Toronto stock market falls as U.S. Federal Reserve disappoints with rate cut

TORONTO — Canada's main stock index closed lower Wednesday as oil and gold sectors fell and the U.S. Federal Reserve disappointed with its interest rate cut and guidance.

A sharply divided central bank cut its benchmark interest rate a quarter point for a second time this year but declined to signal that further rate cuts are likely this year.

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"The somewhat hawkish-leaning outcome from the Federal Reserve gathering has been met with a disappointing market response," said Candice Bangsund, portfolio manager for Fiera Capital.

The market expected the size of the cut but believed going into the meeting that it would reduce rates three or four times by the end of 2020.

In making its decision, the Fed acknowledged the strength of the domestic economy, labour market and consumer while also recognizing slower business investment and weaker exports which it attributed to global trade headwinds.

"Longer-term the Fed is essentially reinforcing the view that we are not headed into a recession and the world's largest economy remains in good shape, and yes, there are global headwinds while the current stance of policy is still accommodative enough to support growth," she said in an interview.

The S&P/TSX composite index fell from Tuesday's record high to close down 34.46 points at 16,800.29.

Energy led five sectors that lost ground, falling 1.5 per cent with Husky Energy Inc. and Encana Corp. down 2.8 and 2.6 per cent respectively.

They dropped as crude oil prices softened for a second day after Saudi Arabia said it was restoring production at an oil facility that was attacked over the weekend and U.S. crude inventories rose last week after four consecutive weeks of declines.

The November crude contract was down US$1.06 at US$58.04 per barrel and the October natural gas contract was down 3.1 cents at US$2.64 per mmBTU.

Materials was also lower with shares of several miners slipping despite higher gold prices. Barrick Gold Corp. shares dropped more than two per cent.

The December gold contract was up US$2.40 at US$1,515.80 an ounce while the December copper contract was down 1.4 cents at US$2.61 a pound.

U.S. stock markets ended the day relatively flat after going into the red in earlier trading.

In New York, the Dow Jones industrial average was up 36.28 points at 27,147.08. The S&P 500 index was up 1.03 points at 3,006.73, while the Nasdaq composite was down 8.62 points at 8,177.39.

The Canadian dollar traded for an average of 75.35 cents US, down compared with an average of 75.43 cents US on Tuesday.

Bangsund said she doesn't see the Bank of Canada following the Fed and cutting rates.

"We've been saying all along that the Bank of Canada can resist that dovish bias that we've seen from various global central banks and remain sidelined and if anything it looks like now that's where the Fed is going as well," she said.

But she expects more sporadic bouts of market volatility in the shorter term but strength going forward.

"That's because there's been little recognition for the health of the global economy and the domestic economy for that matter, and once we get a bit more clarity on the trade front, we expect investors to pay up for equities because of that superior growth backdrop."

This report by The Canadian Press was first published Sept. 18, 2019.

Companies in this story: (TSX:ABX, TSX:HSE, TSX:ECA, TSX:GSPTSE, TSX:CADUSD=X)

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