TORONTO — Canada's resource-heavy main stock index staged a partial rebound Monday after plunging earlier in the day over fears of a global economic slowdown amid new COVID-19 lockdowns in China, but it was not enough to climb out of the red.
Candice Bangsund, portfolio manager for Fiera Capital, said last week's rout which saw the Toronto market post its worst two days in nearly two years, extended to start the week.
"The outlook has deteriorated and risks are intensifying, with lockdowns in China fuelling fears of a more profound slowdown in the world’s second largest economy just as global central banks are accelerating their tightening trajectory to tame rampant inflation," she wrote in an email.
The Shanghai Composite index sank 5.1 per cent and Hong Kong fell 3.7 per cent as China reinforced its stringent pandemic policies while case numbers rose.
China's worsening outbreak and zero-tolerance policy have "added to the wall of worry" as investors are already contending with geopolitical headwinds, runaway inflation, an aggressive monetary policy tightening cycle, and moderating growth, she said.
"This deteriorating macroeconomic backdrop sapped risk appetite and fuelled a rush into safe haven asset classes early-on this week."
The S&P/TSX composite index closed down 174.49 points to 21,011.89 after dropping 2.4 per cent to 20,672.64 in early trading.
U.S. markets rebounded from deep early losses with the Dow Jones industrial average up 238.06 points at 34,049.46. The S&P 500 index was up 24.34 points at 4,296.12, while the Nasdaq composite was up 165.56 points at 13,004.85. The latter two markets remain in correction territory by being down 10.4 per cent and 19 per cent, respectively, from the recent highs.
Energy was the big loser as demand worries from China, the world's largest oil importer, pushed crude oil prices 3.5 per cent lower to below US$100 per barrel.
The energy sector lost 3.1 per cent with various Canadian producers seeing steep share declines, including Whitecap Resources Inc. and Cenovus Energy Inc. down 4.7 and 4.6 per cent, respectively.
The June crude contract was down US$3.53 at US$98.54 per barrel after hitting an intraday low of US$95.28. The June natural gas contract was up 14.2 cents at US$6.81 per mmBTU.
Materials also lost 3.1 per cent with Endeavour Silver Corp. down 7.5 per cent and Capstone Mining Corp. 6.3 per cent lower.
The June gold contract was down US$38.30 at US$1,896.00 an ounce and the July copper contract was down 13 cents at US$4.47 a pound.
China's worsening COVID outbreak boosted the U.S. dollar and hurt the loonie.
The Canadian dollar traded for 78.38 cents US compared with 78.73 cents US on Friday.
"The prospect for more aggressive Federal Reserve policy tightening is also curbing the appeal of gold, particularly after chair (Jerome) Powell endorsed a 50 basis point move next month to contain rampant inflation," Bangsund said, noting that higher rates typically weigh on demand for the non-interest bearing precious metal.
The heavyweight financials sector was also down, while five of the 11 major sectors were up on the day, led by technology.
The tech index climbed 2.3 per cent with Lightspeed Commerce Inc. up 5.3 per cent.
The sector benefited from a drop in bond yields, with the 10-year U.S. treasuries falling to 2.82 per cent from 2.906 per cent.
"Bond yields fell sharply and global bond markets rallied as nervous investors flocked to the safety of government bonds, with China’s struggle to contain COVID-19 adding to growing investor concerns that aggressive Federal Reserve tightening will dampen global growth," said Bangsund.
This report by The Canadian Press was first published April 25, 2022.
Companies in this story: (TSX:CVE, TSX:WCP, TSX:EDR, TSX:CS, TSX:LSPD, TSX:WTSX:GSPTSE, TSX:CADUSD=X)
— With files from The Associated Press.
Ross Marowits, The Canadian Press