04:29 PM EDT, 05/21/2024 (MT Newswires) -- The Toronto Stock Exchange's S&P/TSX Composite Index closed at a record on Tuesday after April inflation fell to a three-year low, leaving some market watchers convinced the Bank of Canada will soon be able to begin lowering interest rates.

The composite index rose 2.79 points to close at 22,468.16, nearly three points ahead of the record set last week but falling off an intra-day record of 22,500 in morning trading.

Battery Metals was far and away the biggest gainer, up 5.4%

Healthcare and Telecoms are the biggest decliners, down -1.5% and -1.1%, respectively.

Oil is traded lower for a second day mid-afternoon on Tuesday, though sticking within the tight range it has maintained since the start of the month on steady demand and a dimming outlook for interest-rate cuts from the Federal Reserve. West Texas Intermediate crude for June delivery was last seen down US$0.54 to US$79.26 per barrel, while July Brent crude, the global benchmark, was down US$0.84 to US$82,87.

Gold traded lower mid-afternoon on Tuesday, falling off a record high as the dollar rises and the outlook for U.S. interest-rate cuts remains uncertain. Gold for August delivery was last seen down US$10.70 to US$2,451.00 per ounce, after closing Monday at a record US$2,461.70.

In stock-specific news, Bloomberg News reported Suncor Energy ( SU ) (SU.TO, SU) shares rose to an almost 16-year high after the oil-sands producer accelerated plans to ramp up share buybacks, marking a win for activist investor Elliott Investment Management LP.

The report noted Canada's second-largest oil producer by market value said it posted spending on share repurchases to 75% of its free funds flow this quarter. The report said buybacks will ramp up to "essentially all" of its free funds when it cuts net debt to $8 billion (US$5.9 billion), discarding its previous target of $5 billion. Suncor has just under $9 billion in debt currently.

The stock closed up $1.46 to close at $56.03, after touching $56.10 during the session, the highest intra-day price since September 2008. The shares are up about 32% this year, the fourth-best performance in the 41-company S&P/TSX Energy Index.

Market focus here was very much on the Canada CPI data for April, as market watchers looked for more clarity around expectations that the Bank of Canada has room to start cutting rates next month. Statistics Canada reported headline Canadian inflation rose 2.7% annualized in April, down from 2.9% in March, and the lowest since a 2.2% rise in March, 2021.

Post-CPI, Scotiabank says the BoC has a stronger case for waiting on July, rather than June, to cut rates. Scotiabank noted the BoC's key core inflation gauges were soft again, making it four months in a row, with more categories posting improvements. And, it also noted, markets reacted by driving a mild rally in short-term rates.

"The key question is whether that's enough to prompt the BoC to cut as soon as two weeks from now on June 5th or whether patience while seeking more data and other arguments to holding off will dominate. There remains a stronger case to cut in Q3/July than June in my opinion and for treading very carefully afterward," said Derek Holt, Vice-President & Head of Capital Markets Economics, at ScotiaBank.

According to Holt, key is that the BoC's preferred core inflation readings put in another soft month. Holt noted weighted median CPI as up 1.72% m/m at a seasonally adjusted and annualized rate (SAAR) while trimmed mean CPI was up by 1.75% m/m SAAR. The three-month moving averages dropped to 1.5% and 1.8% m/m SAAR for weighted median and trimmed mean respectively.

Holt also noted headline CPI landed at 0.5% m/m NSA which matched the consensus median and mode with six forecasters out of 14 expecting this reading, while three of them (including Holt) guessed 0.4%, four guessed 0.6% and one was at 0.7%.

Markets, Holt noted, added a few basis points to pricing for a June cut while retaining July as the base case. June cut pricing sat at just over 60% odds with July fully priced for a quarter point at another 5 to6 bps beyond that.

Elsewhere, RBC Capital Markets in a "Canada Rates Strategy" note said pricing for a June cut "has more room to run." It noted the market was pricing about 10bps of easing (40% probability of a 25bp cut in June) heading into today's CPI data. It had moved 14bp (to near 55%), but RBC added there is room for this to run further.

"We do not expect something close to fully priced, but 75-80% would be reasonable enough."

In looking at why the BoC would hold off now, RBC said while it seems the report as consistent with a BoC cut at its next meeting, it is difficult to call the start of an adjustment cycle. According to RBC, "the downside on waiting for the next meeting (July 24) is not nearly as high as if there was an exogenous crisis or if growth was nose diving" - and it noted Q1 GDP on May 31 should come around +2.5% annualized boosted by the return of striking Quebec public sector workers in January. Momentum has slowed, but early data for April (+0.8% m/m in hours worked) May give the BoC pause, especially if the April GDP nowcast is firm ("though the nowcasts have been revision prone"), RBC added.