Canada's Big Five banks all moved higher on Monday, November 9, as falling oil prices eased worries about Inflation and pushed investors back into financial stocks. Royal Bank, TD, BMO, CIBC and Scotiabank each added between roughly $2 and $4.50 a share. None of the five put out news of its own that explains the move, so this was a sector rally, not a company story.

What happened

The S&P/TSX Composite closed at 36,446.26, up about 657 points and at its highest close since early September. Financials were among the groups doing the heavy lifting, along with base metals and industrials.

The banks finished the day at about these levels:

- Royal Bank of Canada (TSX:RY): $288.32, up $4.16 - Toronto-Dominion Bank (TSX:TD): $175.53, up $2.61 - Bank of Montreal (TSX:BMO): $245.78, up $4.36 - Canadian Imperial Bank of Commerce (TSX:CM): $164.79, up $2.10 - Bank of Nova Scotia (TSX:BNS): $131.77, up $2.23

BMO posted the biggest dollar gain of the group, with Royal Bank close behind. CIBC was the laggard, though it still finished firmly in the green.

Why it matters

The trigger came from the oil market. Crude fell after U.S. President Donald Trump said further attacks on Iran were unlikely if peace talks made progress. December WTI slipped to US$86.92 a barrel and January Brent to US$92.65.

Cheaper oil matters for banks in a roundabout way. Energy costs feed into inflation. When inflation fears cool, investors worry less about interest rates climbing far enough to choke off borrowing and squeeze households. That tends to help rate-sensitive sectors, and banks sit at the top of that list.

There was a catch on the rate front. A Bank of Canada survey of Market Participants released around the same time points to the Central Bank raising its policy rate in December. Higher rates can widen the gap between what banks pay on deposits and what they earn on loans, but they also raise the risk of more borrowers falling behind. On Monday, investors seemed more focused on the cooling inflation picture than on that trade-off.

The banks are also the biggest weight in the Composite. When all five rise together, they give the index a big push, which helped it reach a two-month high.

The bigger picture

Monday's rally was broad. Advancers outnumbered decliners by more than two to one, with 687 stocks up and 285 down. Energy was the main sore spot, slipping as oil fell, and telecom stocks also softened.

That split matters for anyone holding a mix of Canadian stocks. The same oil drop that weighed on producers helped the lenders, so the TSX's two biggest sectors pulled in opposite directions. On this day, the banks and miners won out.

What to watch next

The big test is earnings. The large Canadian banks usually report fiscal fourth-quarter results in late November and early December. Those reports will show how loan-loss provisions, Mortgage renewals and Capital Markets activity held up through the end of their fiscal year. Investors will also watch for Dividend increases, which banks often announce with year-end results.

Oil and rates will stay in the background. If peace talks stall and crude rebounds, the inflation worries that eased on Monday could return. The Bank of Canada's December decision is the next big date on the rate calendar.

For now, the move looks like a sector-wide shift in mood rather than a reaction to anything new at any one bank. Investors should treat it that way until the Earnings reports land.