TORONTO – The latest round of sluggish manufacturing data from China weighed heavily on commodities Tuesday and sent reverberations through North American stock markets and the Canadian dollar as the currency plunged more than a cent.
The S&P/TSX composite index retreated 157.95 points at 13,707.68 as concerns over the global economy dragged down the commodity-sensitive loonie.
The dollar lost 1.11 cents to 78.66 cents US after some recent strong gains that saw it briefly touch 80 cents US late last week.
Much of the blame was put on the latest figures from Caixin magazine’s purchasing managers’ index, which reported that China’s manufacturing sector declined to a reading of 49.4 points from March’s reading of 49.7. A number below 50 indicates that manufacturing is contracting and spurred fears that growth in the world’s second-largest economy is slowing.
“Any negative macro news would weigh on markets,” said Ben Jang, a portfolio manager at Nicola Wealth Management in Vancouver.
“With corporate earnings where they are, you need growth to pick up in any shape or form.”
The Chinese data left the June contract for benchmark North American crude $1.13 lower at US$43.65 a barrel, while June gold bullion shed $4 to US$1291.80 a troy ounce. July copper was off five cents at US$2.22 a pound. June natural gas rebounded, climbing four cents to US$2.09 per mmBtu after having declined 14 cents on Monday.
China is a large producer and consumer of commodities, and when data shows a contraction in its economy, it greatly impacts commodity markets. Worries about China were largely responsible for turmoil in global financial markets in the early part of the year.
Jang said the figures from Caixin are often regarded by investors as a more reliable gauge of Chinese economic health than the official figures from government officials because it looks at small-to-medium companies rather than just only large firms.
In other economic news, the European Union trimmed its economic growth forecasts for the 19 countries that share the euro currency, citing an unpredictable global outlook marked by political uncertainty and weakness in emerging markets.
Adding to the worries about China and Europe, Australia’s central bank unexpectedly cut interest rates to a record low to help stimulate its battered economy. The news sent the Australian dollar down more than two per cent.
In New York, the Dow Jones industrial average more than erased Monday’s 117-point gain, falling 140.25 points to 17,750.91. The broader S&P 500 lost 18.06 points to 2,063.37 and the Nasdaq fell 54.37 points to 4,763.22.
“The markets don’t like uncertainty and there is a lot of uncertainty on the global side, the macro side, in the coming few months,” said Jang, citing the upcoming U.S. presidential election and the decision by the U.K. in June on whether it to leave the EU.