in the capital gains rate, depending on the incremental size/nature of the new program spending announcements that could take place in next week," it added.

According to National, the longer central banks are forced to wait to cut rates, the more likely it is to trigger a deleveraging episode, which has characterized every business cycle since the 1960s when monetary policy is brought to restrictive levels. It maintains its defensive asset allocation, with equities underweight and fixed income and cash overweight.

Darcy Keith at The Globe and Mail noted that implied probabilities in swaps markets following BoC Governor Tiff Macklem's press conference on Wednesday after the central bank stood pat on rates suggested about a 58% chance of a rate cut in June, according to Refinitiv Eikon data. That was down from about 70% odds coming into today.

However, Keith also noted immediately after the 9:45 a.m. ET policy statement markets started pricing in only about 42% of a June cut.

Those bets quickly rose again during Macklem's press conference, in which he told reporters that a June rate cut was still "within the realm of possibilities."

For July, markets were now pricing in odds of a cut at about 79%, similar to where they stood coming into today, Keith said.

Meanwhile, TD Bank in a note on this afternoon's release of the Federal Reserve's policy committee Meeting Minutes, noted financial markets now expect around 40 basis points in rate cuts this year in the U.S., fewer than the 75 basis points of the median Federal Open Market Committee participant.

That tallied with comments from Scotiabank's Derek Holt who earlier said today that "another hot" US Core CPI print "chops down" rate-cut pricing south of the border. Holt said the BoC "would be even more unwise to turn dovish now."

"They're even less likely to turn dovish now given the risk of totally unmooring CAD with the Fed being pushed down and out," he added.

Holt published a second note shortly before the close entitled "The BoC May Already be Regretting What it Did Today."

In summary, Holt noted the BoC requires more evidence before cutting, yet Macklem left the door open to going as early as June, "which seems like a stretch call to us."

According to Holt, the BoC "totally fudged" its estimate of slack, "by going high on potential GDP for shaky reasons."

Holt said Macklem "seriously overstates" BoC independence from the Fed which, after U.S. CPI, "faces a higher bar to cut at all this year."

It appears that the market here still thinks Bank of Canada can start cutting in June, even if the U.S. may well be later.

For RBC, the Bottom Line is that the BoC remains cautious about declaring victory over inflation prematurely, but an underperforming economy relative to other regions (particularly relative to the U.S.) and slowing inflation in recent months is edging policymakers closer to the first cut in interest rates.

Governor Tiff Macklem was careful not to suggest a cut is imminent quickly, but also did not dismiss the potential for a cut at the next policy meeting in June. The BoC will get two additional monthly inflation reports, and one more monthly labour market report before the next scheduled policy decision. RBC's own base case assumes a 25 basis point cut in June.

CIBC Economics currently forecasts a first interest rate cut in June and a total of four 25bp moves before the end of the year. To steal a line from Governor Macklem's press conference today, that outlook still appears to be within the realm of possibility, but is reliant on core inflationary pressures sustaining their current lower rates or easing further, CIBC noted.

Meanwhile, the focus was also on the release of U.S. CPI data as market watchers looked for clues as to the timing and pace of expected rate cuts across North America.

Following this morning's release, TD Economics noted pricing for a June cut had slipped to just 22%, "and for good reason".

Between now and the June FOMC meeting, Fed officials will only see two more inflation reports. Given the acceleration in inflation over the past three months, these reports are unlikely to be enough to instill greater confidence that inflation remains on a sustainable path back to 2%.

For this reason, TD favors the Fed waiting until July to cut rates.

For BMO, the bottom line is that the March CPI inflation report is an "unwelcome message" to the markets that the Fed's inflation fight is "far from over." Inflation, BMO said, remains the number one problem it still has yet to solve.

"Clearly, restrictive monetary policy has not yet fully done its work. A patient Fed with a Chair that is in "no rush" to cut interest rates must be mulling the possibility that it may need to do more to put a stake in inflation's beating heart," the bank added.

And RBC Economics said the "breadth of the upside surprise" in March CPI will worry Federal Reserve policymakers who were "already starting to waffle" on the amount of cuts that might be warranted this year.