04:26 PM EDT, 10/15/2024 (MT Newswires) -- The Toronto Stock Exchange closed lower on Tuesday, falling off a record high as oil prices were sharply lower even as inflation fell below 2% last month, potentially setting the stage for a 50 basis point cut to interest rates next week from the Bank of Canada.

The S&P/TSX Composite Index closed down 32.09 points to 24,439.08, dropping off Friday's record close of 24,471.17. Energy, down 4.7%, and Base Metals, down 2.6%, posted the biggest losses. Health Care, up 2.1%, and Utilities, up 1.8%, were the big gainers on the day.

West Texas Intermediate (WTI) crude oil fell 4.4% Tuesday after reports Israel won't target oil infrastructure when it responds to that country's Oct.1 missile strike, while the International Energy Agency cut its 2024 demand estimate and forecast a supply surplus coming next year. WTI crude for November delivery closed down US$3.25 to settle at US$70.58 per barrel, while December Brent crude, the global benchmark, closed down US$3.21 to US$74.35.

Gold prices traded higher late afternoon amid a steady dollar and mixed treasury yields. Gold for December delivery was last seen up US$12.70 to US$2,678.30 per ounce.

In individual stock news, S&P Global Ratings on Tuesday lowered its long-term issuer credit rating on TD Bank (TD.TO, TD) to 'A+' from 'AA-' and its short-term issuer credit rating on the bank to 'A-1' from 'A-1+'. S&P also lowered its issuer credit ratings on TD Bank's core subsidiaries TD Securities (USA), TD Bank N.A., its U.S. intermediate holding company TD Bank US Holding Co., and Toronto Dominion (South East Asia).

The rating outlook on TD and all of its subsidiaries is stable. At the same time, S&P lowered its issue level ratings on all of TD Bank's obligations by one notch, including lowering its senior unsecured ratings to 'A+' from 'AA-' and its bail-in-able senior subordinated ratings to 'A-' from 'A' - after TD Bank agreed to pay a US$3.09 billion penalty to settle with U.S. authorities and regulators on anti-money laundering deficiencies. TD Bank closed at $77.68, down $0.80.

The US$3.09-billion settlement TD reached with U.S. regulators for its failures to oversee money-laundering risks has underlined what some say are relatively weak enforcement options in Canada, according to a report by the Canadian Press. It cited Denis Meunier, president of DMeunier Consulting and a former deputy director of Fintrac, Canada's financial intelligence unit and anti-money laundering and anti-terrorist financing supervisor, saying fines in Canada have to increase significantly to provide adequate deterrence and not become just a cost of doing business. He says the federal government should add substantial fines for gross negligence and increase administrative penalties as fines in Canada haven't risen since 2008.

On Canadian interest rates, Desjardins said sub-2% inflation in September "all but locks in" a 50 basis point cut on October 23. It noted headline CPI rose 1.6% year-over-year in September, down four ticks from August and below the 1.8% consensus estimate, but closer to the Desjardins call. Prices fell 0.4% month-over-month but were essentially unchanged after adjusting for seasonal effects.

"Well," said Desjardins. "it's official. inflation has not just returned to the Bank of Canada's two-percent target, but has now crashed through it." It noted goods prices have led the move lower, declining on a year-over-year basis for the second consecutive month. Also, falling gasoline prices explain a "good part" of the deflation in goods. At the same time, it noted services inflation also slowed but remained stickier. Examined differently, Desjardins said, shelter inflation excluding energy continues to make by far the largest contribution to headline inflation. Looking to underlying inflation, it added, the Bank of Canada's preferred measures of core suggest that the slowing trend in inflationary momentum is the Bank's friend.

"Regardless of the measure you look at, inflation continues to show diminishing pressure on price gains in Canada. As such, we think the BoC is likely to cut the policy rate by 50 basis points (bps) at its October meeting," Desjardins said.

Elsewhere, David Doyle, head of economics at Macquarie, noted underlying inflation decelerated again in September with the average of trim/median at +0.17% month over month. August's reading was revised downwards. The year-over-year of trim/median was stable at 2.35%, while the six month moving average was stable at 2.4%.

"There were encouraging developments in key areas of focus for the BoC, including shelter and food inflation," Doyle said.

Doyle added these data lead Macquarie to change its view on the BoC's decision next week. It now expects a 50 bps cut up from its 25 bps prior estimate, with overall soft labor data and now increased risk of undershooting the inflation target key drivers. Doyle said an updated growth and inflation forecast in the Monetary Policy Report will likely serve as justification for the shift.

Following this, Macquarie expects future cuts at a 25 bps per meeting pace, until the overnight rate reaches 2.25% in July 2025. Risks to this remain skewed towards a more front loaded easing cycle, Doyle added.