TORONTO — Canada’s main stock index suffered its worst day in nearly two months on worrying COVID-19 cases in China, weaker commodities prices and bond yields reaching their highest levels in several years in anticipation of the Fed hiking interest rates on Wednesday.
The S&P/TSX composite index closed down 281.05 points to 21,180.78, its biggest daily decrease since Jan. 21.
In New York, U.S. stock markets plunged after morning gains with the Dow Jones industrial average ending the day up 1.05 points at 32,945.24. The S&P 500 index was down 31.20 points at 4,173.11, while the Nasdaq composite was down 262.59 points or two per cent at 12,581.22.
Pressure on the technology sector started overnight in China due primarily to worsening COVID cases around the country that prompted new lockdowns in one region that impacted some factory operations, said Angelo Kourkafas, investment strategist at Edward Jones.
Apple Inc. supplier Foxconn Technology had to close its factory in the region, prompting other mega cap tech names to sell off as well in trading Monday.
The Canadian tech sector lost two per cent with Hut 8 Mining Corp. down 6.9 per cent and Shopify Inc. off 5.3 per cent.
The 10-year U.S. bond yields rose to 2.142 per cent, the highest level since July 2019 while the last time 10-year Canadian government bonds were at 2.10 per cent was in December 2018. They climbed to 2.16 per cent.
The movement prompted the heavyweight financials sector to be the only one to end the day higher on the TSX with Canadian banks benefiting.
Commodity prices moved lower first on optimism that talks between Russia and Ukraine would result in a ceasefire. Talks are set to resume Tuesday. Although some of those hopes faded after talks wrapped up for the day, crude oil prices decreased 5.8 per cent Monday, while gold lost 1.2 per cent of its value.
The April crude contract was down US$6.32 at US$103.01 per barrel after dipping briefly below US$100 and the April natural gas contract was down 6.7 cents at US$4.66 per mmBTU.
The energy sector led the TSX lower, losing 4.5 per cent with Vermilion Energy Inc. down 9.5 per cent and Meg Energy Corp. falling 7.9 per cent.
“Even though the rest of the world is moving away from restrictions and lockdowns, it is a move backwards in China, which is a big consumer of oil,” said Kourkafas, adding there was some profit-taking following the strong run-up in prices.
The Canadian dollar traded for 78.27 cents US compared with 78.62 cents US on Friday.
Kourkafas anticipates heightened volatility for crude prices will continue because of headlines on Ukraine and the health situation in China.
“We wouldn’t be surprised to see volatility persist and the daily moves could be big in both directions.”
Materials was the second-weakest sector, losing 3.1 per cent on the day as shares of Labrador Iron Ore Royalty Corp. slumped 17.7 per cent while Hudbay Minerals Inc. and Ero Copper Corp. lost 11 and 10.8 per cent, respectively.
Meanwhile, Turquoise Hill Resources Ltd. jumped 32.5 per cent after Rio Tinto proposed to buy the 49 per cent of the Canadian miner it does not already own for about US$2.7 billion.
The April gold contract was down US$24.20 at US$1,960.80 an ounce and the May copper contract was down 10.3 cents at US$4.52 a pound.
The market reaction to Wednesday’s expected 25-basis-point increase by the Federal Reserve may be subdued because it has already been communicated by the Fed, he said.
However, the analyst said he will be watching the flattening of the yield curve — the difference between the 10-year and two-year rates.
“That suggests that there might not be as much scope to normalize monetary policy as there has been in the past,” he said, adding that an inverse of the yield curve could trigger some recession signals and some market uproar.
This report by The Canadian Press was first published March 14, 2022.
Companies in this story: (TSX:VET, TSX:MEG, TSX:HUT, TSX:SHOP, TSX:LIF, TSX:HBM, TSX:ERO, TSX:TRQ, TSX:GSPTSE, TSX_CADUSD=X)
