04:30 PM EST, 02/21/2025 (MT Newswires) -- The Toronto Stock Exchange fell for a third-straight session Friday, dropping sharply as a tariff war between Canada and the United States is seen as imminent while oil prices moved sharply lower.

The S&P/TSX Composite Index closed down 367.05 points to 25,147.03. Sectors were mixed, with biggest decliners Base Metals, down 4.9%, and Info Tech, down 3.2% as investors continue to sell down tech issues. Gainers included the Battery Metals Index, up 3.1%, and Telecom up 1.1%.

U.S. stocks also fell sharply Friday too, with the Associated Press reporting concerns about President Trump's policies may be hitting the economy there. The Dow Jones Industrial Average, closely watched by Trump in the past , was down 748.63 points, or 1.7%, while the Nasdaq shed 438.35 points, or 2.2%

In Canada, the prospect of a widening divergence on interest rates with the United States has the potential to lead to a significant depreciation in the Canadian dollar relative to the greenback and making imports from the U.S. more expensive, disrupting trade, weighed most on investor sentiment.

Royce Mendes, Head of Macro Strategy at Desjardins Capital, has little doubt the Bank of Canada will lower its policy rate in the coming months, based on comments made by Governor Tiff Macklem in a speech Friday before the Mississauga Board of Trade and Oakville Chamber of Commerce. This at a time when forecasters see the U.S. Federal Reserve pausing cuts.

Mendes said: "Governor Macklem is finally saying the quiet part out loud. After having been non-committal about the likely monetary policy response to US tariffs, he's now being clearer that the central bank would likely cut rates more than it would have otherwise if a trade war erupts."

Specifically, Mendes noted, the Governor said, "Provided the inflationary impact of tariffs is not too big, monetary policy can help smooth the adjustment by supporting demand so it doesn't weaken too much more than supply. But how much support monetary policy can provide is constrained by the need to control inflation."

Mendes said Macklem's comments are consistent with the Desjardins view that the Bank of Canada would cut rates roughly 50-100 basis points more than otherwise if 25% US tariffs materialize. In fact, he added, the economic simulations accompanying the Governor's speech mirror his own. In a scenario in which Trump imposes 10% tariffs on Canadian energy imports and 25% on all other goods coming from its northern neighbor, the simulations show a recession almost immediately. While activity does return to growth after a few quarters, the economy is on a permanently lower track assuming tariffs don't come down. Both the Desjardins modelling and that of the central bank show activity 2.5% lower by the end of 2027 relative to the no-tariff scenario.

In related news, Bloomberg noted Macklem today also launched the BoC's review of its monetary policy framework, but "strongly suggested that officials are likely to re-endorse the bank's current approach to targeting 2% inflation."

Elsewhere, CIBC economists Ali Jaffery and Katherine Judge said all eyes for the next week will be on the GDP data due Friday, with the fourth quarter "set to show an acceleration" on a boost to activity from the housing market, solid consumption tied to the GST holiday, and growth in exports helped by tariff front running. The CIBC duo said even though the January advanced data will likely show a healthy start to the year, they expect momentum to fade over the first quarter as tariff uncertainty weighs, which should leave the Bank of Canada on a path towards an overnight rate of 2.25%, from 3% currently.

Meanwhile, Rosenberg Research in Technical Analysis note today pointed out the last intermediate swing low for the TSX was in October 2023. According to it, the uptrend since then has been orderly, with a series of higher highs and higher lows. To generate a sell from current levels, the TSX will need to decline through 24,621, the research said. On the flip side, a rally through 25,877 will produce an important higher high with a breakout above its November-present trading range, it added.

Rosenberg noted the weekly Coppock Curve, a momentum indicator for identifying long-term buying opportunities in stocks or indices, has been weak since December and has the potential to remain under pressure through March. Similarly, a bullish bias is not expected before mid to late March for a majority of the 11 sectors. Even so, the research said, the TSX's indicator is unlikely to break down through its neutral zero line in a meaningful way. "This, plus the fact that the index has been holding up reasonably well despite underlying momentum pressures, suggests that the 2023-2025 uptrend is not in immediate danger of an important reversal," it added.

Rosenberg Research concluded its analysis on the TSX by saying a decline through the 24,621 point would allow for further weakness to 24,250-24,098.

Of commodities today, West Texas Intermediate crude oil closed at the lowest since Dec.26, dropping on weaker demand and robust supply as bitter winter cold in the northern United States fades and inventories rise. WTI crude oil for April delivery closed down $2.08 to settle at US$70.40 per barrel, while April Brent crude was last seen down $1.84 to US$74.64.

Also, gold edged down from a record high late afternoon on Friday as the dollar rose off the lowest in more than two months and traders take profits. Gold for April delivery was last seen down US$8.90 to US$2,947.20 per ounce after closing at a record US$2,956.10 on Thursday.