TSX closes higher after Israel-Iran de-escalation

Investing.com - Canada’s main stock exchange finished higher on Tuesday as news of a ceasefire between Israel and Iran helped push investors back into riskier assets.

By the 4:00 ET close, the S&P/TSX 60 index had risen by 8.3 points, or 0.5%.

The S&P/TSX composite index climbed by 109.3 points or 0.4%, following Monday’s rise of 111.79 points, or 0.4%, at 26,609.36, just shy of a record close touched on June 12.

Recent comments from Federal Reserve officials bolstered hopes for an earlier-than-anticipated interest rate cut, while markets largely interpreted weekend U.S. air strikes on Iranian nuclear sites as a contained, one-off event.

A dip in oil prices, fueled by expectations that the Israel-Iran fighting will not impact crucial crude supply flows through the Middle East, weighed on energy names. However, materials stocks, including fertilizer groups and metal miners, rose, as did the technology and consumer discretionary segments.

Meanwhile, Canadian Prime Minister Mark Carney suggested that the U.S. and Canada may have an opportunity to sign a new economic and defense agreement, but flagged that nothing has yet been assured.

In an interview on CNN Tuesday, Carney reaffirmed a closer relationship with the EU and emphasized hitting NATO defense spending targets, no matter the price.

Canada CPI

Canada’s annual inflation rate held steady at 1.7% in May, unchanged from April and in-line with analyst estimates, according to data released by Statistics Canada on Tuesday. The subdued pace was driven by a softer increase in rent and a decline in package travel prices, which helped offset modest upward pressure from gas and mobile service costs.

CIBC (TSX:CM) (TSX:CM)’s Katherine Judge called the report "a step in the right direction for a July cut."

U.S. stocks climb

U.S. stocks bounded higher Tuesday, with sentiment boosted by President Donald Trump’s announcement of a ceasefire in hostilities between Israel and Iran.

By the 4:00 ET close, the Dow Jones Industrial Average traded 507.33 points, or 1.2%, higher, the S&P 500 gained 67.6 points, or 1.1%, and the NASDAQ Composite advanced 281.6 points, or 1.4%.

Additionally, the Nasdaq 100 hit its first record high since February.

The main averages on Wall Street ended the prior session in the green, all registering gains of around 1%, boosted by hopes that U.S. involvement in the days-long Israel-Iran air war would remain relatively subdued.

Ceasefire optimism boosts Wall Street

Investors have been boosted by Trump declaring earlier Tuesday, via social media, that the ceasefire between Israel and Iran was now "in effect," adding that neither side should violate it.

The statement has lifted expectations that the 12-day bout of fighting that has included deadly air strikes has now come to an end.

However, Trump’s comments suggested that the ceasefire would take place in stages, with operations already underway being allowed to finish.

Still, questions surrounded the longevity of the ceasefire, with both Israel and Iran violating the ceasefire, trading some blows shortly after Trump’s announcement, which he was "not happy" with, resuming his calls for peace.

No further violations have been reported, easing investor fears once again, although many analysts view the conflict as "far from over."

Powell’s testimony stays consistent

Away from the elevated geopolitical tensions, investors are focusing on Federal Reserve Chair Jerome Powell, who is began two days of testimony before Congress.

Powell indicated Tuesday that the central bank is prepared to maintain current interest rates while monitoring economic developments, according to his prepared remarks for the Semiannual Monetary Policy Report to Congress.

Powell described the U.S. economy as being in a "solid position" despite elevated uncertainty, with the unemployment rate remaining low at 4.2% in May. He noted that labor market conditions are "broadly in balance and consistent with maximum employment."

Regarding potential tariffs, Powell warned they could "push up prices and weigh on economic activity," though the effects might be a one-time shift in price levels rather than persistent inflation. He stressed the Fed’s commitment to preventing "a one-time increase in the price level from becoming an ongoing inflation problem."

Trump continued his ongoing campaign against Powell on Tuesday, writing on social media that Powell is a "very dumb, hardheaded person." He called for rates to be brought down by at least "two to three points," arguing that the U.S. will pay for Powell’s "incompetence."

Trump’s stance on lower rates has received some backing from Fed policymakers, with Michelle Bowman stating overnight that she was open to cutting rates in July, while Christopher Waller said he would also consider a rate cut next month.

Crude nosedives

Crude prices fell Tuesday on hopes of an end to the Iran-Israel conflict, alleviating worries of supply disruptions in the Middle East, a major oil-producing region.

Additionally, President Donald Trump said Tuesday that China can continue to purchase oil from Iran, according to a post on his Truth Social platform. "China can now continue to purchase Oil from Iran. Hopefully, they will be purchasing plenty from the U.S., also," Trump wrote in his statement.

At 5:00 ET, Brent futures dropped 5.3% to $66.81 a barrel and U.S. West Texas Intermediate crude futures fell 5.1% to $65.01 a barrel.

Both the oil benchmarks settled over 7% lower in the previous session after rallying to five-month highs after the U.S. attacked Iran’s nuclear facilities over the weekend, and have continued to drop, falling to their lowest in two weeks.

Iran is OPEC’s third-largest crude producer, and the easing of tensions could allow it to export more oil and prevent supply disruptions.

Gold drops amid fading safe-haven demand

Gold prices slipped over 2% in trade, as fading geopolitical tensions prompted investors to shift away from safe-haven assets.

Spot gold declined 1.4% to $3,323.12 an ounce by 5:05 ET, dipping to its lowest level since June 11. Gold futures for August dropped 1.7% to $3,338.45/oz.

Meanwhile, news of the ceasefire put the U.S. dollar on the back foot, with an index tracking the currency against a basket of its peers inching down by 0.4% to 98.06.

The euro and the yen strengthened, buoyed by the slide in oil prices. Both the European Union and Japan rely on imports of crude, while the U.S. is a net exporter.

(Luke Juricic also contributed to this article)