Skip to main content
Complete Olympic Games coverage at your fingertips
Your inside track on the Olympic Games
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Complete Olympic Games coverage at your fingertips
Your inside track onthe Olympics Games
$1.99
per week
for 24 weeks
// //

The sign outside Scotia Plaza in Toronto shows the closing numbers of the TSX on Tuesday, July 3, 2012.

Matthew Sherwood/The Globe and Mail

Canada's stock market is suddenly riding the crest of a dramatic commodity turnaround, after months of being weighed down by weak commodity prices.

Toronto's benchmark stock index on Tuesday posted its biggest percentage-point gain since November, as a confluence of factors triggered a surge in key commodities ranging from crude oil to gold to copper to wheat.

"The risk trade is back on," said Robert McWhirter, president of hedge fund company Selective Asset Management Inc.

Story continues below advertisement

Strategists said that with Europe making progress on the Spanish bank crisis, the perceived threat of a Lehman-Brothers-style banking meltdown is easing.

As that happens, some segments of the financial markets that were hit worst by the mounting fears of the first few months of the year – including commodities and commodity-heavy equity markets such as Canada's – now look poised to lead the way back up.

"Commodities have led this cycle all along. The TSX was one of the first casualties," said John Johnston, chief strategist at Davis Rea Ltd. Investment Counsel.

With commodities turning around and new hope in the market, he said, "It's suggestive that there's a relief trade coming."

Crude oil spiked nearly $4 (U.S.) to $87.55 a barrel, a five-week high, in New York, after Iran threatened a blockade of the Persian Gulf in retaliation for a European embargo on Iranian oil. Gold rose more than $20 to $1,617.80 an ounce, amid talk that the weakening global economy will prompt further monetary easing by central banks – a possibility that generally calmed investor fears and fuelled appetite for risk assets, such as commodities and equities.

Toronto's S&P/TSX composite index soared 252.19 points, or 2.2 per cent, to 11,848.95. The gain came on top of a 172-point rise last Friday. (The market was closed Monday for Canada Day.)

The holiday week in Canada and the U.S. contributed to Tuesday's strong gains on the TSX, Mr. Johnston said.

Story continues below advertisement

"Because this was going to be a low-liquidity week, people were hesitant to take on big positions Friday," he said. When commodity prices and global stock markets rose in the absence of the Canadian market on Monday, that prompted Canadian traders to aggressively load up on their positions on Tuesday, ahead of the U.S. Independence Day holiday.

But Mr. Johnston cautioned that it might not last the week.

The European Central Bank is scheduled to make an announcement about interest rates on Thursday, and the market is pricing in the expectation that it will cut rates by at least one-quarter of a percentage point, to 0.75 per cent.

"If the ECB doesn't do anything, we could see big disappointment" in the stock market, Mr. Johnston said.

Given the low valuations and strong potential returns that the stock market offers relative to bonds, strategists say stocks have plenty of room to rally in the next few months. Mr. McWhirter noted that both the stock and commodity markets have turned positive on a "technical" basis – based on the trends and patterns emerging from their price charts – which suggests an upturn is in the cards for the summer.

"There's a rally expected at least until Sept. 1, and maybe through to the U.S. election," Mr. McWhirter said.

Story continues below advertisement

The Canadian rally, he said, will depend on continued strong prices for oil. And for the global equity markets, any rally will only last as long as Europe can maintain some stability.

"We can continue to whistle past the graveyard here," Mr. McWhirter said.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies