A sign board displaying Toronto Stock Exchange (TSX) stock information is seen in this file photo.MARK BLINCH
Canadian stocks fell for the third consecutive day on Wednesday as oil dropped to a three-week low in New York amid speculation that an unexpected decline in crude inventories is only temporary, with more gains to follow as production remains strong.
The Standard & Poor's/TSX Composite Index fell 0.8 per cent, or 96.93 points, to 12,185.72 in Toronto as the index gave back morning gains after piling up big losses over the previous two sessions. Only three of 10 main industry groups advanced.
A rally in U.S. stocks evaporated in the final hour of trading as speculation that the Federal Reserve will hold off on raising interest rates gave way to renewed concerns about the strength of the American economy.
The Standard & Poor's 500 Index erased an advance that topped 1.5 per cent at its height, while Walt Disney Co. dragged the Dow Jones Industrial Average lower. Fed Chair Janet Yellen signalled financial-market volatility could delay rate increases as the central bank assesses the turmoil's impact on domestic growth. Ten-year Treasury yields slipped to 1.70 per cent after an auction drew the lowest yield since 2012. South Africa's rand led gains in emerging-market currencies and stocks snapped a two-day decline.
Ms. Yellen's testimony before Congress did little to quell market volatility, as the central banker said the Fed still expects to raise rates gradually while making it clear that continued market turmoil alter forecasts. She highlighted uncertainty over the pace of China's growth and the related rout in commodities, concerns that have roiled financial markets throughout the year and twice pushed global shares to the brink of a bear market.
Markets buckled earlier this week as Deutsche Bank sparked concern European bank creditworthiness was weakening as oil's rout took crude below $28 a barrel. While central banks from Japan to Europe have signalled additional stimulus is at the ready, market volatility has intensified in recent weeks. Ms. Yellen's acknowledgment that the turmoil has clouded global growth added to anxiety.
"She's not oblivious to what's happening in the global economy and financial markets, as well as the stress of financial institutions," James Abate, who helps oversee $1 billion as chief investment officer at Centre Funds in New York, said by phone. "She essentially is trying to stick with the premise that the economy is improving but perhaps not at the rate they anticipated and only warrants gradual rate rises."
The S&P 500 was little changed after rising as much as 1.5 per cent. The Dow fell 0.6 per cent as Disney shareholders overlooked a record quarter for sales and earnings at and focused on flagging profits at its ESPN sports network. Bank shares fell fastest in the final hour of trading as sentiment shifted.
Ms. Yellen's testimony took equities off their morning highs after she said that market fears of a recession are showing up in asset prices. The comments reflected a concern that has hung over equity markets all year: whether the evaporation of wealth in share prices could bleed into the economy, sour consumer confidence and restrain spending. Almost $3-trillion of equity value has been erased as declines in the S&P 500 swelled to as much as 9.4 percent this year.
"It's really just acknowledging that we've had a 10 percent drop, and it is negative at the margin for growth, and if that continues it will slow down the pace of hikes," said Aneta Markowska, chief U.S. economist at Societe Generale in New York. "The Fed looks at equities as almost an exogenous factor that will play into their policy decisions."
The Chicago Board Options Exchange Volatility Index slid 4 percent to 25.48, snapping a four-day increase that saw the measure climb 23 percent. The gauge of price swings, which has surged 39 percent in 2016, is almost double its two-year average of 15.88.
In Toronto, technology stocks surged as Open Text Corp. increased 10 per cent after the company posted quarterly earnings that topped analysts' estimates. Celestica Inc. gained 2.6 per cent.
Energy stocks fell furthest, falling 2.6 per cent to retreat with oil's decline.
Encana Corp. declined 8.5 per cent, while Cenovus Energy Inc. dropped 8.4 per cent. Canadian Natural Resources Ltd fell 2.7 per cent, and Suncor Energy Inc was down 1.4 per cent.
Crude supplies fell 754,000 barrels last week, compared with a 3.2 million barrel gain that had been projected by analysts in a Bloomberg survey. Stockpiles at Cushing, Okla., the biggest U.S. oil-storage hub, climbed to a record, Energy Information Administration data show. Imports tumbled nationwide, especially on the Gulf Coast. Gasoline futures surged after the data showed that demand rose to the highest level this year.
"The surprise draw in crude stockpiles was a function of sharply lower imports," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "The imports could have been delayed and will rebound in the following week. In the larger picture this will probably turn out to be a one-off decline in imports, and we'll get further seasonal gains in inventories."
Oil is down 25 per cent this year on speculation a global glut will persist amid the outlook for higher exports from Iran after the removal of sanctions and surging U.S. crude supplies. BP Plc is "very bearish" for the first half of 2016 and expects excess output to start dropping only when storage tanks fill up, according to Chief Executive Officer Robert Dudley.
West Texas Intermediate for March delivery fell 49 cents, or 1.8 per cent, to $27.45 a barrel on the New York Mercantile Exchange. It's the lowest close since Jan. 20. Oil slumped 15 per cent in five sessions. Total volume traded was 90 percent higher than the 100-day average.
The CBOE Crude Oil Volatility Index, which measures expectations of price swings, rose to the highest since 2009 on Wednesday.
Brent for April settlement advanced 52 cents, or 1.7 per cent, to $30.84 on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a $1.18 premium to WTI for April delivery.
Rosneft OJSC CEO Igor Sechin said in London that the company will defend its market share and indicated he's skeptical on the prospects of a deal between the Organization of Petroleum Exporting Countries and other producers to curb output.
"In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in," BP's Dudley said at an industry conference in London Wednesday. "The market will start balancing in the second half of this year."
Crude inventories rose to 502.7 million barrels in the week ended Jan. 29, the highest level since 1930, EIA data show.
U.S. crude imports fell 14 per cent to 7.12 million barrels a day, the biggest slide since December 2014. Imports along the Gulf Coast, known as PADD 3, tumbled 17 percent to 2.5 million barrels, the least since November 1991.
"The numbers are a little bit better than what people were expecting," said Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments. "These are baby steps. We have to see more before prices recover."
With files from The Canadian Press