Canadian Stocks Surge as Speculation Grows of Fed Rate Hike Pause

Canadian stock futures saw a remarkable surge on Wednesday, propelled by rising commodity prices and fueled by growing expectations of a pause in interest rate hikes by the U.S. Federal Reserve. This surge has left investors with a sense of anticipation as they await the central bank's decision regarding interest rates.

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At 6:50 a.m. ET, the June futures for the S&P/TSX index exhibited a promising 0.3% increase, signaling a positive market sentiment. The anticipation of a halt in interest rate hikes by the U.S. Federal Reserve is the key driver behind this surge, instilling confidence in the minds of investors.

The U.S. central bank is expected to maintain interest rates within the 5%-5.25% range. If this materializes, it would mark the first time since March 2022 that the bank refrains from pursuing its historically aggressive monetary policy tightening. The highly anticipated decision is scheduled to be announced at 2:00 p.m. ET, leaving investors eagerly awaiting the outcome.

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To further gauge the central bank's monetary policy path, investors will closely monitor the post-meeting comments by Fed Chair Jerome Powell. These remarks are expected to provide valuable insights into the future direction of monetary policies.

This optimistic sentiment extends to the futures tracking U.S. stock indexes, such as the S&P 500 and Nasdaq, which also experienced slight gains. These upward trends are fueled by the expectation that the Federal Reserve may refrain from implementing interest rate hikes at the conclusion of its policy meeting later in the day.

The growing speculation of a pause in interest rate hikes by the U.S. Federal Reserve stems from the latest U.S. consumer price inflation data for May. The data revealed a significant moderation, reaching the slowest pace in over two years. The decrease was primarily driven by reduced costs of energy products and services, while core inflation remained relatively stable.

A recent Reuters poll conducted among economists suggested that the Bank of Canada is likely to raise interest rates once again in July, bringing the rates to 5.00%. This projection comes on the heels of a surprise 25 basis point increase in rates just last week.

Meanwhile, commodity prices experienced a notable upturn as investors eagerly awaited the Federal Reserve's rate decision. Oil and gold prices demonstrated a firming trend, while copper prices rallied to a seven-week peak. The rally in copper prices can be attributed to an improved demand outlook and supply tightness in China, the world's leading consumer of the metal. Furthermore, the weakening of the dollar also provided support to commodity prices.

In closing, the Toronto Stock Exchange's S&P/TSX composite index concluded Tuesday on a positive note, securing a 0.35% increase and reaching its highest closing level in a week. With the current surge in Canadian stock futures and the speculation of a pause in interest rate hikes, the market is poised for potential gains, creating an atmosphere of anticipation among investors.

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