TORONTO – February began on a sour note for North American stock markets amid a sharp drop in oil prices and disappointing reports on manufacturing at home and abroad.
The Toronto Stock Exchange’s S&P/TSX composite index fell 147.76 points to end the day at 12,674.37, reversing direction on a big rally that closed out trading last week.
New York markets were narrowly mixed, with the Dow Jones industrial average losing 17.12 points to 16,449.18, while the S&P 500 declined 0.86 of a point to 1,939.38 and the Nasdaq added 6.42 points to 4,620.37.
In commodities, the March contract for benchmark crude oil fell $2 to end trading at US$31.62 a barrel, while March natural gas plummeted 14.6 cents to US$2.152 per mmBtu and April gold rose $11.60 to US$1,128.00 a troy ounce.
Craig Fehr, Canadian market strategist at Edward Jones in St. Louis, said three related factors that drove driven market weakness in early January — sliding oil prices, volatility in Chinese and stumbling global growth — were all on display Monday.
Oil took another hit after a survey of Chinese purchasing managers showing the outlook for the country’s manufacturing industry fell to its lowest level in more than three years.
“The deceleration that we’re seeing in China does not and should not come as a surprise to the markets because we’ve been seeing this play out over the past several years,” Fehr said.
“I think the other story is in developed markets, where growth in the U.S. has been disappointingly slow and (yet) it’s still the best house in the neighbourhood.”
Fehr said concerns about North American growth, as well as economic performance in Japan and the European Union, are adding to the fears about China.
A report on U.S. manufacturing by the Institute for Supply Management also came in below expectations on Monday, indicating that U.S. factory production is still contracting.
A similar survey by RBC of Canadian purchasing managers suggested the outlook for manufacturing north of the border also remains negative, although not quite as dire as in December because of a pickup in export demand.
“All that is adding on to the market’s existing worries today,” Fehr said.
The disappointing U.S. manufacturing data pushed down the greenback and helped the loonie defy its close ties to oil and add value on the day, rising 0.39 of a U.S. cent to 71.79 cents US.
One of the drivers for the increasing spread between the American dollar and its Canadian counterpart is the diverging actions of the two countries’ central banks, with the Bank of Canada looking to cut rates while the U.S. Federal Reserve looks to raise them again after a December 2015 hike.
“Today was less about what was occurring in Canada and more about the expectation that, if economic data comes in a little bit softer than expected, that the Fed is perhaps likely to hike fewer times in 2016 than was previous baked in to a 71-cent loonie,” Fehr said.
Note to readers: This is a corrected story: An earlier version said the Canadian dollar was worth 72.36 cents.