TSX falls on lower commodities; Canadian dollar declines on Fed minutes

TORONTO – The Toronto stock market fell almost 100 points Thursday in the face of declining commodity prices, while Wall Street trading was muted amid growing signs of a possible June rate hike by the U.S. Federal Reserve.

The S&P/TSX composite index closed down 91.09 points at 13,826.01, weighed down by gold, materials and metals stocks.

New York markets were mixed as minutes from April’s Fed meeting showed there was a widely held view that it “likely would be appropriate” to raise rates at its next meeting on June 14-15 as long as the economy and labour market remain strong and inflation continues to accelerate.

The Dow Jones industrials shed 3.36 points to 17,526.62 and the broader S&P 500 added 0.42 of a point to 2,047.63. The Nasdaq found strength late in the day to gain 23.39 points to 4,739.12.

Traders did not show much surprise to the strong language in the Fed minutes because they know a rate hike is coming sooner rather than later, said John O’Connell of Davis Rea Investment Counsel.

“I think the Fed has been pretty clear that they want to raise rates eventually,” he said.

“We have to stay focused on the fact that interest rates remain very low, the domestic (U.S.) economy is doing fairly well and people are getting jobs.”

Some investors are worried that a rise in rates will hurt a sluggish U.S. economy that grew just 0.5 per cent in the first quarter.

Interest rates have been languishing at historically low levels since the Great Recession and have been credited with providing some of the liquidity that has fuelled the subsequent recovery on equity markets.

In December, the Fed boosted its key policy rate for the first time in nearly a decade but has since passed on further moves at three meetings this year after financial market turmoil in January slowed U.S. growth.

The prospect of higher U.S. interest rates preyed on the loonie, which shed 0.71 of a U.S. cent to 76.79 cents US. Just last week, the Canadian dollar was a full cent higher on rising oil prices.

Those gains in oil were tempered Wednesday, with the June contract for benchmark North American crude giving back 12 cents to US$48.19 barrel, while the more heavily-traded July contract lost 21 cents to US$48.78.

“Clearly, this interest rate increase has had an impact on the currency markets in the sense that a higher interest rate environment in the States is going to put additional impact on low-yielding currencies like the Canadian dollar,” said O’Connell.

“Ultimately that will cause some problems for stocks because people will be worried about a strong U.S. dollar hurting multinational earnings in the U.S.”

Elsewhere in commodities, June natural gas fell five cents to US$2 per mmBtu, while June gold lost $2.50 to US$1,274.40 a troy ounce. July copper dropped a penny to US$2.08 a pound.

— With files from The Associated Press

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