TSX edges higher amid U.S. CPI data

Investing.com - Canada’s main stock exchange gained on Tuesday, after a U.S.-China trade agreement underpinned a jump in stocks in the country to an almost three-month high in the prior session.

By 12:20 ET, the S&P/TSX 60 index had jumped by 6.5 points, or 0.4%.

The Toronto Stock Exchange’s S&P/TSX composite average gained 134 points or 0.5% on Tuesday. The index increased by 174.44 points, or 0.7%, on Monday, logging its highest closing level since February 19.

On Monday, the U.S. and China said they would lower and pause their respective elevated tariffs on one another, fueling hopes for a detente in an intensifying trade spat between the world’s two largest economies.

Washington agreed to substantially cut its elevated tariffs on Beijing to 30%, after they were raised to at least 145% by President Donald Trump. China, meanwhile, said it would slash its levies to 10% from a retaliatory level of 125%. Both countries also said they would suspend the tariffs for 90 days.

Many economists had warned that the tariffs would spark inflationary pressures and weigh on growth, while several businesses have flagged that the tariffs had made it more difficult to plan out future investments.

Analysts cited by Reuters suggested that an easing in global trade tensions could particularly benefit Canadian equities, which are viewing as having cheaper valuations compared to Wall Street.

On Tuesday, Canadian Prime Minister Mark Carney introduced his new cabinet, which includes 28 ministers and 10 secretaries of state. The reshaped team includes 24 new ministers, 13 of whom are first-time members of Parliament.

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U.S. stock indexes mixed following positive CPI release

U.S. stock indexes were mixed, following stellar gains on the announcement of a U.S.-China trade deal, as of the release of key inflation data further bolstered positive sentiment.

At 12:20 ET, the S&P 500 jumped 44.5 points or 0.8%, and the NASDAQ Composite flew up 294 points or 1.6%. Conversely, the Dow Jones Industrial Average fell 194.9 points, or 0.5%

The main averages on Wall Street spiked on Monday, posting their best day since April 9, fueled by optimism that a relative trade truce between the U.S. and China will avert a severe economic downturn.

On Tuesday, economists at Goldman Sachs (NYSE:GS) cut their estimated risk of a recession in the U.S. to 35% from 45%.

The U.S. will also bring down tariffs on lower-value products imported from China, further cooling a trade spat with Beijing.

CPI release in spotlight

Despite optimism over the trade deal, markets turned cautious ahead of key consumer price index inflation data, which is due on Tuesday morning. The release proved more positive than expected, as consumer prices rose at a slower than anticipated rate in April.

The headline consumer price index grew by 2.3% in the 12 months to April, compared with expectations that it would match March’s pace of 2.4%.  It was the lowest rate of inflation since February 2021, shortly before pent-up pandemic-fueled demand and supply constraints led to soaring prices. 

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Month-on-month, the measure came in at 0.2% following a decline of 0.1% in the prior month, according to Labor Department data on Tuesday. Estimates had called for an uptick of 0.3%.

So-called "core" CPI, which strips out volatile items like food and fuel, increased by 2.8% year-on-year, in line with both March’s reading and projections. On a monthly basis, it rose by 0.2%, versus 0.1% in March and estimates of 0.3%.

While Monday’s trade deal does mark a deescalation, tariffs on China are still well above levels seen prior to April 2 - a trend that could underpin U.S. inflation.

The inflation data is widely expected to factor into the Federal Reserve’s plans for interest rates, after the central bank recently signaled that it saw no near-term changes in rates.

Still, the Fed is widely expected to cut interest rates eventually this year. The CME Fedwatch tool shows investors pricing in a 36.3% chance for an end-July rate cut, and a 52.1% chance for a September cut.

Crude jumps to two-week high

Oil prices hovered around a two-week high, as traders digested recent announcements around the China-U.S. trade deal.

At 12:30 ET, Brent futures gained 2.7% to $66.71 a barrel, and Crude Oil WTI Futures rose 3% to $63.80 a barrel.

Both contracts rose by about 1.5% on Monday, adding to the previous week’s gains and notching their highest settlements since April 28.

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Despite the ratcheting down in tensions between Washington and Beijing, plenty of uncertainty still exists as the underlying factors that led to the dispute -- including the U.S. trade deficit with China -- remain.

Gold inches up

Gold prices edged up on Tuesday, as bullion prices found some footing amid lingering uncertainty around a further cooling in trade tensions. Sentiment was also cloudy ahead of the key U.S. consumer inflation data.

Still, any major recovery in gold was quashed by strength in the dollar, which has rebounded on the U.S.-China trade agreement.

By 12:30 ET, Gold Futures ticked up by 0.9%, moving to $3,258.01/oz. XAU/USD rose by 0.6%, pricing in at $3,254.49 per ounce.

(Scott Kanowsky also contributed to this article)

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