04:28 PM EDT, 05/31/2024 (MT Newswires) -- Just as there were big fluctuations in reactions from economists to Friday's key Canadian GDP data, so too there were big fluctuations today on the Toronto Stock Exchange (TSX), with the S&P/TSX Composite Index eventually closed up 197.41 points, or 0.9%, to closed at 22,269.12, with nearly all of those gains coming over the final hour of trade.

The index had been up near 90 points early in the session and then down near 90 points at midday.

It looked like gains were going to be capped on the resources-heavy TSX due to weakened commodity prices. But in the end the index added to the near 170-plus points gained Thursday, as the in space of two days the TSX cancelled out Wednesday's huge losses.

Most sectors were higher Friday, with Industrials the biggest percentage gainer, up 1.55%. The Battery Metals Index and Base Metals were lower.

What might have helped sentiment among equity investors across North America late was the late day release of some economic notes that suggested the door was still open for the Federal Reserve to cut U.S. interest rates later this year. Which, if it were to happen, would help limit the divergence on rates between the Bank of Canada and the Fed.

Here in Canada, the big fluctuations in reactions to first-quarter domestic GDP data revolved around the headline numbers, which showed the 1.7% annualized pace of growth, weaker than the 2.2% consensus expectation, while the monthly GDP figures that suggested a 0.3% increase in April.

Derek Holt, Vice-President and Head of Capital Markets Economics at Scotiabank, in a report published near midday said markets saw the 1.7% q/q SAAR GDP growth in Q1 that was a half point softer than consensus and 1.1 ppts weaker than the BoC's April MPR projection plus a downward revision to 0.1% from 1% q/q SAAR growth in Q4 and "looked no further than to drive yields lower on the narrative the BoC would obviously cut on the back of these numbers". Toss in, Holt noted, the flat March reading for "extra good measure" and it all, he added, "sounds pretty compelling as justification to drive rates lower, right?"

But according to Holt, markets hadn't spent any time looking beneath the GDP headlines, while piling into the Canadian front-end and driving yields lower. "They should have," he said, "I view the numbers as very constructive for several reasons not least of which that growth in consumer spending is at its strongest in years and needs no help from rate cuts."

"It's my belief," Holt added, "that the BoC will look more constructively on the overall set of numbers we just received than markets did."

Shortly before the close of trade, National Bank released a note that said while "undoubtedly a close call", it is looking for the BoC to leave its policy rate unchanged at 5.0% for a seventh consecutive meeting.

National noted that while OIS markets have moved "decisively" towards a June cut, the BoC had proved during the tightening cycle that it's not afraid to upend expectations. Moreover, National also noted, there's been nothing expressed from policymakers explicitly or implicitly to indicate we should expect a cut. National said 'teeing up' rate moves are not a prerequisite, but it is a strategy the BoC has employed when making pivotal policy changes in the past (i.e., in early 2022). It added: "Should they remain sidelined on Wednesday, we would look for them to indicate in the statement and/or press conference that cuts are likely to be appropriate soon. That would set up a July ease so long as inter-meeting data confirm recent trends."

Elsewhere, Douglas Porter at BMO Economics opened his weekly 'Talking Points' note by saying we have now reached a "moment of truth" for at least two major central banks. With the Fed all but certain to keep rates steady at the June FOMC meeting, and most likely in late July as well, the ECB and the BoC must decide whether to essentially go it alone at rate decisions next week, he noted.

Porter said the picture for the BoC is much less clear-cut, noting that with its much tighter linkages to the U.S. economy, it's a much bigger decision for Canada to carve out a 'quasi-independent policy path'.

Towards the end of his note, Porter said upside surprises in the U.S. economy for both growth and inflation seem to have drawn to a close, raising the chances of Fed rate cuts in the second half of 2024. BMO is circling the September and December meetings. He added: "The slightly increased chances of Fed rate cuts in 2024 add one more arrow to the quiver of factors favoring a BoC rate reduction on Wednesday. It also helps the cause that the ECB is highly likely to cut the next day, providing the bank with some cover. While it may well be a watershed decision, we believe that the combination of sub-1% growth, sub-3% core inflation, and a plus-6% jobless rate are all the reasons the Bank needs to pull the trigger."

Also, shortly before the close of trade, David Doyle published a note that said Macquarie's baseline for FOMC policy remains unchanged from last month. Macquarie suspect rate cuts will only commence in 2025 when there is greater scope for YoY core PCE inflation to appear to be tracking back towards 2%. However, should the labor market weaken more than is desirable -- and more than the bank anticipates -- this could prompt earlier FOMC action, he said.

Of commodities today, West Texas Intermediate crude oil fell for a third-straight session as U.S. inflation data met a consensus forecast ahead of this weekend's OPEC+ meeting, which is expected to roll into the third quarter or beyond production cuts slated to expire at the end of June. WTI crude for July delivery closed down $0.92 to settle at US$76.99 per barrel, while July Brent crude, the global benchmark, closed down $0.24 to US$81.62.

Also, gold traded lower on Friday even as the dollar and yields sagged following fresh U.S. inflation data. Gold for August delivery was last seen down $16.60 to US$2,349.90 per ounce.