FX.co ★ TSX Drops After Hawkish Guidance

The S&P/TSX Composite Index decreased by 1% to settle at 30,145 on Wednesday, as investors processed the Bank of Canada's decision to reduce interest rates by 25 basis points to 2.25%. The central bank signaled that this could be the end of its interest rate cuts, aligning with a similarly cautious stance from the Federal Reserve. This decision comes amidst weak economic indicators, with the second quarter GDP shrinking by 1.6% and a labor market that remains lackluster, despite a temporary increase of 60,000 in payrolls, which has kept the unemployment rate near 7.1%. Persistent inflation concerns, with the headline Consumer Price Index at 2.4% and the Bank's Trimmed CPI measure close to 3.1%, have dampened expectations for additional rate cuts. Investors viewed these moves as largely anticipated and redirected their attention to future monetary policy guidance. This shift in focus led to higher yields, negatively impacting interest-rate-sensitive sectors. Technology and financial stocks were among the hardest hit, with Constellation Software dropping by 8%. Major banks also underperformed; Royal Bank of Canada fell by 1.6%, Toronto-Dominion Bank by 1.1%, Bank of Montreal by 1.0%, and Scotiabank by 0.8%.