North American stock markets sold off Monday as a disappointing read on American manufacturing added to worries over whether economic problems cropping up in emerging markets can be contained.
The S&P/TSX composite index dropped 214.92 points to 13,480.902. The Canadian dollar gained 0.34 of a cent to 90.12 cents US.
New York’s Dow Jones industrial average tumbled 265.46 points to 15,433.39 as the Institute for Supply Management said its January manufacturing index dropped to 51.3 during January from 56.5 in December. Any reading above 50 signals expansion.
The Nasdaq plunged 105.51 points to 3,998.37 while the S&P 500 index slid 36.13 points to 1,746.46.
Markets had already got off to a weak start Monday morning after China’s official purchasing managers’ index came in at 51.5, down from 52.5 in December.
The data added to concerns about countries such as Turkey, South Africa and India, all of which had to hike rates last week to support their currencies.
These countries and others have been hit by an outflow of investor funds as the U.S. Federal Reserve cuts back on its massive monthly bond purchases, a move that kept U.S. long-term rates low and resulted in a flow of cheap money into emerging markets.
The primary worry is that economic weakness from the emerging-economy countries could affect growth in developed markets.
“Once you get into some kind of a modest disease, it has a tendency to spread,” observed Fred Ketchen, manager of equity trading at ScotiaMcLeod.
“Not because there is any real reason why it should spread, but emotion takes it down and there is a lot of emotion in this market. People really don’t know what to make of it.”
In Canada, Royal Bank’s purchasing managers index also pointed to a weak start to 2014 for the Canadian manufacturing sector. The January index came in at 51.7, down from 53.5 in December.
There was other negative news from automakers as Ford shares slipped 3.5 per cent and General Motors shares 2.2 per cent after they reported a drop in U.S. January sales, hurt by harsh winter weather.
Most TSX sectors were lower with the base metal group down 2.8 per cent as the latest round of economic weakness worries sent March copper down a cent to US$3.18 a pound after it fell about 2.25 per cent last week.
The energy sector was down two per cent as March crude in New York fell $1.02 to US$96.47.
Husky Energy (TSX:HSE) has given the green light to a $300-million equipment upgrade at its refinery in Lima, Ohio, so it can process heavy crude from Western Canada. Its shares were 59 cents lower to C$32.50.
Financials also weighed, down 1.75 per cent.
The gold sector lost early momentum and was up a slight 0.05 per cent as risk-averse investors pushed April gold up $20.10 to US$1,259.90 an ounce.
In other corporate news, Valeant Pharmaceuticals International (TSX:VRX) has a deal to buy American firm PreCision Dermatology in a friendly deal. Valeant will pay $475 million cash plus an additional $25 million when a sales-based milestone is passed and its shares gave back $3.75 to $147.38.