04:25 PM EST, 12/09/2024 (MT Newswires) -- The Toronto Stock Exchange closed lower on Monday, dropping off Friday's record close as investors await Wednesday's interest-rate cut decision from the Bank of Canada.

The S&P/TSX Composite Index closed down 66.38 points to 25.625.42. Base Metals, up 3.07%, and Energy, up 0.43% were leading gains, while Battery Metals, down1.59%, and Utilities, down1.34%, led declining sectors.

West Texas Intermediate (WTI) crude oil closed higher on Monday as China said it plans to loosen monetary policy as its economy struggles while the rapid collapse of Syria's government added fresh geopolitical risk. WTI crude oil for January delivery closed up US$1.17 to settle at US$68.37 per barrel, while February Brent crude closed up US$1.02 to US$72.14 per barrel.

Gold moved higher late afternoon ahead of next week's expected cut to U.S. interest rates, while the sudden collapse of the Assad regime in Syria added geopolitical risk. Gold for February delivery was last seen up US$21.10 to US$2,680.70 per ounce, the highest since Nov.22.

Monday's losses came even as Rosenberg Research said its proprietary Canadian equity model score improved to 40.1 in November from 33.7 prior. That this occurred alongside a 6.2% run-up on the month, the fifth straight gain, to new record highs underscores the more constructive view on the TSX compared to the United States, the research said.

It noted the index is now up nearly 20% since becoming more positive back in June, and investor positioning is still light despite the advance, providing further runway ahead. "To be sure," the research added, "risks to the Canadian economy remain, but the index could be entering something of a 'sweet spot' between continued BoC easing and the improving consumer and investor sentiment that comes along with it (constructive commodity model scores also help)."

Meanwhile, Rosenberg Research said its commodity model continues to hover around constructive readings in the upper end of its 'neutral' range ,rising to 68.2 from 66.9. While down from prior "overweight" readings throughout the summer, (it) remains far from "sell" territory, it added.

The research said: "Recent commentary remains applicable and differs little from prior months. The November update is flagging continued excess pessimism embedded in historically cheap valuations (contrarian positives) and depressed positioning readings. Simply put, the asset class remains unloved and under owned. Strategizer's lower dollar outlook will also help support the price outlook.

Oxford Economics in a note said a U.S. rotation into cyclical sectors following the presidential election result has further to run in its view. It forecast above consensus U.S. GDP growth for next year and its leading indicators suggest cyclicals' earnings per share growth will remain strong. "However, the prospect of aggressive tariffs is a clear downside risk. Globally exposed goods industries such as tech and certain industrials are vulnerable to negative tariff news flow, whereas financials and consumer services could prove relatively resilient," it added.

Royce Mendes, Head of Macro Strategy at Desjardins Capital Markets, noted most market participants and economists are now expecting a second consecutive 50 basis point rate cut from the BoC, but he and his team disagree.

He said: "The story of the Canadian economy and inflation is far more nuanced than the headline GDP, unemployment rate or inflation rate suggest. Such a situation calls for a risk management approach to calibrating the cadence of rate cuts. We still believe that rates need to get lower ahead of the mortgage renewal wall in April 2025, but that's still four months away and there's value in optionality. Dropping the hammer again this week could send the wrong signal to markets about the Bank of Canada's reaction function, complicating their work to methodically lower rates without torpedoing the currency amidst tariff threats. So, while we're not expecting a 50 basis point reduction this week, it has no bearing on our 2.00% terminal rate forecast."

David Doyle, head of economics at Macquarie, said he expects the BoC to cut by 50 bps this week. This would reduce the overnight rate to 3.25%. In October, Doyle noted, the statement was dovish and placed an emphasis on a soft labor market, disinflation, and declining inflation expectations. Since then, incoming data have been broadly supportive of further aggressive easing, he added.

In the first half of 2025, Macquarie anticipates there will be a further 100 bps of cuts. This would push the overnight rate down to 2.25%. This is in contrast to its outlook for the United States, where it expects the fed funds rate to fall only to 4.13%. Macquarie's outlook is for a policy divergence of 175 to 200 bps, which would mark the largest spread between the two countries since the late 1990s.

Bloomberg on Monday reported most economists say they expect Prime Minister Justin Trudeau's government will break its self-imposed fiscal constraints as deficits in Canada continue to deepen. In a Bloomberg survey, 13 of 15 economists said Finance Minister Chrystia Freeland will not meet the fiscal pledges she outlined last year, including a promise to cap the 2023-24 shortfall at C$40.1 billion. In an update last November, she also promised to keep the ratio of federal debt and deficits to gross domestic product on a declining track.

Bloomberg noted that Freeland said Monday that on Dec. 16 she will release the fall economic statement, an update that outlines a plan for the country's fiscal trajectory. The statement is usually released in October or November, and she has blamed the delay on parliamentary stalling by the Conservatives. In the past, finance ministers have sometimes opted to deliver the numbers outside of parliament.