Canada’s core stock index lost nearly 300 points on Thursday, with energy and mining stocks bearing the brunt of the impact as investors continue to worry about the possibility of a recession.
The S&P / TSX index closed 286.92 points lower at 18,717.12, the largest monthly increase in the cost of living since January 1983, a day after figures showed Canada’s annual inflation rate was 7.7 percent in May.
Alan Small, senior investment adviser at IA Pvt.
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“The Bank of Canada risks continuing to raise interest rates and remain aggressive,” Small said.
“Overall, this (increasing inflation) increases the likelihood of a recession. When you raise interest rates to the extent that housing is affected, growth generally suffers.”
The oil and gas sector was the worst hit on Thursday, with the S&P / TSX Capture Energy Index losing 6.9 percent. Bodex Energy Corp., MEG Energy Corp. And some stocks in the index, including Crescent Point Energy Corp, lost more than 10 percent.
Although Canadian oil and gas stocks performed well for most of 2022 due to Russia’s invasion of Ukraine and the consequent disruption of global energy supplies, some investors are beginning to worry that a broad-based recession will take place. A bite from increasing demand.
“When you have a recession or fear of a recession, it basically slows everything down. So the demand side of the equation starts to shrink,” he said.
The Captu Materials Index, which includes Canada’s largest miners, fell 5.0 percent on Thursday, losing ground.
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However, south of the border, the markets actually registered a profit. In New York, the Dow Jones Industrial Average rose 194.23 points to 30,677.36. The S&P 500 index was up 35.84 points at 3,795.73 and the Nasdaq was up 179.11 points at 11,232.19.
Small said the difference between Canada and the United States could be drawn from the testimony of US Federal Reserve Chairman Jerome Powell to Congress this week. While Powell reiterated the central bank’s “unconditional” commitment to combating inflation, he pointed out that the central bank’s previously announced rate hike could already have an impact on the United States.
“They (US Federal Reserve) say things are starting to slow down and demand is starting to decline in all sectors,” Small said. “I think the United States is still ahead in this cycle of trying to slow the economy, which is why their markets are already rising, while ours is continuing to fall.”
According to Small, it is unfortunate that no major economic data releases or corporate earnings are expected over the next two weeks because markets are now trading on the basis of the “fear” of a recession, and not on the basis of solid, updated information.
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When the next phase of measurements is released, it could indicate that inflation in the United States has already peaked, and that Canada is lagging behind after a while, he said. Small said this would be good news for the markets.
“Now there is a kind of sluggish period (in the data) that, in my view, is unfortunate,” Small said. “Because I’m right, and if inflation tops, I think we can see a positive market in the second half of this year.”
The Canadian dollar traded at 77.03 cents against the US $ 77.27 against the US dollar on Wednesday.
The August crude contract was down $ 1.92 to US $ 104.27 per barrel and the August natural gas deal was down 59 cents to US $ 6.28 per mmBTU.
The August gold trade was down 8.60 US dollars at $ 1,829.80 an ounce and the July copper trade was down 21 cents at 3.74 US dollars.
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