Specialist Robert Nelson works on the floor of the New York Stock Exchange, Wednesday, Jan. 13.Richard Drew/The Associated Press
The rally in global equities failed to extend to North America on Wednesday, where the TSX fell 203.5 points and Dow Jones Industrial Average fell 364.8 points after oil erased a surge of almost 4 per cent, providing a fresh signal that the slowdown in China continues to damp demand for risk assets.
In Toronto, the Standard & Poor's/TSX Composite Index dropped 1.64 per cent to 12,170.41.
The Standard & Poor's 500 Index fell past 1,900, a level it's closed below only four times in the past 14 months, while the Nasdaq 100 Index neared its worst day since Aug. 24. The Russell 2000 Index led losses with a 3.4-per-cent slide that left it poised to enter a bear market. Brent crude dipped below $30 for the first time since 2004. Gold traded above $1,090 an ounce.
The Canadian dollar has closed below 70 cents U.S. for the first time in nearly 13 years. The loonie finished the day at 69.71 cents U.S., down 0.43 of a cent since Tuesday's close.
The last time the Canadian dollar closed beneath the 70-cent U.S. mark was on April 30, 2003, when it was 69.76 cents U.S.
Colin Cieszynski, chief market strategist at CMC Markets, says the 70-cent mark constitutes a "pretty significant psychological hurdle."
Cieszynski says the loonie's "relentless drive lower" has been motivated primarily by falling oil prices — and their potential implications for monetary policy.
"There's been a lot of growing speculation that the Bank of Canada's governor (Stephen) Poloz could kick off 2016 with a rate cut the same way he did in 2015," he said.
"There's a lot of concerns that the falling oil price could lead to more layoffs in the oil sector and deepen the recession that we're seeing in the oilpatch, so there is a growing possibility of that, although up until now he's been more content to let the falling loonie do a lot of the stimulus work for him."
With the central bank poised to cut interest rates again as commodity prices collapse to the lowest since 1991, manufacturing stalls and consumers remain buried in debt, according to the currency's top forecaster.
The currency will fall to a record-low 59 cents (U.S.) by the end of 2016, Macquarie Group Ltd.'s David Doyle, Bloomberg's top-ranked forecaster for the Canadian dollar last year, said Tuesday. Mr. Doyle's latest call came after the currency fulfilled his previous prediction from last February to fall below 70 cents.
Canada's five-year government bond yields fell to a record low. The five-year yield fell as much as seven basis points, or 0.07 percentage point, to 0.516 per cent in Toronto Wednesday, the lowest point in Bloomberg data going back to 1989.
Oil's failure to sustain a rally of more than 3.5 per cent overwhelmed the budding rebound in global equities, which have been hammered this year amid concern China is struggling to manage its slowing economy. While the tumult seen in financial markets last week had shown signs of receding since Chinese policy makers intervened to stabilize the yuan, demand for havens returned Wednesday as U.S. equities failed to add to global stock gains.
Brent oil dropped below $30 a barrel for the first time since April 2004 on speculation Iranian shipments will soon climb.
Crude fell 1.8 per cent in London while West Texas Intermediate oil was little changed in New York. A nuclear deal between Iran and world powers may be implemented by the time markets open on Monday, triggering sanctions relief for the Islamic Republic that paves the way for a surge in oil exports. Fuel prices tumbled after Energy Information Administration data showed U.S. gasoline supplies capped the biggest two-week gain on record.
"The spread between Brent and WTI is coming in because Iranian sanctions could be lifted as early as Monday," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "Additional Iranian barrels will have a much bigger impact on seaborne Brent than on WTI."
Futures in London have lost 19 per cent this year as volatility in Chinese markets fuelled a rout in global equities and on speculation that growing Iranian shipments will add to the global glut.
Brent oil slipped 55 cents, or 1.8 per cent, to $30.31 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since April 2004. The contract touched $29.96. Total volume traded was 89 per cent above the 100-day average.
West Texas Intermediate crude for February delivery rose 4 cents to settle at $30.48 a barrel on the New York Mercantile Exchange. The contract sank to $29.93 on Tuesday, the lowest since 2003. The U.S. benchmark crude closed at a 17-cent premium to Brent, up from a 42-cent discount at Tuesday's close.
Energy stocks in the S&P/TSX fell 2.2 per cent as producers fell for a third day to their lowest level since March 2009. MEG Energy Corp., down 11.7 per cent and Paramount Resources Ltd., down 9.6 per cent, were among the companies to suffer the largest declines in the group.
Canada's resource-rich benchmark was the second of seven countries to see its benchmark enter a bear market, capping a 20-per-cent slide on Jan. 7.
Shaw Communications Inc. advanced 5.3 per cent. Corus Entertainment Inc. agreed to buy the company's media business for $2.65-billion in cash and stock, helping Shaw finance its wireless expansion. Corus was down 7.2 per cent.
Among other stocks moving on company news, Magna International Inc. gained 2.3 per cent. The auto parts-maker reported a 2016 sales forecast in-line with analyst estimates.
The S&P 500 sank 2.5 per cent in New York, the lowest level since Sept. 29. Shares in consumer discretionary shares plunged 3.4 per cent with losses heaviest in Amazon.com Inc. and Netflix Inc. Health-care shares sank 2.9 per cent, while financial services stocks in the S&P 500 fell to the lowest level since May 2014.
The Dow Jones industrial average fell 364.6 points, or 2.21 per cent, to 16,151.62, while the Nasdaq Composite dropped 159.85 points, or 3.41 per cent, to 4,526.07.
Damage was heaviest among small-cap shares, with the Russell 2000 plunging to 2 1/2 year low. The gauge is down 22 per cent from its June record, meeting the common definition of a bear market.
"There's big-time negative sentiment in the market right now," said Mark Kepner, an equity trader at Themis Trading LLC in Chatham, NJ. "There was no specific news to send this market down. Without enough news to make it go higher, and with negative sentiment, we started selling off. We have earnings coming up, and they'll be pivotal for getting us out of this downtrend."
According to JPMorgan Chase & Co., this year's tumble is at least partly attributable to robotic selling by quantitative investors who were forced to rebalance their funds when stocks and bonds both fell in January.
"While this implies there is less risk of a sudden market crash vs. August, it is not imminent that these strategies will start buying equities," wrote Marko Kolanovic, the JPMorgan strategist. "Moreover, if volatility keeps on rising, there could be more selling to come."
The Chicago Board Options Exchange Volatility Index climbed 11 per cent to 24.93, after posting its first back-to-back weekly gains since July to start the year.
The U.S. benchmark index opened higher by 0.6 per cent and saw gains fade in morning trading before the sell-off accelerated following the European close. The MSCI All-Country World Index dropped for the seventh time in eight sessions. Global equities had followed a Tuesday rally in U.S. stocks, with the MSCI Asia Pacific Index halting a seven-day drop, while the Stoxx Europe 600 Index rose 0.4 per cent for a second day of gains.
With files from The Canadian Press