S&P/TSX Composite partially recovers but closes at 16-month low

Canada’s main stock index partially recovered from morning weakness but still closed at its lowest level in 16 months after its three largest sectors took big hits.

The heavy financials, energy and materials sectors fell between 1.8 and 3.2 percent on Thursday, as eight of the 11 major sectors on the TSX declined.

All major Canadian banks were weaker, led by a 5.6 percent drop in Royal Bank, after early earnings reports from US banks were disappointing. JPMorgan Chase & Co. and Morgan Stanley missed expectations, supporting fears of an economic downturn.

Macan Nia, co-head senior investment strategist at Manulife Investment Management, said the weakness was mainly due to activity in its capital markets businesses, which makes sense given that we are in a bear market and IPO activity has dried up. .

“Some analysts here, some investors here are expecting Canadian banks to also find themselves in a challenging environment from a capital market perspective… and that will test their earnings going forward,” he said in an interview.

Nia said investor sentiment is also weighing on Canadian banks, as the Bank of Canada’s attempts to tackle inflation raise risks of a recession, while interest rates are a big driver of mortgage lending. , lines of credit, auto loans and general activity.

“The main driver of the weakness in financials is concern about the increased odds of a recession and that impact on the financial positions of Canadian banks.”

Materials fell 3.1 percent on falling metal prices and shares in First Quantum Minerals Ltd. fell 8.2 percent.

The August gold contract fell US$29.70 to US$1,705.80 an ounce and the September copper contract fell 11.1 cents to US$3.21 a pound.

Energy partially recovered as crude prices rose after falling to an intraday low of $90.56, the lowest level since February. The August crude contract ended down 52 cents at $95.78 a barrel and the August natural gas contract was down 8.9 cents at $6.60 per mmBTU.

Imperial Oil lost 3.2 percent, while Cenovus Energy Inc. fell 2.6 percent.

The Canadian dollar traded at 76.12 US cents, up from an opening low of 75.62 US cents, its lowest level since November 4, 2020, and compared with 77.07 US cents. US dollar on Wednesday.

Overall, the S&P/TSX Composite Index closed down 286.13 points, or 1.5 percent, at 18,329.06 after hitting an intraday low of 18,169.86.

In New York, the Dow Jones industrial average fell 142.62 points to 30,630.17. The S&P 500 Index was down 11.40 points at 3,790.38, while the Nasdaq Composite was up 3.61 points at 11,251.19.

North American stock markets, especially US markets, rallied after Federal Reserve Governor Christopher Waller said the market was “getting ahead of itself” by increasing the odds of a full rise of one percentage point in interest rates in two weeks.

St. Louis Fed President James Bullard also reportedly said he preferred to raise interest rates by 75 basis points.

“I think that’s giving the market some breathing room that we may not get the full 100 basis points. It’s more likely to be in that 75 basis point range, and the market seems to like that,” Nia added.

The prospect of more aggressive rate increases was polished by a report on Thursday that US producer prices rose more than expected in June amid rising costs of energy products, despite the fact that the core inflation appears to have peaked. That follows June’s consumer price index which hit 9.1 percent on Wednesday, the highest level in more than 40 years.

Much of the high inflation numbers are tied to energy prices, which have since fallen and should lead to weaker future numbers, Nia said.