04:18 PM EST, 11/06/2024 (MT Newswires) -- The Toronto Stock Exchange closed sharply higher on Wednesday as Donald Trump's win in the U.S. Presidential Election and the prospect of a Republican sweep in all levels of the federal government there is seen as an upside risk for equities despite the President-Elect's promise to impose blanket tariffs on U.S. imports.

The S&P/TSX Composite Index closed up 249.55 points to 24,637.45. Information Technology was the biggest gainer, up 3.0%, followed by Energy, up 2.0%, while Health Care was the biggest decliner, down 3.7%. Advancing issues outpaced decliners 1,075 to 844, with 132 listings closing unchanged.

West Texas Intermediate (WTI) crude oil closed lower on Wednesday as the dollar surged following Trump's re-election to the U.S. presidency, amid concerns over the president-elect's plans to impose blanket tariffs on U.S. imports. WTI crude for December delivery closed down US$0.30 to settle at US$71.69 per barrel, but rose off an early session low of US$69.74. January Brent crude, the global benchmark, closed down US$0.61 to US$74.92.

Gold traded sharply lower late afternoon Wednesday as the dollar and treasury yields surged following the U.S. election. Gold for December delivery was last seen down US$80.30 to US$2,669.40 per ounce.

BMO Capital Markets in a report said in the event of a Republican sweep, Canada's economy might benefit initially from stronger U.S. growth, as its largest trading partner buys three-quarters of its merchandise exports. BMO noted energy producers would also rejoice if the Keystone XL pipeline was resurrected.

However the bank noted Canada could be one of the hardest hit, along with China and Mexico, from a possible trade tussle. It added: "Increased uncertainty about tariffs and the fate of the USMCA ahead of the 2026 review could depress capital flows to Canada and weaken domestic investment, likely extending the nation's productivity slump. Suffice it to say, none of this is good for the Canadian dollar, which is already challenged by faster rising unit labour costs relative to the U.S."

BMO said while tariffs and a softer loonie might add some upward pressure to prices, potential economic weakness could hold inflation below the 2% target, keeping the Bank of Canada in easing mode. It noted the BoC expects the economy to strengthen on the back of further planned rate cuts, and any threat to its outlook could spur a more aggressive response.

This, BMO said, explains the initial relative outperformance of Canada's bond market to the election results, with yields rising less than south of the border and Canada-U.S. spreads "hitting extremes." The BoC slashed policy rates 50 bps in October, but a more cautious path of 25 bp moves over the coming months is more sensible given the post-election uncertainty and heightened risk to the Canadian dollar, BMO added.

According to BMO, the federal government might need to adjust corporate tax rates to prevent investment from migrating south. It noted Canada will also be pushed harder to raise its NATO contribution much faster than currently planned, potentially leading to a higher budget deficit. It also noted Trump's pledge to deport undocumented immigrants could impede the Canadian government's goal of slowing population growth if migrant flows increase across the U.S.-Canada border.

These issues will play a prominent role in the coming Canadian election, it added.

Desjardins noted that in heading into Trump's second term, Canada will remain America's second largest trading partner behind Mexico. Desjardins said energy accounts for 30% of Canada's goods exports to the U.S. and it's very likely that Canada's energy supply is exempted from whatever tariffs are threatened. It added while a potential renegotiation of the USMCA trade agreement could require some concessions, "the integrated nature of supply chains in the two countries offers some room for Canada to escape the coming wave of U.S. protectionism less battered than other nations".

The Bank of Canada, Desjardins said, will pay more attention to the latest developments in financial conditions and the evolution of the economy than hypothetical scenarios regarding U.S. policy. It noted five-year Government of Canada bond yields were roughly 10 basis points higher than they were the day that central bankers unleashed a 50 basis point rate reduction. However, the currency was 2% weaker than what was assumed in the Monetary Policy Report. Overall financial conditions are, therefore, roughly unchanged, it added.

Still, Desjardins said, despite policymakers waiting to incorporate any changes to the outlook from Trump's policies, uncertainty argues for caution on further rate cuts. It added the possibility that a second consecutive 50 basis point move could spur a further selloff in the Canadian dollar also calls for caution. Looking at the latest data on the economy, and the tentative reacceleration in the housing market, Desjardins is happy to stick with its call for a 25 basis point cut in December lest a notable change in GDP tracking is seen between now and then.