TSX tumbles as oil drops below $80 and economic gloom sets in
Canada’s benchmark stock index fell sharply on Friday as the prospect of a global recession prompts investors to sell first and ask questions later.
The S&P/TSX Composite Index lost over 500 points or more than 3% to sit just below 18,500 in the afternoon, dragged lower by the drop in the price of oil.
The North American crude oil benchmark lost $5 to trade below $80 for the first time since January. The catalyst for oil’s decline appears to have been central banks signaling this week that they are so determined to contain inflation that they are prepared to create a recession to achieve it.
The US Federal Reserve raised its benchmark interest rate on Wednesday, and nine other countries around the world followed suit the next day. This will help lower inflation, but it will likely cost the economy dearly.
“What they’re saying clearly is that they’re so committed to bringing down inflation that they’re going to bring down the economy in the process,” said John Zecher, the founder of Toronto-based fund manager J Zechner & Associates. “That’s how the market reads it… They won’t stop until the economy slows down.”
A recession would lead to much lower energy demand, which is why oil sold off. About a fifth of companies listed on the Toronto Stock Exchange are in the energy sector, and they were among the biggest losers on Friday. Shares of Suncor, Cenovus, MEG Energy and Crescent Point all lost more than 8% during the day.
More and more economic indicators are beginning to suggest that the Canadian economy has already gone off the rails or is about to do so. Employment figures last week showed the economy has lost jobs for three straight months, and Friday’s retail sales data showed Canadians are putting their wallets away again.
Stock markets are reacting to this gloom, and some analysts believe there is much more pain ahead.
“The lows we’ve seen recently over the summer months are going to be challenged in the coming days or weeks,” Larry Berman, chief investment officer at Toronto-based fund manager QWealth, said in an interview. . “The market [isn’t] price for what central banks are going to do.”
The Canadian dollar plunged to 73.65 cents US, its lowest level in more than two years.