Canada’s main stock market posted on Tuesday its biggest decline since October after hotter-than-expected domestic inflation data and U.S. retail sales numbers fanned concerns of more interest rate hikes.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 390.75 points, or 1.9%, at 19,899.79, its lowest closing level since July 11.“Investors are coming around to the view that perhaps they’ve been a little too optimistic about the whole inflation picture improving rather soon and central banks taking their foot off the pedal in terms of tightening monetary policy,” said Elvis Picardo, portfolio manager at Luft Financial, iA Private Wealth.
Canada’s annual inflation rate surged more than expected to 3.3% in July as core measures eyed by the central bank remained stubbornly high.Wall Street stocks also fell after stronger-than-expected retail sales data stoked worries interest rates could stay higher for longer, while U.S. big banks dropped on a report that Fitch could downgrade some lenders.The Toronto market’s financial sector, which accounts for 29% of the TSX’s weighting, fell nearly 2%. All ten major sectors ended lower.“
This week we have seen some signs of macro concerns in other big economies,” Picardo said. “Given that the Canadian market is joined at the hip to the global economy, I think those (concerns) are impacting specific sectors like materials and energy today.” The materials group, which includes precious and base metals miners and fertilizer companies, lost 3.4%, while energy was down 2%. Oil settled 1.8% lower at $80.99 a barrel. Suncor Energy is continuing talks with French oil major Total Energies about buying its nearly one-third stake in the Fort Hills oil sands mine, the company’s CEO said. Suncor’s shares were down 1.2%.U.S. stocks fell and oil slid over 1% on Tuesday as investors renewed fresh concerns over whether the Federal Reserve was done hiking interest rates and the resilience of China’s economy.
All three major U.S. equity indexes ended the trading day lower, after a stronger-than-expected report on U.S. retail sales data. The U.S. Commerce Department reported that U.S. retail sales had increased by 0.7% in July, ahead of the 0.4% boost economists had anticipated, leading investors to wonder if the Fed may have longer to go on its rate-hiking campaign to tame inflation.The Dow Jones Industrial Average fell 1.02%. The S&P 500 dropped 1.16% and the Nasdaq Composite shed 1.14% in value.The MSCI world equity index, which tracks shares in 45 nations, was last down 1%.“Given the fact that we are so hyper-vigilant about the Fed and what their next step will be in September, it isn’t surprising that the market reacted with jitters, given that the retail sales number might indicate that the Fed would continue to raise rates,” said Peter Anderson, founder of Andersen Capital Management in Boston.
However, others argued the single surprise in economic data is likely not enough to fundamentally change Fed thinking.“Yields on both 2-year and 10-year treasuries moved a bit following the report but the sales data do not support any material change in expectations for the next Fed meeting,” said Jeffrey Roach, chief economist for LPL Financial. U.S. 10-year Treasury yields briefly hit 10-month highs, reaching as much as 4.274% earlier in the day before dipping back to 4.217% later. Elsewhere, concerns about the strength of China’s economy weighed on oil markets, where crude dipped by as much as 2% on sluggish economic data from the country and concerns Beijing’s surprise rate cuts were insufficient. Brent crude settled down 1.48% at $84.93 a barrel, while U.S. crude fell 1.84% at $80.99 per barrel. Cuts to China’s one-year loans to financial institutions, at 15 basis points, were the largest since the outset of the COVID pandemic. Industrial output and retail sales growth both slowed from a month earlier to a year-on-year pace of 3.7% and 2.5% respectively, missing expectations.Russia’s central bank, meanwhile, hiked its key interest rate by 350 basis points to 12%, an emergency move to try to halt the rouble’s recent slide after a public call from the Kremlin for tighter monetary policy.The rouble pared gains after the decision to stand 0.6% weaker at 97.09, but still significantly above lows near 102 on Monday which had not been hit since the early weeks of Russia’s war in Ukraine. Emerging markets remained in focus a day after Argentina devalued its currency by nearly 18%, while Russia’s central bank on Tuesday raised interest rates by 350 basis points at an extraordinary meeting following a fresh slide in the rouble.
The dollar index, which tracks the greenback versus a basket of six currencies, was roughly flat, up 0.03% to 103.222.
Reuters