04:26 PM EDT, 09/04/2024 (MT Newswires) -- The Toronto Stock Exchange eked out a modest loss on Wednesday even as the Bank of Canada delivered on expectations and cut interest rates by 25 basis points for a third time as political uncertainty spiked higher after the Federal New Democratic Party (NDP) ended an agreement to support the minority Liberals in Parliament.

The S&P/TSX Commodity Index closed down 1.69 points to settle at 23,040.76. Health Care, up 1.15%, and Telecoms, up 0.7%, were the biggest gainers on the day, while Battery Metals, down 9.5% and Energy, down 1.8%, were the leading decliners.

West Texas Intermediate (WTI) crude oil closed at a nine-month low on Wednesday, weakening from overnight highs that came after reports OPEC is reconsidering plans to restore 180,000 barrels per day of 2.2-million bpd of voluntary production cuts beginning next month as demand worries continue. WTI crude oil for October delivery closed down US$1.14 to settle at US$69.20 per barrel, the lowest since Dec.12, after earlier rising to US$71.46. November Brent crude closed down US$1.05 to $72.70.

Markets seemed to react at least as much to the oil price falling to a fresh nine-month lows amid demand worries as to news that Jagmeet Singh, the leader of Canada's NDP, abandoned the supply and confidence deal with the Liberals that helped keep Prime Minister Justin Trudeau's minority government in power. While Canadians aren't scheduled to go back to the polls until October, 2025, they now may well be drawn into an earlier election.

As expected, the Bank of Canada cut its key benchmark interest rate by 25 basis points to 4.25%, making it the third straight interest rate cut.

Derek Holt, Vice-President & Head of Capital Markets Economics at Scotiabank, noted the BoC met expectations by cutting its policy rate by 25bps to 4.25%, leaving balance sheet plans unchanged and signaling nothing more than a drip pace of data-dependent future cuts that offered no hint toward upsizing cuts.

"And," Holt said, "markets couldn't have cared less about any of it as the focus was on U.S. [JOLTS] data which ironically points out limits to the BoCs standard line that what matters is what happens in Canada independent of the U.S."

U.S. JOLTS job vacancies fell to 7.673 million in July from a downwardly revised 7.91 million in June that was previously estimated at 8.184 million. Holt noted the simultaneous release of JOLTS data drove U.S. drove up the price of U.S. two-year notes as the yield droped by several basis points with Canada notes following the U.S. lead.

"In the end," Holt added, "there was no discernible reaction to the BoC independent of the effects of U.S. data."

RBC Capital Markets said barring an unexpected improvement in growth or rise in inflation, the BoC should cut again at the October meeting. Although Bank Governor Tiff Macklem highlighted two-sided risks at times (the risk of a pause, risk of a 50bp cut), he emphasized the risk was a larger reduction and desire to avoid undershooting the 2% inflation target in the future, RBC added.

RBC highlighted a 10-20% risk of a 50bp cut during the cycle soon after the July meeting, following the BoC's dovish pivot on excess supply and growth concerns It said that risk has only increased since then, with cooperative core inflation prints, persistent excess supply and a weakening labor market. RBC thinks BoC focus on this is appropriate and now view the possibility of a 50bp move at 20-25%.

"With a clearer view on Q3 GDP growth (we think weaker than their 2.8% forecast), two inflation prints and two jobs prints providing enough new information, the October meeting is the most likely timing for larger move. Even modest downside developments could result in a 50bp move. December is also possible but deeper into the cutting cycle the chance of larger move should diminish (lower starting point) unless an exogenous shock hits."

Meanwhile, in terms of the United States, Michael Gregory, Deputy Chief Economist at BMO Economics, said the Federal Reserve's policy committee is poised to cut policy rates on September 18, citing Fed Chair Powell as saying: "The time has come for policy to adjust" -- and he added there is nothing in the Beige Book that will dissuade the Fed from easing.

For Gregory, the Bottom Line is that "it's steady as she goes" as far as a 25 bp rate cut in two weeks is concerned, but he noted the critical employment report is looming on Friday.