Canada’s main stock index fell to its lowest close in more than 15 months as crude oil prices slumped on renewed COVID-19 lockdowns in China and growing concerns that central bank responses to hot inflation numbers will prompt a recession and weaken demand.
“So you’ve got rising interest rates, COVID-19 making a resurgence in China and both of those factors dampen global growth, so that has an impact on the demand for oil going forward,” said Anish Chopra, managing director with Portfolio Management Corp.
The energy sector was the biggest laggard on the day, losing 3.4 per cent as crude oil prices plunged nearly eight per cent to their lowest settled price in three months.
The August crude contract was down US$8.25 at US$95.84 per barrel and the August natural gas contract was down 26.3 cents at US$6.16 per mmBTU.
Several Canadian energy producers lost ground with Arc Resources Ltd. and Crescent Point Energy Corp. off 6.2 and 4.7 per cent, respectively.
The Canadian dollar traded for 76.83 cents US, compared with 76.92 cents on Monday.
Overall, the S&P/TSX composite index closed down 138.16 points to 18,678.64, its lowest close since March 2021.
In New York, the Dow Jones industrial average was down 192.51 points at 30,981.33. The S&P 500 index was down 35.63 points at 3,818.80, while the Nasdaq composite was down 107.87 points at 11,264.73.
The losses by North American stock markets came a day before the Bank of Canada is expected to hike interest rates by three-quarters of a percentage point and issues its economic forecast, while the U.S. releases June inflation numbers that are expected to be higher than May and approach nine per cent.
Chopra expects the U.S. Federal Reserve will match the Canadian rate increase at its next meeting on July 27 to get ahead of the potential for continued high inflation.
“They will go for that 75 basis point increase unless you have quite a substantial drop in inflation, which the market isn’t anticipating,” he said in an interview.
“They can always change their mind at future meetings and go for smaller rate increases at that time, but I think they want to make sure they get ahead of the inflation numbers.”
New Gold Inc. shares plunged 26 per cent to push the materials sector lower as metals prices decreased.
Investors responded harshly to the company cutting its 2022 gold and copper production expectations.
The August gold contract was down US$6.90 at US$1,724.80 an ounce and the September copper contract was down 14.3 cents at US$3.29 a pound.
Industrials fell even though Air Canada shares climbed 5.1 per cent following an upswing by the travel sector once American Airlines reported quarterly results and forecast second-quarter revenues will top 2019 levels.
Telecommunications was among the six sectors that were higher on the day. It increased as Rogers Communications Inc. recouped some of Monday’s losses by gaining 2.6 per cent.
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