S&P/TSX composite falls almost 400 points, U.S. stock markets also retreat

TORONTO — Canada’s main stock index fell almost 400 points, or nearly two per cent, Tuesday on broad-based weakness, while U.S. markets also fell, with the three major indexes south of the border each losing more than one per cent.

The S&P/TSX composite index closed down 390.75 points at 19,899.79.

In New York, the Dow Jones industrial average was down 361.24 points at 34,946.39. The S&P 500 index was down 51.86 points at 4,437.86,while the Nasdaq composite was down 157.28 points at 13,631.05.

Concerns about China’s economy weighed on energy and materials, affecting Canadian markets in particular because of the way they are weighted, explained Michael Greenberg, senior vice-president and portfolio manager at Franklin Templeton Investment Solutions.

China unexpectedly cut a key interest rate on Tuesday and decided to skip a report on unemployment among younger workers. 

Weakness in China’s economy bodes poorly for global commodity demand because of the country’s size, said Greenberg, and the hopes for its reopening from pandemic restrictions haven’t really panned out. 

“I think the initial reopening was a little bit less impactful than maybe hoped,” he said. 

Investors also had some major economic data to digest Tuesday. In Canada, the latest report on inflation showed that prices rose 3.3 per cent in July on an annual basis, driven by higher gas prices. The reading marked an increase from 2.8 per cent in June. 

While headline inflation surprised to the upside, the overall trajectory of core inflation — a key measure for the Bank of Canada — remains positive, said Greenberg. The central bank is likely in a “wait and see mode” for now, he said, expecting officials to hold off on hiking rates in September. 

In the U.S., new data on retail sales also surprised to the upside, in a case of good news being bad news for investors, said Greenberg. 

Retail sales rose 0.7 per cent on a monthly basis in July, compared with 0.3 per cent in June. 

While the data shows the U.S. consumer is remaining strong despite higher interest rates, it also puts pressure on the Federal Reserve when it comes to economic policy.

“Although we had some strong economic data, the market is reacting a little more negatively, because it might suggest that policy will need to stay a little bit higher,” he said. 

However, the Fed is also likely to hold rates in September, said Greenberg. 

The big question for central banks now is more about how long they will hold rates higher for, he said. 

“I think where we see a bit more divergence is when you look over the next 12 months, the market’s pricing in 50 basis points of cuts from the U.S. but nothing from Canada,” he said. 

The Canadian dollar traded for 74.17 cents UScompared with 74.29 cents US on Monday.

The September crude contract was down US$1.52 at US$80.99 per barreland the September natural gas contract was down 14 cents at US$2.66 per mmBTU.

The December gold contract was down US$8.80 at US$1,935.20 an ounce and the September copper contract was down six cents at US$3.67 a pound.

This report by The Canadian Press was first published Aug. 15, 2023.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)

Rosa Saba, The Canadian Press