-- The Toronto Stock Exchange rallied late to post a modest gain Monday with investors buoyed by two domestic economic updates, RBC Economics noting business sentiment was "stable" in Canada amid the Iran conflict, while National Bank said Canada's current inflation environment "calls for a bit of patience".
The S&P/TSX Composite Index closed up 13.74 to 34,360.03, with sectors mixed after the index was lower for most of the session on some profit taking after a strong recent run up and some nerves as market watchers await an end to the Iran war. Among gainers, Health Care was up 2.85% and Info Tech up near 1.6%. The Battery Metals Index was down near 1.5%.
Perhaps in reflecting global investor sentiment, Thierry Wizman, Global FX & Rates Strategist at Macquarie Group, published a note entitled 'Traders haven't given up the prospect of permanent US-Iran deal' in which he said despite the "disturbing" news flow from the weekend, financial market prices were largely stable to start the week. Wizman added: "This means that traders haven't given up on the prospect of reaching a permanent deal within a multiweek timeframe. We believe that this is the 'correct' attitude so long as traders also recognize that the peace process is likely to be long and jagged. As most peace processes are."
Edward Jones in its 'Weekly wrap', noted markets have rapidly priced out worst-case risks, with easing oil pressures, stabilizing rates, and resilient earnings helping drive one of the fastest rebounds to new highs on record for the S&P 500. Edward Jones said corporate profits remain the most durable support, in its view, with double-digit TSX and S&P 500 earnings growth expected to continue in the quarters ahead. "While a near-term pause or consolidation is likely, we think a credible path toward de-escalation could see markets revert to earlier year leadership, favouring cyclicals, small- and mid-caps, emerging markets, and a balanced growth value approach," it added.
RBC said this morning's Q1 Bank of Canada Business Outlook Survey revealed healthier than expected business sentiment and investment/hiring intentions in February and March amid the Middle East conflict, but concerning signs of business inflation expectations edging higher through March. "Taken together, the results are broadly consistent with our expectations for per-capita domestic demand to slowly improve in 2026, absorbing remaining economic slack. The full impact of high oil prices will take time to play out and to date poses no real urgency for the BoC to intervene," the bank added
RBC's base case assumes declining but still elevated oil prices will have a relatively neutral impact on Canada's economy with limited second-round effects on non-energy consumer prices. It expects the BoC to monitor inflation expectations closely but won't make a move this year.
Elsewhere, National Bank said the BoC's Business Outlook Survey, "arguably the most important soft data release in Canada", had signaled improvements in the outlook. It noted the latest survey (2026 Q1, conducted between February 5-25), highlighted an improved outlook on future sales, hiring, and investment intentions prior to the onset of the Mideast conflict, a topic that was discussed in survey follow-up calls.
In a separate note, National Bank wrote while inflationary pressures increased here in March on the crisis in the Middle East, they were "generally less pronounced than economists had widely expected", with the bank noting annual inflation rose from 1.8% in February to 2.4% in March, but remained well below the 2.6% forecast by economists. According to National Bank, what surprised economists most in March was the stagnation of prices in the basket excluding food and energy. On a three-month annualized basis, these prices rose by only 0.5%, the slowest pace in two years.
As for the measures favored by the Central Bank, National Bank noted they are growing at rates that are "comfortable", at 2.0% and 1.3%, respectively. For reference, the central bank had projected last January that the average of these two measures would be 2.5% (y/y) during the quarter, which is materially higher than what actually occurred (2.3%). "This morning's report reinforces our view that the Central Bank should, for now, overlook the rise in energy prices by keeping rates unchanged. Core inflation remains contained, reflecting an economy with excess supply. We believe that the risk of second-round effects (wage-push inflation) from the surge in energy prices is unlikely. As for interest rates, they seem far from accommodative in the current environment marked by geopolitical uncertainty and trade tensions with Washington. Indeed, the labour market stumbled at the start of the year, and the housing market continues to weaken. All in all, the current environment calls for a bit of patience," National Bank said.
Of commodities today, West Texas Intermediate crude oil surged 6.9% after Iran again closed the Strait of Hormuz after the United States refused to end a blockade of country's ports while firing on and seizing an Iranian cargo ship. WTI crude oil for May delivery closed up US$5.76 to settle at US$89.61 per barrel, while June Brent oil was up US$4.74 to US$95.12.
But gold traded lower as the dollar rose while hopes for an end to the war on Iran faded after Iran on Friday opened and then closed the Strait of Hormuz, pushing up oil prices and the dollar on worries over higher inflation and interest rates. Gold for May delivery was down US$51.80 to US$4,827.80 per ounce.