Canada's main stock index jumped to its highest level in two weeks on Friday, as weaker-than-expected US jobs data cooled expectations for further interest rate hikes from the Federal Reserve and sent commodity prices higher. The S&P/TSX Composite Index rose 308 points, or 0.9%, to close at 35,274.84, its strongest finish since June 16th. For the week, the index was up 0.8%.
Resource Stocks Lead the Charge
The materials sector, which includes mining and metals companies, was the standout performer, gaining 2.4% on the day. The rally was fueled by a jump in gold and copper prices, which rose as the US dollar weakened following the jobs data. When the US dollar falls, commodities priced in dollars—like gold and copper—become cheaper for buyers using other currencies, often boosting demand and prices.
Matt Manara, a portfolio manager at Avenue Investment Management, noted that the softer US hiring data could pull down expected US interest rates and the US dollar. Lower interest rates reduce the opportunity cost of holding gold, which doesn't pay interest, and can also push down inflation-adjusted yields, making gold more attractive. Copper, often seen as a bellwether for economic health, also benefited from the improved outlook for global demand.
Other sectors of the TSX were positive but more muted. The broader market's gains were largely driven by the resource-heavy materials group, highlighting how sensitive Canada's benchmark is to global macro data and commodity prices.
What the US Jobs Data Means
The US jobs report, released Friday morning, showed a softer-than-expected increase in employment for June. While the exact numbers were not detailed in the brief, the data was enough to ease fears that the Federal Reserve would need to continue raising interest rates aggressively to cool the economy. Higher rates can slow growth and reduce demand for commodities, so any sign that the Fed might pause or slow its hiking cycle is generally positive for resource stocks.
This dynamic is not unique to Canada. Similar reactions were seen in other markets, as Latin American markets also rose on the same data, and Indian stocks extended their rally on hopes of rate cuts. The interconnectedness of global markets means that US economic data often ripples through to commodity prices and equity indices worldwide.
Why the TSX Is So Sensitive to Commodities
Canada's stock market is heavily weighted toward natural resources, including energy, metals, and mining. That means the TSX is not just a bet on Canada's domestic economy—it's also a read on commodity prices and the Canadian dollar. When gold and copper prices rise, companies like Barrick Gold, Teck Resources, and other miners see their revenues and profits potentially increase, which lifts their stock prices and the overall index.
However, there is a wrinkle for Canadian investors. A weaker US dollar can mean a stronger Canadian dollar, which can trim the benefit for Canadian producers that sell their products in US dollars but pay many of their costs in Canadian dollars. The result is that the index's biggest swings can be driven by a tug-of-war between metals prices and currency translation, even when other sectors are only moving modestly.
For everyday investors, this means that the TSX's performance can sometimes diverge from the health of the broader Canadian economy. A rally driven by gold and copper might not reflect strength in retail, housing, or manufacturing. It's a reminder that diversification—both within Canada and across global markets—can help manage risk.
What Investors Should Watch Next
Looking ahead, investors will be watching for further economic data that could influence the Fed's path. Canada's own June jobs report is expected to show a modest gain of 10,000 jobs after May's surge, which could provide additional clues about the health of the domestic economy. If Canadian data also softens, it could reinforce the view that central banks are nearing the end of their rate-hiking cycles, which would be supportive for stocks and commodities.
Additionally, the broader economic backdrop remains mixed. Canada's GDP bounce and TSX rally have signaled a steadier economy, but the upcoming review of the Canada-United States-Mexico Agreement (CUSMA) looms as a potential risk. Trade uncertainty can weigh on business investment and commodity demand, so any developments on that front will be closely watched.
For now, the market's reaction to the US jobs data shows just how quickly macro data can flow through currencies and interest rates into Canada's resource-heavy benchmark. The TSX's move to a two-week high is a reminder that for Canadian investors, global economic signals often matter as much as domestic ones.
