04:24 PM EDT, 06/04/2024 (MT Newswires) -- Canada's main stock market, the resources-heavy Toronto Stock Exchange (TSX), closed down another 138.5 points on Tuesday, to close at 21,978.18, adding to losses of more than 150 points yesterday, amid lower commodity prices and some doubt in recent days that the Bank of Canada will, as a majority of market watchers expect, actually go ahead and cut rates tomorrow.

But that the TSX halved its losses over the second half of today's session may have those investors who expect the BoC to move on lowering rates on Wednesday now start humming along to the Shangri-Las' most popular tune -- with Governor Tiff Macklem seen as a 'Leader of the Pack' as far as rates cuts are concerned.

At the end of Tuesday's session more sectors were up, than down, even if no sector was up by as much as even 1%. All sectors were in the red around midday. Base Metals did close down 4.3% and Energy did lose 2%, with the Battery Metals Index down near 2.4%.

Reflecting that, in commodities today, West Texas Intermediate crude oil fell to a fresh four-month low, dropping for a second day after OPEC+ said it plans to roll back voluntary production cuts beginning in the fourth quarter. WTI crude for July delivery closed down $0.97 to US$73.25 per barrel, the lowest since Feb.5, while August Brent crude, the global benchmark, closed down $0.84 to US$77.52.

Also, gold traded lower,, staying rangebound even as the dollar and yields weaken. Gold for August delivery was last seen down $21.90 to US$2,3347.40 per ounce.

On interest rates, arguments against a cut this week seem to be focused on the lack of explicit guidance from the BoC on the likely timing, size and pace of them. Scotiabank, for example, on Monday said guidance will matter in determining the decision, and it expects the central bank to wait until its July meeting to begin cutting rates.

For its part, Desjardins in Weekly Commentary with a title 'Leader of the Pack' and published last Friday said a combination of soft price pressures and a weakening economy meant that Canadian central bankers not only have an opening to lower interest rates, but "a responsibility to ease the pain on Canadian businesses and households". The question, it added, was whether the BoC is "willing to be the leader of the pack" and be the first G7 economy to rate cuts.

It is, Desjardins noted, often believed that Canadian policymakers cannot lead their US counterparts by too much because of the impact on the exchange rate. But Desjardins said its recent research has shown that interest rates tend to be of less importance to the Canadian dollar than factors such as risk sentiment, oil prices and broad US dollar moves. "Moreover," the bank added, "it takes a very large exchange rate depreciation to push total inflation noticeably higher. But even then central bankers tend to look through such exchange rate pass-through, viewing it as a one-time level shift in prices."

As a result, according to Desjardins, the Bank of Canada should have "no qualms" about cutting rates with the Fed still on the sidelines. It noted Canadian policymakers are likely to be joined by their European counterparts later in the month, as the ECB is also expected to embark on a rate-cutting cycle in the near future. Markets also anticipate that the Bank of England will need to cut rates before the Fed.

"The US," Desjardins added, "will therefore stand out as an outlier. With a resilient economy and stickier inflationary pressures, American central bankers must proceed more cautiously. So just as Canadian policymakers' decision to cut rates will come as a result of local conditions, US officials will need to hold rates higher for longer because that's what's best to achieve their dual mandate of price stability and maximum sustainable employment."