Canada's main stock index gained more than 100 points Friday, led by strength in energy and telecom stocks, while U.S. markets were mixed. 

The S&P/TSX Composite Index was up 110.64 points, or 0.54 per cent, at 20,547.51.

In New York, the Dow Jones Industrial Average was up 2.51 points at 35,227.69. The S&P 500 index was up 1.47 points at 4,536.34, while the Nasdaq composite was down 30.50 points at 14,032.81.

Canadian retail sales for May came in weaker than expected, said Konstantin Boehmer, co-head of fixed income at Mackenzie Investments.

Retail sales were up 0.2 per cent in May, according to Statistics Canada, led by gains at new car dealers and grocery stores. Early estimates for the month had indicated a gain of 0.5 per cent. 

The weaker retail sales combined with last week’s inflation print are helping lower the probability that the Bank of Canada will continue hiking interest rates, said Boehmer.

“It starts to become a little bit clearer that the Bank of Canada probably does not have to do all that much more,” said Boehmer. 

However, markets are still expecting a hike at some point in the fall as uncertainty tends toward the upside, but the closer we get to the bank’s next meeting in September, expectations will likely change, he said.

“It makes sense that there's some potential for rate hikes still being priced, but I would say unless we get much better data or much higher inflation prints … those numbers should get priced out.”

Interest rates were on investors’ minds globally as Japan’s central bank seems set on leaving its monetary policy alone at its meeting next week, said Boehmer. That news led to a meaningful rally in Japanese bonds and a sell-off of yen, boosting the U.S. dollar, he said.

In the U.S., all eyes are on the Federal Reserve for its own rate decision next week, though it’s pretty much a “done deal” that the bank will announce another quarter-point hike, said Boehmer.

Anything other than that would be a “complete shocker” to the market, he said. 

After July, however, markets are expecting the Fed to hold its key rate, Boehmer said — and central bank officials next week will have to choose their words wisely as they won’t want to close the door on hikes just yet.

“That’s the elephant in the room,” he said, and investors will be looking for hints of what’s coming next.

The Canadian dollar traded for 75.69 cents U.S. compared with 75.92 cents U.S. on Thursday.

The September crude oil contract was up US$1.42 at US$77.07 per barrel and the September natural gas contract was down two cents at US$2.71 per mm/BTU.

The August gold contract was down US$4.30 at US$1,966.60 an ounce and the September copper contract was down two cents at US$3.82 a pound.

This report by The Canadian Press was first published July 21, 2023.