Higher gold prices help TSX to move higher and offset latest recession warning

TORONTO -- Higher gold prices pushed up Canada's main stock index Tuesday, blunting the latest warnings in the U.S. of a potential recession.

U.S. stock markets fell after taking their lead from the bond market, which responded to the deepest yield curve inversion since 2007.

The two- and 10-year government bond yields reached their highest inverted rates as 10-year Treasuries fell more than five basis points on the day, said Erik Bregar, head of currency strategy at the Exchange Bank of Canada.

"It's definitely a headline grabber," he said in an interview. "It's the most popular, public indicator of recession. Everybody knows the 2s over 10s curve and it just continues to deepen so that's why I think markets are a little concerned about today."

Stocks fell as soon as the gap between the two- and 10-year curves further deepened into the red.

"If I were an equity trader and I saw the yield curve inversion deepen today I'd be like, Hey something's wrong."

Despite ongoing concerns about trade talks between the U.S. and China, bond markets are worried about more than a few billion dollars in tariffs going back and forth between the world's two largest economies, Bregar said.

"I think they're looking at broader banking liquidity worldwide potentially, some issues with the funding market, yield inversions all over the place and recessionary signals," he said.

The S&P/TSX composite index closed up 84.80 points at 16,183.59.

In New York, the Dow Jones industrial average was down 120.93 points at 25,777.90. The S&P 500 index was down 9.22 points at 2,869.16, while the Nasdaq composite was down 26.79 points at 7,826.95.

Seven of the 11 major sectors on the TSX closed higher led by materials, which climbed 2.56 per cent, as more people sought safety in gold. Centerra Gold Inc. surged 7.7 per cent while shares of several other producers increased by more than three per cent.

The December gold contract was up US$14.60 at US$1,551.80 an ounce, the highest level since April 2013. The September copper contract was up 0.4 of a cent at US$2.55 a pound.

Technology was pushed higher by Shopify Inc. shares gaining 3.27 per cent.

Health care lost 3.2 per cent with Canopy Growth Corp falling by nearly six per cent. Energy dipped even though crude oil prices increased, on worries about Tropical Storm Dorian approaching Puerto Rico at near-hurricane strength.

The October crude contract was up US$1.29 at US$54.93 per barrel and the October natural gas contract was down 4.1 cents at US$2.19 per mmBTU.

The heavyweight financials sector lost 0.23 per cent as BMO shares fell 3.4 per cent after the bank missed expectations amid higher loan loss provisions and slower growth in Canada.

The Canadian dollar traded for an average of 75.41 cents US, compared with 75.31 cents US on Monday.

U.S. GDP numbers on Thursday could be the next market mover, while Canadians await the Bank of Canada meeting next week.

The central bank has been quiet while banks in Australia, Europe and the U.S. have taken dovish positions on concerns about global economic growth.

The Bank of Montreal said Tuesday that the escalation in the trade war and growing toll of protectionism has prompted it to forecast the Bank of Canada cutting interest rates Oct. 30.

"Expect a dovish statement and press conference at next week's meeting, highlighting the potential impact of unpredictable trade policies on business investment, exports and resource prices, even as recent firmer data on the Canadian economy, housing market and inflation argue against a cut," said a report from senior economist Sal Guatieri.