TSX Falls on Rising Yields and Oil Prices Ahead of Fed Meeting

Futures tied to Canada's TSX index slipped lower on Tuesday as investors digested rising government bond yields and surging oil prices. The S&P/TSX 60 index standard futures contract dropped by 3 points, or 0.2%, while the S&P/TSX composite index inched up a marginal 0.01% to finish at 35,702.53.

The retreat was led by the materials sector, which includes metal mining shares, as gold and silver sank due to growing bets that the Federal Reserve will tighten policy this week. However, energy stocks managed to gain some ground following a sharp increase in oil prices after Saudi Arabia closed its east-west pipeline.

Oil prices surged after the 1,200-kilometer long pipeline was shut down for repairs, with traders suggesting that a prolonged shutdown could disrupt up to 4% of global oil supply. The closure has added to concerns about energy-driven inflation, pushing up government bond yields, including the 10-year yield which touched its highest level since 2007.

With the Federal Reserve meeting on Wednesday, investors are now pricing in a 92% chance of a quarter-point interest rate hike, compared to 59% a week ago. This has put Fed Chair Kevin Warsh at odds with U.S. President Donald Trump, who has repeatedly called for lower rates to support economic growth.

Gold and silver prices fell as higher borrowing costs tend to weigh on the metals due to their lack of interest payments. Analysts at ING noted that 'plenty of uncertainty remains over the extent of damage and the duration of the outage' for the east-west pipeline, which is likely to keep oil prices well supported.