At midday: TSX sits flat as cool U.S. inflation data lifts rate cut bets

Canada’s main stock index was flat in late morning trading on Friday after the U.S. inflation data came in line with expectations, intensifying hopes of an interest rate cut by the Federal Reserve in September.

At 11:25 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 12.66 points, or 0.06%, at 21,929.95.

Majority of the sectors logged gains, topped by the industrial sector that was up 0.5%.

The benchmark index is also set for its first weekly gain in six weeks, adding to the inclines for the first half of the year.

The U.S. personal consumption expenditures (PCE) remained unchanged in May, while consumer spending rose moderately, a trend that could draw the Fed closer to start cutting interest rates this year.

“I suspect Fed would take another month of confirmation of the inflation data, but I continue to believe that September is a reasonable starting point for rate cuts,” said Youssef Zohny, founder of The Zohny Group of Graystone Consulting at Morgan Stanley.

Market participants are pricing in a 67.6% chance of a September rate cut.

Back home, hopes of another rate cut by the Bank of Canada in its next policy meeting on July 24 were clouded after hotter-than-expected domestic inflation data on Tuesday.

However, a 0.3% rise in domestic gross domestic product reported on Friday aligned with market expectations, which slightly enhanced the likelihood of rate cuts.

In individual stocks, First Quantum Minerals fell 0.4% after Reuters reported the miner will launch formal arbitration proceedings against Panama in July over the country’s decision to close the Cobre Panama mine last November.

Stocks rose on Wall Street Friday and headed for their fourth weekly gain following a closely watched report that showed inflation continues easing.

Investors are hoping that cooling inflation will prompt the Federal Reserve to start cutting interest rates, which remain at their highest level in more than 20 years.

The S&P 500 index rose 0.6% and is on track to notch a fourth straight weekly gain and a new all-time high. The Nasdaq composite rose 0.8% and is also on track to set a new record.

The Dow Jones Industrial Average rose 185 points, or 0.5%.

Consumer prices rose 2.6% in May compared with a year ago, according to the latest personal consumption expenditures index, or PCE. That signaled continued easing from a 2.7% reading in April and is sharply lower than the peak reading of 7.1% two years ago.

The PCE is the Fed’s preferred measure of inflation and the latest reading is encouraging for economists and investors who are hoping for rate cuts to help ease pressure on the market and borrowers. Wall Street is betting that the Fed will start cutting interest rates at its meeting in September.

Treasury yields pulled back in the bond market following the latest signal of easing inflation. The yield on the 10-year Treasury, which influences interest rates on mortgages and other consumer loans, fell to 4.27% from 4.30% just prior to the release of the PCE data. The yield on the two-year Treasury, which more closely tracks expectations for Fed actions, fell to 4.67% from 4.72% jut prior to the data’s release.

Nike tumbled 18% after the shoe and athletic wear company missed Wall Street’s revenue targets and cut its full-year sales guidance. Company executives said they expect sales to decline by single digits in the current fiscal year, citing a “challenging” environment.

Nike’s dour outlook dragged other athletic apparel companies down with it. Foot Locker fell 4.2%, Skechers lost 1.6% and Under Armour was down 2.4%.

Reuters and The Associated Press