TSX Falls on Oil Price Jitters, Traders Bet on Rate Hikes

Canada's TSX fell by 0.44% as oil prices surged, causing inflation nerves to resurface despite August's inflation rate holding steady at 3%. The recent jump in oil prices has traders pricing nearly 40 basis points of Bank of Canada rate hikes by year-end, which could filter into next month's inflation readings and affect everything from shipping costs to grocery bills.

LSEG data shows that investors expect higher policy rates, leading to increased Government of Canada bond yields. This can tighten financial conditions before the Bank of Canada makes any moves, potentially affecting mortgage renewals and small-business loans.

Raymond James notes that the central bank could still hold interest rates steady if a softer labor market cools demand. However, traders are pricing in additional hikes, which may lead to higher borrowing costs for lenders and subsequently higher mortgage renewal quotes.