Stocks, commodities tumble on falling expectations for Chinese economic growth
Tue Jun 29, 2:09 PM
Malcolm Morrison, The Canadian Press
By Malcolm Morrison, The Canadian Press
TORONTO - The Toronto stock market tumbled more than two per cent as a sharp revision downward in growth prospects for China intensified worries that the global economic rebound is faltering.
The S&P/TSX composite index lost dropped 270.3 points to 11,336.8 while the TSX Venture Exchange shed 32 points to 1,419.31.
Markets fell after the U.S. Conference Board said late Monday that a calculation error led it to incorrectly state its economic leading indicator for China for the month of April. It said the gauge of future economic growth was up only 0.3 per cent, rather than the 1.7 per cent it had initially stated.
Strong growth from China has so far helped the global economy start to dig itself out of a severe recession. Demand for oil and minerals has been particularly beneficial for the resource-stock heavy Toronto market.
“You clearly have the world economy slowing, the problems in Europe are not going away, and you wonder where growth is going to come from if China isn’t growing quite as fast as we thought,” said John Stephenson, portfolio manager at First Asset Funds.
“And that is, of course, very negative for the commodity complex, which is selling off hard and dragging our index down today. But it’s broadly speaking very negative.”
The Canadian dollar also fell sharply as worries about global growth strengthened the U.S. dollar. The loonie lost 1.65 cents to 94.89 cents US. But it wasn't just the Canadian currency that was under selling pressure.
“It’s small, open economies, commodity producers and those that had been hiking rates that are coming under the most pressure here,” said Mark Chandler, fixed income strategist at RBC Capital Markets, noting that the New Zealand and Australian currencies were also sharply lower.
“The global growth story is under siege.”
Financials were the biggest drag, down three per cent with Royal Bank (TSX:
RY.TO) down $1.52 $51.09 and Manulife Financial (TSX:
MFC.TO) lost 81 cents to $15.44.
The base metals component was the biggest percentage decliner, down 6.6 per cent as the July copper contract on the New York Mercantile Exchange lost 15 cents to US$2.92 a pound. Teck Resources (TSX:
TCK-B.TO) was a major decliner, down $1.79 to C$31.89. The company had reported earlier that an explosion in a coal dryer has shut down its Greenhills coal mine near Elkford, B.C. The company said damage to the dryer building is extensive and it’s not yet known how long the mine's production will be affected.
Elsewhere, Lundin Mining (TSX:
LUN.TO) fell 32 cents to $2.99.
Railways fell alongside mining stocks with Canadian National Railways (TSX:
CNR.TO) down $1.65 to $60.82.
Canadian Pacific Railway Ltd. shares fell $2.38 to $56.10. It said that its second-quarter earnings will take a 10- to 13-cent per share hit as a result of a washout on its main line east of Medicine Hat, Alta. CP said Tuesday the line is open again after severe flooding washed out some of its tracks more than a week ago.
The energy sector fell 2.9 per cent as the August crude contract on the New York Mercantile Exchange fell $2.79 to US$75.46 a barrel. Suncor Energy (TSX:
SU.TO) lost $1.14 to $31.86 while Canadian Natural Resources (TSX:
CNQ.TO) declined $1 to $35.25.
Also depressing crude prices were signs Tropical Storm Alex would likely miss most of the rigs in the Gulf of Mexico, leaving supplies uninterrupted.
The gold sector was slightly lower as the August bullion contract rose $3.80 to US$1,242.40 an ounce. Goldcorp Inc. (TSX:
G.TO) was 64 cents lower to C$46.10.
Fears that a global rebound is weakening have spread to American consumers as well. The U.S. Conference Board reported Tuesday that its Consumer Confidence Index dropped almost 10 points during June to 52.9, down from the revised 62.7 in May. Economists surveyed by Thomson Reuters had been expecting the reading to dip slightly to 62.8.
Canadian consumer confidence also slipped in June, according to the latest monthly report by a prominent economic forecaster. The Conference Board of Canada says its index of consumer confidence dropped to 83.6 in June. Its index sits 13 points below where it began the year.
New York's Dow Jones industrial average down 256.7 points to 9,881.8.
The Nasdaq composite index lost 75.93 points to 2,144.72 while the S&P 500 index was down 30.75 points to 1,043.8.
Investors seemed unmoved by data showing that U.S. home prices rose for the first time in seven months in April as government tax credits bolstered the housing market. But the rebound may be short-lived now that the incentives have expired.
The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday posted an 0.8 per cent gain. It had fallen in each of the previous six months.
In other economic news, Statistics Canada reported that the Industrial Product Price Index increased 0.3 per cent in May, mainly as a result of the weakening of the Canadian dollar against its U.S. counterpart. The Raw Materials Price Index declined 7.2 per cent, due primarily to lower crude oil prices.
On top of fresh worries about China, European investors were cautious ahead of bank repayments of euro442 billion in credits to the European Central bank later this week as well as debt auctions in France and Spain.
Such factors were making the euro “the currency market’s whipping boy,” said CMC Markets analyst Michael Hewson.
The euro was trading down at US$1.2194 from US$1.2275.