04:19 PM EDT, 06/05/2025 (MT Newswires) -- The Toronto Stock Exchange posted a small gain on Thursday, following on Wednesday's dip, but failed to reach the record closing levels of earlier this week amid diverging views on the outlook for interest rates and after Canada posted its largest-ever trade deficit.

The S&P/TSX Venture Exchange closed up 13.29 points to 26,342.29. Among sectors, Base Metals, up 2.42%, and Energy, up 0.45%, were the biggest gainers on the day, with Health Care and Information Technology down 0.63% and 1.09%, respectively.

Reflecting the diverging views on rates, Royce Mendes, Head of Macro Strategy at Desjardins Capital, today reacted to a speech from a Bank of Canada official by saying data on the economy and inflation will need to be "somewhat weaker-than-previously envisaged" for the central bank to feel comfortable reducing rates further.

But National Bank cited S&P Global Services PMI data released yesterday that showed Canada "dead last in manufacturing and dead last in services" and the bank expects a resumption of the rate cutting cycle in late July.

For its part, Rosenberg Research noted fresh data today showed Canadian exports fell to the lowest since June 2023 in April, confirming the rosy Q1 picture was a mirage." It said when Canada's GDP surprised to the upside last week it had written that it seemed to be driven by an "unusual" increase in exports, suggesting some pre-tariff distortions. Rosenberg Research expected some reversion in Q2, and said here it is: The consensus was for a merchandise trade deficit of C$1.5 billion, and it came in at C$7.1 billion as exports fell rapidly. This would imply Q2 GDP growth sharply below the 2.2% pace in Q1, Rosenberg added.

Rosenberg Research said its remains "skeptical" on the Canadian dollar, especially in the context of yesterday's BoC decision to pause on rates, "which only builds up pressure for fast cuts later this year."

A day after the BoC decided to keep the policy interest rate at 2.75%, Deputy Governor Sharon Kozicki delivered a speech entitled 'Reaching out for a clearer view of the economy' before the C.D. Howe Institute in Toronto.

In justifying the central bank's decision to hold rates steady yesterday, Desjardins noted Kozicki said the Governing Council relied heavily on private consultations with firms and unpublished survey data. Kozicki said "firms believed that their worst-case tariff scenarios were much less likely to materialize than they reported earlier this year." However, avoiding the worst-case scenario hardly seems like a reason to hold rates steady at the current neutral setting given that the economy is still being hammered by tariffs, Mendes wrote.

Mendes noted that despite consumers receiving a major discount on their monthly expenses from the elimination of the carbon tax, preliminary data released alongside the speech suggest that consumers still see inflation averaging about 4% over the coming year. He cited Kozicki as saying "firms spoke about their costs increasing, which likely means they will need to raise prices at some point."

The surveys, Mendes said, do not preclude a rate cut in July, but do raise the bar for upcoming hard data releases. "Assuming the final readings for Q2 inflation expectations remain elevated, data on the economy and inflation will need to be somewhat weaker-than-previously envisaged for the Bank of Canada to feel comfortable reducing rates further," he added.

The Kozicki comments came as National Bank said tariff uncertainty is not only dragging down Canadian factories. It noted S&P Global's Services PMI for the month of May, in which the Canadian reading was the weakest of all 14 countries whose services sector is covered by S&P Global. "That's dead last in manufacturing and dead last in services, leaving Canada as clear outlier in this sample of key peers."

National Bank added: "Complicating matters, the report on Canada also flags an acceleration in input price inflation and the biggest rise in output prices in a year. That won't come as any comfort to the Bank of Canada, who left its policy rate on hold yesterday in light of tariff-related inflation risks. But while there may be cost pressures that stem from the disrupted trade environment, there are also disinflationary pressures associated with the economic slack that has accumulated and will continue to accumulate this year. On balance, we're less concerned about near-term inflation than we are for the health of the economy. As more data accrues over the next eight weeks, we expect the Bank of Canada to adopt a similar view allowing for a resumption of the rate cutting cycle in late July."

Of commodities, gold traded lower Thursday on Thursday as the dollar weakened after the U.S. trade deficit narrowed in April with imports plunging due to the Trump Administration imposing widespread tariffs on the country's trading partners. Gold for August delivery was last seen down U$24.40 to US$3,374.80 per ounce.

But West Texas Intermediate oil closed higher on expectations demand is strengthening as the U.S. driving season takes hold while wildfires in northern Alberta cut into oil-sands supply. WTI crude oil for July delivery closed up $0.52 to settle at US$63.37 per barrel, while August Brent crude was last seen up $0.47 to US$65.33.