S&P/TSX composite ends down almost 200 points, U.S. stock markets also slip

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Experts say there are ways to make rising interest rates work in your favour
Experts say there are ways to make rising interest rates work in your favour – Sep 16, 2022

Canada’s main stock index closed down almost one per cent in broad-based declines Tuesday, similar to losses in U.S. stock markets a day ahead of the U.S. Federal Reserve’s latest rate decision.

The S&P/TSX composite index ended down 193.69 points at 19,368.69 after trading as low as 19,246.77 in mid-afternoon trading.

The declines on the Toronto market came despite August inflation data out of Statistics Canada that came in lower than analyst expectations, which slightly eased expectations for the Bank of Canada’s next rate hike. The Canadian data, however, was overshadowed by what’s happening in other markets, said Portfolio Management Corp. managing director Anish Chopra.

“U.S. markets and what’s happening in Europe are really driving a lot of the action. You’re still getting high inflation readings all across Europe. If you look at the United States, investors are awaiting the Fed policy decision.”

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The Fed has long been expected to raise its policy rate by three-quarters of a percentage point on Wednesday, but the chances of an even higher increase have grown after last week’s higher-than-expected inflation data out of the U.S., said Chopra.

“As more inflation data comes in, the chance of let’s say a 100-basis-point increase tomorrow has risen.”

The expectations of the impending rate hikes put pressure across an array of sectors Tuesday, as well as key commodities such as oil, gold and copper.

The declines included higher drops for growth-oriented stocks like Shopify Inc., down 5.2 per cent, and the wider S&P/TSX information technology index down 2.2 per cent, while the base metal index was down 1.6 per cent and the financial index was down 0.9 per cent.

In New York, the Dow Jones industrial average closed down 313.45 points at 30,706.23. The S&P 500 index was down 43.96 points at 3,855.93, while the Nasdaq composite was down 109.97 points at 11,425.05.

Canadian inflation data, which came in at 7.0 per cent for last month, was below consensus expectations of 7.3 per cent to slightly push down expectations of a half-percentage-point rate increase next month, said Chopra.

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The easing of expectations of Canadian rate hikes, combined with rising expectations in the U.S., helped further push down the loonie, which traded for 74.93 cents US compared with 75.26 cents US on Monday.

“There’s an issue in that the Bank of Canada may slow rate increases, but the U.S. will continue down their rate path and that’s putting pressure on the Canadian dollar,” said Chopra.

The loonie has slipped from around 78 cents US in mid-August on both rate expectations and dropping commodity prices.

On Tuesday, the November crude contract was down US$1.42 at US$83.94 per barrel and the October natural gas contract was down 3.5 cents at US$7.72 per mmBTU.

The December gold contract was down US$7.10 at US$1,671.10 an ounce and the December copper contract was down a penny at US$3.50 a pound.

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