The TSX is in for a rough ride. That and more from Prab Sagoo, associate director at Nasdaq Advisory Services in his weekly commentary.
- The market is all but pricing in a Federal Reserve rate hike at the central bank’s next meeting in mid-December. This is in direct contrast to the ECB, which is ever more likely to ease monetary policy further, causing the EUR/USD to move towards March lows, when the Euro had also dropped on fears of a U.S. rate hike.
- The Bank of Canada will make a decision on domestic rates in early December; we do not expect a change. As a result, all eyes are on the U.S. dollar, which continues to strengthen and represents one of the more crowded trades presently.
- What does this mean for the TSX? We expect further headwinds ahead for the benchmark index, with increases in short bets reflecting this reality. The strong dollar is likely to continue to weigh on dollar-denominated commodities and thus on Energy and Materials stocks, which have about a 30% weighting. Both are also still down by more than 20% YTD. Further resistance will also likely be felt by some Telco, Utility and REIT names due to rising yields.
- Expect trading to peter off significantly into the latter part of the week as U.S. markets will be closed on Thursday and operating on a shortened session Friday.