TSX maintains losses

Wall Street put a seesaw day behind it to close higher on Wednesday, as investors digested new clues on the U.S. central bank’s approach to rate policy and its inflation fight detailed in the minutes from the latest Federal Reserve meeting. The TSX, however, maintained losses into the close as weakness in oil and gold prices weighed on commodity stocks amid growing worries of a global recession.

After a brutal sell-off in global equity markets in the first half of the year, nervous investors are keeping a close watch on central bank actions as they try to assess the impact of aggressive rate hikes on global growth.

They got their latest data point on Wednesday afternoon, when the minutes of the June 14-15 policy meeting detailed how the U.S. central bank was prompted to make an outsized interest-rate increase.

The 0.75 percentage-point rate increase which came out of the meeting was the first of that size since 1994. According to the minutes, participants judged that an increase of 50 or 75 basis points would likely be appropriate at the policy meeting later this month.

Prior to the minutes’ publication, investors had been pricing in another 75-basis-point rate increase at the upcoming July 26-27 gathering, meaning the fact that both 50 basis points and 75 basis points remained on the table pointed toward the Fed acknowledging the impact of its rate rises on the economy.

The S&P 500 gained 13.69 points, or 0.36 per cent, to 3,845.08. Eight of the 11 S&P subsectors closed higher, with utilities and technology leading the way. The S&P/TSX Composite Index ended down 0.6 per cent. In June, it touched its lowest closing level in 15 months at 18,717.12.

“There is a major unwinding of extreme commodity exposure,” said Edward Moya, senior market analyst at OANDA in New York. “More aggressive [central bank] tightening and perhaps further weakness with commodities is unnerving a lot of investors.”

Resource shares account for 30 per cent of the TSX’s market capitalization.

“It is the fifth day in a row that the TSX underperforms the S&P, which has not happened this year yet,” noted Jules Boudreau, an economist at Mackenzie Investments.

The Bank of Canada has also been tightening aggressively. The central bank is set to raise its overnight rate by a hefty 75 basis points next week. That may be followed by another 50 basis points in September, a Reuters poll showed, front-loading a campaign to take monetary policy to where it will restrain the economy.

The TSX energy sector fell 3.9 per cent as oil prices extended recent declines on worries energy demand would take a hit in a potential global recession. U.S. crude oil futures fell nearly 1 per cent to US$98.53 a barrel.

In credit markets, Canadian government bond yields were higher across the curve, tracking the move in U.S. Treasuries. The 10-year rose 10 basis points to 3.177 per cent.