04:16 PM EDT, 07/09/2024 (MT Newswires) -- Canada's main stock market, the resources heavy Toronto Stock Exchange, lost 83.63 points on Tuesday, with the S&P/TSX Composite Index closing at 22,042.50 amid mixed commodity prices and some debate on whether the economy here is "verging on recession" or signalling "just a regression".

Among sectors, most were losers, led by Battery Metals down 1.9% and Energy down 1.6%. The Financial sector was the sole gainer, up 0.25%.

Of commodities today, West Texas Intermediate crude oil fell for a third-straight session as demand concerns continue while Hurricane Beryl passed over the Texas refining hub on Monday with little damage to refineries and ports. WTI crude oil for August delivery closed down $0.92 to settle at US$81.41 per barrel, while September Brent crude closed down $1.09 to US$84.66.

Meanwhile, gold was mostly steady midafternoon on Tuesday even as the dollar edged higher ahead after Federal Reserve chair Jerome Powell completed the first of two days of congressional testimony giving no indication for when the central bank will begin cutting interest rates. Gold for August delivery was last seen up $6.90 to US$2,370.40 an ounce.

In addressing the question of whether or not Canada may face a recession, Desjardins noted The Sahm Rule, named after former Federal Reserve economist Claudia Sahm, has been a reliable early indicator of recessions in the United States. It measures the increase in the three-month moving of the unemployment rate relative to the minimum of that average over the past 12 months. Desjardins noted the trigger level for calling a recession in the US is an increase of 0.5%-points, while in Canada it looks more like 1.1%-points, and the current reading of 1.0%-point comes in just beneath that level. Desjardins said "the absence of mass layoffs has allowed for a gradual rise in the unemployment rate, in contrast to the spikes that have characterized episodes of recession". That's helped avoid triggering the Sahm Rule in Canada, it added.

Desjardins said: "Regardless of the unique factors surrounding this latest rise in unemployment, central bankers will view the labour market dynamics as reinforcing their view that underlying inflationary pressures are still cooling. Slack is clearly building, which will pull price pressures lower. Policymakers view wages and inflation as lagging indicators. Indeed, it's no surprise to the Bank of Canada that readings on wages and inflation haven't come down as quickly as the unemployment rate has gone up. As a result, after seeing last week's Labour Force Survey, we continue to believe the central bank will reduce rates another 25bps later this month."

It added: "At least for now, governments and businesses can breathe a sigh of relief. The labour market is cooling enough to keep rate cuts coming, but not so much that a recession is knocking on the door. Indeed, if central bankers cut rates as fast as we expect them to, a soft landing is still possible. Moreover, as Bank of Canada Governor Tiff Macklem recently noted, the rising unemployment rate of newly landed immigrants gives the government scope to reduce the number of non-permanent residents, thereby addressing affordability concerns without reigniting labour shortages. Addressing shelter cost inflation without spurring any more wage pressures would also give central bankers more confidence to cut rates."

Desjardins is still forecasting the BoC to cut rates three more times this year, totaling another 75bps in further rate reductions. It said this forecast reflects the "reduced appetite for hiring witnessed recently, consistent with a regression from the very tight labour market seen in recent years". That's in line with the gradual easing in monetary policy the BoC has signaled and in contrast to the more rapid rate cutting cycles that have tended to occur when the economy enters a recession, the bank added.

Meanwhile, in relation to the U.S., BMO Economics said Chair Powell's congressional testimony "broke little new ground" on rate-cut timing, leaving September as the most likely date, pending "more good data" that show sustainable progress toward the inflation target. However, BMO noted, the Chair did remark that "elevated inflation is not the only risk we face", likely because the labor market now "appears to be fully back in

balance". BMO said there are several ways to infer this, but the simplest is to note that the unemployment rate is now slightly above its pre-pandemic level. It added: "A more comprehensive measure of labour market utilization, which includes persons marginally attached to the workforce and involuntary part-time workers, tells a similar tale. More importantly, both are still rising. Further increases alone could suffice to spur a rate

cut, barring an upturn in inflation."