TSX falls as oil dips below $80 and economic gloom sets in | Pro IQRA News

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Canada’s benchmark stock index fell sharply on Friday as prospects of a global recession sent investors selling first and asking questions later.

The S&P/TSX Composite Index was down more than 520 points or 2.75 percent to close at 18,480, dragged by a plunge in oil prices. This is the lowest level for the benchmark Canadian stock index since July.

The benchmark North American crude oil price lost nearly $5 to settle at $79.13 a barrel, the lowest price since January. The catalyst for oil’s decline appears to be that central banks signaled this week that they are so committed to reining in inflation that they are willing to create a recession to achieve it.

The US Federal Reserve raised its benchmark interest rate on Wednesday, and nine other countries around the world followed suit the next day. This will help bring down inflation, but it will likely come at a huge cost to the economy.

“Clearly what they’re saying is that they’re so determined to bring down inflation that they’re going to bring down the economy in the process,” said John Zecher, the founder of Toronto-based money manager J Zechner & Associates. “That’s how the market is reading it … They’re not going to stop until the economy turns around.”

Oil price down to lowest since January

A recession would lead to much less demand for energy, which is why oil was sold. About a fifth of the companies on the TSX are in the energy sector, and they were among the biggest losers on Friday. Shares in Suncor, Cenovus, MEG Energy and Crescent Point all lost more than eight percent on the day.

More and more economic indicators are beginning to suggest that Canada’s economy has either already derailed or is about to. Employment numbers last week showed the economy has lost jobs for three months in a row, and retail sales data on Friday showed Canadians are putting away their wallets again.

Stock markets are reacting to that gloom, and some analysts think there’s a lot more pain to come.

“The lows we’ve seen recently in the summer months are going to be challenged in the next few days to weeks,” Larry Berman, chief investment officer of Toronto-based money manager QWealth, said in an interview. “The market [isn’t] praised for what the central banks will do.”

The Canadian dollar fell as low as 73.61 cents US, its lowest level in more than two years.

New York stocks also sold off, with the Dow Jones Industrial Average closing down nearly 500 points to 29,590 – its lowest level of the year.

“Over the next few weeks, long-term investors may be hesitant to buy into weakness,” said Edward Moya, an analyst at foreign exchange firm Oanda. “How far we go below the summer lows is anyone’s guess.”

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