TORONTO — 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 sustained big blows.
The heavyweight financials, energy and materials sectors were down between 1.8 and 3.2 per cent Thursday as eight of the 11 major sectors on the TSX decreased.
All large Canadian banks were weaker, led by a 5.6 per cent drop by Royal Bank, after the first earnings reports from U.S. banks were disappointing. JPMorgan Chase & Co. and Morgan Stanley missed expectations, supporting fears of an economic downturn.
Macan Nia, co-chief senior investment strategist at Manulife Investment Management, said the weakness was primarily driven by activity in their capital market businesses, which makes sense given that we're in a bear market and IPO activity has dried up.
"Some analysts here, some investors here are expecting the Canadian banks to also be in a challenging environment from a capital market perspective ... and that will challenge their earnings moving forward," he said in an interview.
Nia said investor sentiment is also affecting Canadian banks as the Bank of Canada's attempts to tackle inflation raise the risks of a recession, while interest rates are a big driver of lending for mortgages, lines of credit, car loans and general activity.
"The primary driver for the weakness in the financials is the concern of the odds of recession increasing and that impact being the Canadian banks' financial positions."
Materials was down 3.1 per cent on lower metals prices with shares of First Quantum Minerals Ltd. off 8.2 per cent.
The August gold contract was down US$29.70 at US$1,705.80 an ounce and the September copper contract was down 11.1 cents at US$3.21 a pound.
Energy partially recovered as crude oil prices increased after falling to an intraday low of US$90.56, the lowest level since February. The August crude contract ended up down 52 cents at US$95.78 per barrel and the August natural gas contract was down 8.9 cents at US$6.60 per mmBTU.
Imperial Oil lost 3.2 per cent while Cenovus Energy Inc. was 2.6 per cent lower.
The Canadian dollar traded for 76.12 cents US, up from an early low of 75.62 cents US, its lowest level since Nov. 4, 2020, and compared with 77.07 cents US on Wednesday.
Overall, the S&P/TSX composite index closed down 286.13 points or 1.5 per cent to 18,329.06 after hitting an intraday low of 18,169.86.
In New York, the Dow Jones industrial average was down 142.62 points at 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 U.S. markets, rebounded after Federal Reserve governor Christopher Waller said the market was "kind of getting ahead of itself" by boosting the odds of a full percentage-point increase in interest rates in two weeks.
St. Louis Federal Reserve President James Bullard also reportedly said he preferred lifting interest rates by 75 basis points.
"I think that's giving the market some reprieve that we might not get a 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 for more aggressive rate increases was burnished by a report Thursday that U.S. producer prices increased more than expected in June amid rising costs for energy products, even though underlying inflation appears to have peaked. That follows June's consumer price index coming in at 9.1 per cent on Wednesday, the highest level in more than 40 years.
Much of the high inflation numbers is tied to energy prices, which have since come down and should lead to a softening of future numbers, said Nia.
This report by The Canadian Press was first published July 14, 2022.
Companies in this story: (TSX:IMO, TSX:CVE, TSX:RY, TSX:FM, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press
