On Thursday, the main stock index in Canada recorded a decline that brought it to the lowest it has been in the last 14 months. Plus, the Canadian currency also took a hit, as investors were concerned about the impact of the aggressive monetary tightening policy of the central bank. It fueled fears of a recession and put pressure on corporate earnings.
Stock Index and Currency Down
There was a 3.1% decline in the Toronto Stock Exchange S&P/TSX index, as it reduced to 19,004.06. This made it the composite index’s biggest fall since June 2020 and was the lowest level it had reached after April 2021.
As for the Canadian dollar, it was down 0.3% for the day against the US dollar and was trading at 1.2930. On Wednesday, it had hit its weakest level in intraday trading at 1.2995 in more than a month. Thursday also saw the US stock indexes come down, as the Bank of England and the Swiss National Bank both hiked up their respective interest rate, following a hike by the US Federal Reserve on Wednesday.
The goal of the central banks is to slow down economic growth in the face of inflationary pressures. Market analysts said that pushing a decline in growth has become a must in order to stave off the rising inflation numbers. They said that while people were concerned about an economic recession, it was not priced into expectations because of the earnings forecast for the future. Central banks are expected to continue being aggressive in terms of hiking interest rates, with the Fed taking the most active stance. The European Central Bank is also scheduled to join the rest on the same path from the next month.
Looking at the Numbers
The declines in the TSX index included one for the energy sector, which dropped by 5.3%, even though there was a rise in oil prices. There was an almost 2% increase in US crude oil futures, as they reached $117.58 per barrel, after new sanctions were announced for Iran by the United States. There was a 3.8% decline technology, which was not surprising, given that this sector is very sensitive to interest rates.
The financials also saw a drop of about 2.9%. LifeWorks Inc. turned out to be the outlier in terms of individual stocks, as it saw a massive boost of 66.4%. This was after Telus Corp, the wireless carrier in Canada, announced a deal worth $2.2 billion to buy the company’s human resource firm.
As far as domestic data is concerned, they indicated a 0.5% drop in the wholesale trade in the country in April, as opposed to March. This was primarily because of a reduction in imports of fertilizer from Russia. The government bond yields remained mixed. The 10-year government bond yields reached 3.664%, which is the highest they have been since May 2010. However, they eventually pulled back and came down to 3.409%. This marked a decline of 5.5 basis points for the day.