Canada’s main stock market fell more than 3% on Tuesday and the loonie fell to a near three-week low as plunging oil prices rattled investors already worried about the economic impact of the coronavirus pandemic.
Brent crude futures for June delivery fell $6.24, or 24%, to settle at $19.33 a barrel, the lowest in nearly two decades, a day after panicked traders sent U.S. oil below minus $40 per barrel on fears of a historic glut due to the destruction of fuel demand by the coronavirus pandemic.
Oil is one of Canada’s major exports and the weighting of energy companies on the Toronto Stock Exchange is about 12%.
The TSX’s energy group lost 1.2%, while the heavily-weighted financials group was down 4.1%.
The S&P/TSX composite index fell 448.22 points, or 3.12%, to 13,940.06, its lowest level since last Thursday. The index has fallen nearly 22% from its February record high.
Canadian retail sales were up 0.3% month-over-month in February, before social distancing measures began, on higher sales at motor vehicle and parts dealers, Statistics Canada said. Analysts had forecast a 0.2% increase.
“February feels like a lifetime ago” Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets, said in a note. “Expect a very different tone for retail sales over the next few reports.”
Canada’s inflation report for March is due on Wednesday, which could help guide expectations for additional easing measures from the Bank of Canada.
The central bank has slashed interest rates by 150 basis points since March and begun buying Canadian government bonds. Last week, the central bank said it would broaden its asset-purchase, or quantitative easing, program to include provincial and corporate debt.
The Canadian dollar was trading 0.5% lower at 1.4213 to the greenback, or 70.36 U.S. cents. The currency touched its weakest intraday level since April 2 at 1.4263.
“The CAD has taken a hit from the combined impact of weak crude prices and the push higher in the VIX index back above 40 over the past two sessions,” Shaun Osborne, chief FX strategist at Scotiabank, said in a note.
The VIX index is a measure of expected stock market volatility. It was trading nearly 5% higher at 45.90 as Wall Street fell for a second straight day on Tuesday.
Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year was down 4.5 basis points at 0.583%.
Stock markets around the world fell on Tuesday, as oil prices kept sliding a day after May U.S. crude oil futures turned negative for the first time, shining a light on the depth of economic damage from the coronavirus pandemic.
While gold is often seen as a safe haven bet, that commodity also declined as investors looked to raise cash.
Investors rushed to buy bonds, which pushed down U.S. Treasury yields, with the five-year note hitting a new record low as the difficulties of restarting the U.S. economy sank in.
Equities around the world tumbled, with Wall Street’s major stock indexes following Europe and Asia lower.
The Dow Jones Industrial Average fell 630.73 points, or 2.67%, to 23,019.71, the S&P 500 lost 86.67 points, or 3.07%, to 2,736.49 and the Nasdaq Composite dropped 297.50 points, or 3.48%, to 8,263.23.
The pan-European STOXX 600 index lost 3.39% and MSCI’s gauge of stocks across the globe shed 2.6%.
As countries around the world keep reporting new coronavirus cases and deaths, they have also been working on plans to reopen economies amid signs containment efforts seemed to be working.
“Investors are feeling more comfortable about the virus curve flattening but are coming to grips with the economic realities,” said TD Ameritrade Institutional’s senior trading strategist, Mike Turvey, noting that the fall-off of oil demand and prices was one alarming sign along with earnings news.
With bleak news at the forefront of investors minds, Turvey said investors ignored suggestions U.S. lawmakers were close to agreement on a fourth coronavirus spending bill.
The U.S. dollar rose against a basket of currencies as investors sought the safety of the world’s most liquid currency in a risk averse market.
The dollar index rose 0.28%, with the euro down 0.11% to $1.085.
Latin American currencies dropped, with the more crude-sensitive currencies retreating sharply. And while lower oil prices would typically benefit crude-importing emerging markets, the plunge in prices saw investors sharply reducing their exposure to risk assets.
The Mexican peso lost 1.11% versus the U.S. dollar.
“It’s definitely a risk-off day so the dollar is benefiting from that now,” said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.
Benchmark 10-year notes last rose 17/32 in price to yield 0.5722%, from 0.626% late on Monday.
The 30-year bond last rose 67/32 in price to yield 1.1599%, from 1.235%.
Seaport Global Holdings managing director Tom di Galoma said the trading reflected several worries, including lower oil prices and a resulting hit to stock values stemming from wholesale closures of American cities and states.
“It’s a continued flight to quality. Investors are looking for a safety asset, and Treasuries happens to be that,” di Galoma said.
Gold prices dropped to their lowest since April 9 while palladium slumped 15.5% as investors scrambled for cash to cover losses in other asset classes, mainly driven by a crash in oil markets as the pandemic hurt economies.
“Oil has really got the entire commodity complex down with it ... A lot of people are exiting positions that they were very profitable on with a wait-and-see attitude to see whether there’s further spillover from the energy into precious metals,” said Bob Haberkorn, senior market strategist at RJO Futures.
Spot gold dropped 0.9% to $1,678.46 an ounce. U.S. gold futures fell 1.65% to $1,673.60 an ounce.
Reuters