TSX Closer: Down For the First Session In Four On Deflating Commodity Prices And Economic Uncertainties

04:24 PM EDT, 10/27/2025 (MT Newswires) -- The resources-heavy Toronto Stock Exchange fell for the first session in four Monday on deflating commodity prices and an expectation that while the Bank of Canada will cut its benchmark interest rate again on Wednesday, it is uncertain where rates and the economy will go from there until at least after the federal government delivers its long awaited budget on November 4.

The S&P/TSX Composite Index closed down 77.31 points, or 0.25%, to 30,275.76, with sectors pretty mixed. Decliners were led by Base Metals, down 1.25%. Gainers were led by Info Tech, up 1.15%.

On economics, Royce Mendes, Head of Macro Strategy at Desjardins noted that even after seeing a much hotter than expected inflation print, market participants are still betting the BoC will reduce rates by another 25 basis points this week. "That makes sense," he said, adding: "A careful review of the latest CPI data left us sanguine about the outlook for low and stable consumer price growth in Canada. We continue to see the central bank eventually taking its policy rate down to 2.00% to support the struggling economy, with a balanced risk assessment about whether rates settle a little higher or a little lower than that point estimate."

On 'Theory vs. Reality', Mendes noted BoC Governor Tiff Macklem is particularly worried that the costs of trade disruptions and reconfigured supply chains could translate into higher inflation for goods. But, Mendes said, there's little evidence to suggest that risk is materializing. By all accounts, he added, the underlying trend in goods price inflation is in line with historical averages. While price growth looks elevated according to the trimmed mean goods measure, the three-month annualized rates of goods prices excluding food and energy and median goods prices are both running roughly 0.5% below their long-term averages, Mendes noted. "As a result," he said, "Macklem's theory remains just that, a theory."

Mendes added: "The reality is that the economy is in need of support. Outside of the pandemic, the unemployment rate is standing at its highest level since 2016, pushing wage growth into a lower gear. The October Monetary Policy Report (MPR) is likely to find that the output gap remains wide and the economic outlook is unlikely to be raised very much from the current tariff scenario in the July MPR. That's particularly true since, by convention, the central bank won't account for much of the forthcoming fiscal stimulus."

On 'This Week And Beyond', Mendes said in assuming the BoC does cut its policy rate by another 25 basis points to 2.25%, the focus will shift to the central bank's communications. He noted market pricing seems well positioned for a range of outcomes this week. With traders only pricing in an additional 15-17 basis points of easing over and above a quarter-point cut this week, Mendes said the market might not sell off too much if central bankers sound hawkish about the prospects of further monetary easing. "With so much uncertainty, it would be difficult for monetary policymakers to credibly rule out more cuts. However, if policymakers leave the door open to further rate reductions, the market might not rally very much with the federal budget looming less than a week later," he added.

Despite all of the uncertainty, Desjardins' longstanding view that the BoC will ultimately need to reduce its policy rate down to 2.00% remains intact. While fiscal policy will eventually provide a strong tailwind to growth, most of those dollars won't hit the economy until the middle of 2026, Mendes said.

Mendes said: "Back in 2023, when we first predicted that rates would fall to 3.25% by the end of 2024 and to 2.25% by the end of 2025, we were convinced that the market was mispriced. The Bank of Canada had just raised its policy rate to 5.00% and traders were bracing for more hikes. It was clear to us, though, that the economy faced severe cyclical and structural headwinds. Population growth was very likely to slow, mortgage renewals were looming over the housing market and the malaise in productivity showed no signs of abating. Since then, US tariffs have driven us to lower that terminal rate forecast by another 25 basis points to our current projection of 2.00%."

He added: "Two years and 250 basis points later, however, it's becoming clear that the job of monetary policy is nearly done. As fiscal policy takes over, it will eventually become evident that the case for monetary stimulus is less convincing. Fiscal policy and structural reforms are likely to lead the way in 2026. For the next few months, though, monetary policy is still the only game in town and central bankers will need to do a little more before passing the baton."

Elsewhere, David Doyle, head of economics at Macquarie Group, said Macquarie's base case is for another 25 bps cut in the policy rate to 2.25%. Doyle said markets are now pricing this in with an 85% probability, and any forward guidance is likely to be non-committal on the likelihood of further easing.

Doyle said: "The market reaction is likely to be driven by the tone of the statement, Governor Macklem's press conference, and the contents of the monetary policy report with the return of a baseline forecast.

While our base case is that this will mark the final cut, risks lie in the direction of further easing with another 25 bps cut possible in either December or January."

Of commodities, gold was sharply lower late afternoon on Monday, falling more than 3% as a framework trade deal between China and the United States eased safe-haven buying. Gold for December delivery was last see down $131.50 to US$4,006.30 per ounce, the lowest since Oct.10.

Also, West Texas Intermediate closed with a small loss on Monday amid hopes for rising global growth after China and the United States reached a preliminary trade deal ahead of a meeting between U.S. President Donald Trump and China President Xi Jinping, offsetting concerns over rising global inventories.

WTI crude oil for December delivery closed down $0.19 to settle at US$61.31 per barrel, while December Brent crude was last seen down $0.41 to US$65.53.

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