Canada's main stock index reached a historic milestone on Monday, with the Toronto Stock Exchange's S&P/TSX composite index closing up 359.53 points, or 1% at 34,830.89. According to reports from Reuters, this performance eclipsed the record closing high posted on March 2, marking a significant achievement for the Canadian market. The rally was driven by investor optimism surrounding potential developments in the Middle East conflict resolution efforts, with equity markets globally rallying and the U.S. dollar falling against a basket of major currencies. The Canadian dollar also strengthened, trading 0.1% higher at 1.3800 per U.S. dollar, recovering from Friday's near six-week low of 1.3824.
The market surge was fueled by reports that Iran's top negotiator and foreign minister were in Doha for talks with Qatar's prime minister on a potential deal with the U.S. to end the three-month war. As reported by Reuters, an official briefed on the visit confirmed these diplomatic developments. Market analysts noted that while there have been repeated false hopes of resolution, even a non-zero chance the conflict ends is enough to push stocks higher and oil lower, though skepticism remains about the deal's viability. The price of oil, one of Canada's major exports, was down 6.5% at $90.36 a barrel, contributing to the positive market sentiment. However, energy prices regained traction as momentary optimism over an agreement between the US and Iran waned, pressuring industrial metals.
The Canadian dollar strengthened to 1.3800 per U.S. dollar, or 72.46 U.S. cents, after moving in a range of 1.3796 to 1.3823. According to Scotiabank strategists, the near-term focus for the CAD remains centered on the outlook for relative central bank policy, given the material widening in interest rate differentials. Canada's 2-year yield was trading about 128 basis points below its U.S. equivalent, with the gap widening from 102 basis points mid-month. Canadian bond yields moved lower across the curve, with the 10-year down 6.8 basis points at 3.465%. Domestic data showed wholesale trade rose 0.1% in April from March, though it had little impact on overall market sentiment.
The materials sector led gains with a 4.4% increase, benefiting from rising gold prices amid easing fears of inflation and higher-for-longer interest rates. According to Reuters, shares of Hudbay Minerals rose 8.9% and those of First Quantum Minerals were up 8.4%. The technology sector added 2.1% and financials ended 0.9% higher, while the energy sector was the only major sector to end lower, losing 3.4% as oil prices declined 6.5%. The sector's decline was attributed to concerns about Prime Minister Mark Carney's comments about Alberta's planned vote on potentially breaking away from the rest of Canada, which he described as potentially becoming "a dangerous bluff." Meanwhile, copper futures were at $6.2 per pound, sustaining the pullback from the record high of $6.65 on May 13th as skepticism over a peace agreement maintained energy prices elevated, squeezing demand for manufacturing inputs.
