TORONTO — Strength in energy, utilities and base metals helped lead Canada's main stock index up almost two per cent on Wednesday, while U.S. markets also jumped after the U.S. Federal Reserve announced it is keeping its overnight rate unchanged.
The Fed announced its widely anticipated hold as it also released economic projections showing it expects to make three interest rate cuts of a quarter-point each in 2024.
Markets are taking the forecast as good news, said Anish Chopra, managing director with Portfolio Management Corp.
“We’ve got risk-on, effectively, in all markets.”
The S&P/TSX composite index gained 395.61 points at 20,629.45.
In New York, the Dow Jones industrial average was up 512.30 points at 37,090.24. The S&P 500 index was up 63.39 points at 4,707.09, while the Nasdaq composite was up 200.57 points at 14,733.96.
The Fed said it expects inflation to fall to 2.4 per cent by the end of 2024, down from its previous forecast of 2.6 per cent. It also foresees unemployment rising and modest economic growth of 1.4 per cent.
“Inflation keeps coming down, the labour market keeps getting back into balance and, it’s so far, so good,” said Fed chairman Jerome Powell at a news conference, though he wouldn’t rule out more rate hikes if necessary.
Central banks in Canada and the U.S. appear to have reached their rate peak, said Chopra.
Equities rose and bond yields fell on the news, said Chopra, as investors try to figure out how to position themselves for a declining rate environment.
“We're now looking into the next phase, which is, when will rates actually start to be cut?” he said.
“There's still some concern that they need to be tough and still vigilant, to watch for signs of inflation, because ... they want to make sure that they've got inflation under control,” Chopra said. “That’s the message Powell is trying to send.”
Inflation remains above the Fed's long-term goal of two per cent, Powell said. However, he said the central bank is aware of the risk of waiting too long to start cutting rates.
While markets had been looking for four cuts in 2024, the Fed’s forecast of three cuts was still above its last call, said Chopra.
With weaker economic conditions north of the border, Canada could cut sooner — or deeper — than the Fed, Chopra said.
The Canadian dollar traded for 73.74 cents US compared with 73.53 cents US on Tuesday.
The January crude contract was up 86 cents at US$69.47 per barrel and the January natural gas contract was up two cents at US$2.34 per mmBTU.
The February gold contract was up US$4.10 at US$1,997.30 an ounce and the March copper contract was unchanged at US$3.79 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Dec. 13, 2023.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
Rosa Saba, The Canadian Press
