WATCH ABOVE: Gary Bobrovitz takes a look at the damage and some advice you should do or not do with the tumble in the markets.
A stock rout that first began with China’s overheated market this summer spread Monday to create deep fissures in others, including the Toronto Stock Exchange, as investors fret that a long period of gains is ending and dicier times may lie ahead.
This isn’t just a problem for stock market types to pay attention to. There’s reason for concern among those who don’t actively invest or have any interest in stocks. Here’s five reasons why the current meltdown matters to all Canadians:
What happens in China matters, and not just because it is the world’s second-biggest economy after the United States. Falling demand among Chinese manufacturers, exporters (and Chinese consumers who’ve lost savings amid a stock market collapse) has sent prices plunging for all manner of commodities — iron, copper, oil. That has walloped countries that export them, like Canada. The knock-on effect is slowing growth among several countries in a self-reinforcing economic slide that could get worse before it gets better.
As a major producer of not just oil but scores of other commodities that feed industries all over the globe, any pressure on international growth exerts an outsized effect on Canadians, many of whom have jobs directly or indirectly tied to commodity extraction and processing.
There’s been a steady drumbeat of layoff notices from oil patch firms as crude has slid this year. Similar announcements could soon be forthcoming from other big resource companies outside the oil industry.
And if economic conditions continue to deteriorate in China and elsewhere, the current debate about whether or not Canada has entered a technical recession this year may be over, and in its place the debate about how to pull the country out of a downturn.
The rout of commodity prices – oil fell further below $40/barrel (U.S.) on Monday — and threat of slowing global growth is sending the Canadian dollar to fresh lows. The loonie fell on Monday nearly half a U.S. cent to about 75.5 cents US. Experts suggest the Canadian dollar is poised for a long period at current levels, something that darkening macroeconomic forces will reinforce. A lower loonie lifts costs for any consumer good that’s imported into the country, which is to say, much of the goods households buy every day, from clothing to food.
One bright spot amid the gloomy outlook – and it’s a big one – is the U.S. economy, which continues to gather steam. U.S. employers have been on a hiring spree, and that has helped push the unemployment rate to a low 5.3 per cent, while many indicators are pointing to sustained growth.
The U.S. Federal Reserve, which plays a central role in establishing borrowing rates, has been signalling that the it could start raising interest rates to keep inflation in check, perhaps as soon as next month. Even a steep stock market correction may not be enough to deter a hike, some suggest.
“A 10 per cent cumulative sell off in the Dow is hard to view as enough to derail hike plans,” economists at Scotiabank said.
If the Fed stays the course and begins raising interest rates on U.S. consumers in the United States, that will pressure rates in Canada, experts say, a process that could stress the ability among some to pay back record debt loads as well as pressure what many believe to be an overheated housing market.