TSX Composite Index outlook: Top catalysts for Canadian stocks this week
The TSX Composite Index has come under intense pressure in the past few months. It dropped to 35,788 points on Friday, down by 3.53% from the year-to-date high. This article looks at some of the most important news that will move Canadian stocks this month.
TSX Composite to react to earnings season
Canadian stocks will react to the upcoming earnings by some of the biggest companies in the country and in the United States. These earnings will provide more hints on how companies are performing this year.
Celestica, a top Canadian technology company that partners with firms like Google and Amazon, will be one of the top firms to watch. Analysts predict that its revenue continued growing in the last quarter.
The average estimate is that its revenue jumped by 71% on an annual basis to $5.47 billion. The risk, however, is that the company is exposed to the AI sector that is showing some weakness.
More Canadian companies like Rogers Communications, Agnico Eagle Mines, Alamos Gold, Canadian Pacific Railway, Fairfax Financial, Teck Resources, and Canadian National Railway. Some of these companies are among the biggest TSX Composite constituents.
These stocks will also react to the earnings by some of the biggest US companies, including top names in the Magnificent Seven group like Amazon, Alphabet, Microsoft, and Apple. These earnings tend to have an impact on Canadian and global stocks.
Bank of Canada interest rate decision
The TSX Composite Index will also react to the upcoming Bank of Canada interest rate decision on Wednesday. Economists expect the bank to hike interest rates by 0.25% to 2.50% in a bid to battle elevated inflation.
The most recent data showed that Canada’s inflation rate rose 3.1% in September, moving further away from the bank’s target of 2.0%. Core inflation rose 2.2% during the month.
The decision comes at a time when Canada’s bond yields have slipped in the past few days. Data show that the ten-year yield has dropped from 4.04% earlier this month to 3.84%.
A rate hike, will be, in theory, bearish for the TSX Composite Index. However, since it has been priced in, chances are that the impact will be muted.
In line with this, the TSX Index will also react to the upcoming Federal Reserve interest rates decision. In most cases, Canadian and other global stocks tend to react to the actions of the Federal Reserve.
Gold prices
The other catalyst for Canadian stocks will be the performance of gold, which has been in a strong sell-off. Gold ended last week at $3,995, its lowest level since July this year. It has been in a steady downward trend after peaking at $5,600 in January.
Canadian stocks are usually exposed to gold because many of them are in the industry. This includes companies like Agnico Eagle Mines, Barrick Gold, Wheaton Precious Metals, and Franco-Nevada.
Rising crude oil prices
Meanwhile, Canadian stocks will also react to the ongoing crude oil price rally. Brent, the global benchmark, has jumped to $117, and this trend will likely continue, especially if the US-Iran war continues.
Soaring oil prices have an impact on Canadian stocks. Some large companies like Canadian Natural Resources, Enbridge, Imperial Oil, and TC Energy are in the industry and benefit from the rising oil prices.
On the other hand, the rising prices also mean that inflation will remain at an elevated level, possibly pushing the BoC to maintain a hawkish rate.