TSX Ticker: Index Dips as Voters Gear Up for Monday's Federal Election

The Toronto Stock Exchange finished slightly down on Friday as investors adjusted their holdings before Monday’s federal election, despite Rosenberg Research suggesting that the index “ought to be ready for a summertime upturn.”

Currently, the S&P/TSX Composite Index declined for just the second time within the past ten trading days, finishing lower by 17.02 points at 24,710.51. The sectors showed varied performance; Base Metals dropped 1.4%, and Industrials decreased by 1%; however, the Battery Metals Index rose by 3.5%.

In their recent 'Technical Analysis' report on international stock markets, Rosenberg Research stated that the TSX successfully withstood significant support during its downturn caused by tariffs earlier this month before recovering. The analysis highlighted that the crucial support level ranged from 22,554 to 21,467.

In spite of the recovery," the report stated, "the weekly Coppoch Curve continues to face downward pressure and might stay weak for approximately another three weeks before reaching its lowest point. Likewise, the oscillator is set to adopt an upward trend, potentially turning positive across most of the TSX’s 11 industries by mid-to-late May. This suggests that the TSX seems poised for a potential summer upswing.

The study further noted, “While the TSX’s monthly Coppock indicator is reaching its apex and is about to enter a confirmed downward trajectory. Consequently, this suggests that the subsequent medium-term peak—which marks the conclusion of an impending upswing—will likely carry negative consequences for the overall long-term direction.”

Rosenberg Research pointed out that the index's recovery rally was putting pressure on the support level between 24,098 and 24,250. The key resistance area was identified as the range from 25,454 to 25,876.

Nevertheless, the attention of most market observers is now centered on Monday's election, which will determine the course Canada takes in addressing the potential impacts of an emerging trade war with the United States. This situation has the possibility of leading to a economic downturn.

At CIBC Capital Markets, Chief Economist Avery Shenfeld highlighted on Friday that institutional investors have been closely examining the financial strategies presented by various political parties this week. They aim to assess potential impacts on government bond supplies and determine how fiscal stimuli or constraints may affect the Bank of Canada’s decisions regarding interest rate adjustments. Shenfeld also advised his clients: “While we appreciate the detailed information shared by Canadian political parties, we should emphasize that there might be significant differences between current proposals found in printed materials or online and actual budgets implemented later this spring or even next year.”

Shenfeld pointed out that to maintain an even competitive landscape, both principal political parties decided to adopt the baseline predictions offered by the nonpartisan Parliamentary Budget Office. While these projections factored in increased trade policy uncertainties, they didn’t account for the immediate effects of American tariffs on Canadian goods. Similarly, just as with CIBC’s estimates, these projections would face challenges unless U.S. duties imposed on Canada and other nations ease sufficiently. The outlook was predicated on a projected 1.5% real economic expansion for the current year—possibly slightly overestimated—and a consistent decrease in joblessness which may underestimate potential Employment Insurance expenses, according to Shenfeld.

Shenfeld stated, “While the campaign emphasizes a sharp focus on U.S. tariffs and addresses potential growth obstacles for Canada due to these measures, the forecasts assume that global trade risks will diminish moving forward. The Conservatives provided estimates suggesting considerably quicker economic expansion compared to the base projection by incorporating anticipated boosts from proposed alterations in taxes and regulations. Additionally, both political parties relied heavily on projected revenue generated from Canada’s counter-tariffs; however, this income source assumes that the U.S. does not retract its own tariffs against Canada.”

Secondly, Shenfeld pointed out that with the rapid pace of news updates, none of the contenders can confidently predict the economic landscape during the budget season this year, nor can they foresee Canada’s trajectory past fiscal 2025-26. He emphasized, “It wouldn’t be wise for a Prime Minister to solidify financial policies prematurely without having clear insight into the trade dispute. Keep in mind that just a few weeks back, everyone was anticipating that the proposed 30-day postponement of car tariffs might turn into extended leniency—a hope that has yet to materialize—and certainly nobody foresaw the intense tariff conflict between the U.S. and China and how significantly it could affect these key sectors within our economy.”

Shenfeld pointed out the effects of U.S. tariffs on crucial Canadian exports such as automobiles, metals, and timber, emphasizing that disruptions in supply chains occur as the foundation of international trade undergoes changes. This has consequences for determining appropriate support measures in Canada. He further stated, “Therefore, we must provide leeway to our upcoming prime minister and their cabinet to adapt policies swiftly according to these shifting dynamics.” Although political parties may vary in their approaches to implementing stimulus or austerity, he clarified that the overarching financial stance primarily hinges on economic conditions.

Shenfeld stated that if all goes well ("comes up rosy") in the trade discussions, targeting reduced budget deficits as unemployment decreases and economic growth accelerates would make sense. Additionally, he mentioned that should the trade conflict or other factors push Canada towards a recession or even just slow down the economy, larger deficits for the present fiscal period might be necessary, exceeding projections made by both parties involved. Shenfeld explained this could work because the federal deficit currently stands at merely one-third of what Washington’s deficit represents relative to gross domestic product, providing enough flexibility to manage such an increase.

Shenfeld pointed out that larger budget shortfalls during economic downturns have historically characterized Canadian politics, regardless of whether the strategy was presented with a blue theme, like in the mid-year statement under Harper amid the 2008 global financial crisis, or a bold red one under Trudeau at the onset of the pandemic. As per Shenfeld, “The longer maturity segment of Canada’s bond market may still not completely reflect this probable trend, even in a less severe form.”

On Friday, BMO Capital Markets Chief Economist Douglas Porter pointed out that a trade conflict with the U.S. emerged as a significant topic near the end of Canada’s federal election campaign following President Trump’s statement on Wednesday suggesting that the current 25% tariffs on Canadian automobiles might potentially increase further.

Avoiding overly sensitive political topics, Porter observed that recent polls have shown some narrowing, though they still indicate Mark Carney’s Liberals ahead of Pierre Poilievre’s Conservatives at 42% to 38%, respectively. Porter highlighted two key aspects: first, the total vote share between these top two parties is set to reach its peak level since the late 1950s; secondly, this closeness leaves room for the potential continuation of a minority government. Each party unveiled their formal platform documents last week after much anticipation... However, the primary observation is that the ongoing trade conflict has impacted financial projections, suggesting larger and more persistent budget shortfalls moving forward.

Porter mentioned that the Canadian bond market continues to be “quite calm” regarding increased borrowing needs, with 10-year Government of Canada (GoC) yields hovering just beneath 3.2%, which is marginally lower than the yearly average. He pointed out that these yields have decreased somewhat compared to levels seen right before the initial tariff announcements at the end of November. This decline can partly be attributed to the Bank of Canada having to reduce rates further and potentially lowering them even more. Nevertheless, Porter observed that the Canadian dollar has largely remained resilient, nearly matching its value from before the U.S. elections as well as what it was one year ago.

Among commodities, gold saw a decline during the later part of Friday afternoon, following through with corrections from its peak on Monday. This drop came amid an uptick in the value of the dollar and growing investor interest in higher-risk assets. The contract for June delivery showed a decrease of $30.70, trading at $3,317.9 per ounce, failing again to surpass the recent high point set on April 21st at $3,425.30 per ounce.

However, West Texas Intermediate crude oil finished higher on Friday, climbing against the backdrop of increasing supplies and an unclear economic forecast due to U.S. President Donald Trump’s international trade disputes. The WTI crude oil contract set for June settlement ended 23 cents higher at US$63.02 per barrel, whereas June Brent crude was noted as being up 25 cents to reach US$66.80.