ECB president Mario Draghi has been reluctant to step up the central bank's so-far limited purchases of European sovereign bonds.Michael Probst
The Toronto stock market was sharply lower Wednesday as commodity prices retreated amid more signs of a slowing global economy.
The S&P/TSX composite index fell 234.33 points to 11,560.86 while the TSX Venture Exchange lost 30.59 points to 1,524.33.
Sliding prices for oil and metals helped push the Canadian dollar down 1.03 cents to 95.33 cents (U.S.).
U.S. markets were also deep in the red as American markets prepare to shut for the Thanksgiving Day holiday on Thursday. The Dow Jones industrial index was down 197.95 points to 11,295.77.
The Nasdaq composite index fell 54.24 points to 2,467.04 and the S&P 500 index lost 22.97 points to 1,165.07.
"The macro concerns have really taken centre stage and I think until that really gets resolved it will be a market more focused on those bigger issues and less on business-specific issues," said Garey Aitken, director of equity research, Bissett Investment Management in Calgary.
Pessimism about economic prospects deepened after a manufacturing survey from HSBC indicated that China's industrial sector is slowing. Its main manufacturing gauge fell to 48 in November from 51 in October — its sharpest drop since March 2009. Any reading below 50 indicates contraction from the previous month.
China has been one of the few bright spots since the economic crisis of 2008 sent global economies into a slump and its strong economic growth has helped support higher commodity prices, which in turn have boosted resource stocks on the resource-heavy TSX.
There was also further grim news from Europe, where a worsening government debt crisis has raised fears about the future of the euro itself and pushed the region to the brink of recession.
A closely watched survey from financial information company Markit showed the euro zone contracted for the third month running in November and that the deteriorating economic picture is not just confined to debt-stressed countries such as Greece.
Although its monthly composite purchasing managers index rose to 47.2 in November from 46.5 in October, it remains below the 50 mark, the threshold between expansion and contraction.
Markit said Wednesday's survey suggests that the euro zone is contracting at a quarterly rate of 0.6 per cent in the fourth quarter and that the problems are increasingly spreading to Europe's two biggest economies, Germany and France.
Adding to investor unease was an auction of German government bonds which technically failed Wednesday, deepening fears that the debt crisis has hit the core of the euro zone.
The sale of $6-billion (CAN) of 10-year government bonds attracted bids totalling just $3.889-billion. The Bundesbank, which conducts auctions on behalf of the Germany's federal debt agency, accepted $3.644-billion in bids.
That left the central bank to pick up the slack — 39 per cent of the total amount on offer.
Also, euro zone industrial orders collapsed by a massive 6.4 per cent in September from the previous month. Though this data is historically volatile, the figures provide further uncomfortable reading for politicians battling to get a grip on the debt crisis.
Analysts said the figures are likely to put pressure on the European Central Bank to cut interest rates again, possibly as soon as next month. In November, it reversed recent policy, cutting its benchmark interest rate by a quarter of a percentage point to 1.25 per cent amid mounting worries over the state of the euro zone economy.
The euro unsurprisingly took a battering in the wake of Wednesday's figures, sending investors to the perceived safe haven of U.S. Treasuries.
The financial sector fell 1.7 per cent on a report that some of Canada's largest financial institutions will be among those subject to a new round of stress tests by the U.S. Federal Reserve to determine if major U.S. banks can withstand a downturn in the economy. The Globe and Mail said among them are the U.S. operations of Royal Bank of Canada (TSX:RY) and Bank of Montreal (TSX:BMO).
Royal Bank was off 90 cents to $44.03 and Bank of Montreal (TSX:TD) fell 37 cents to $55.91.
"If we were talking four or five years ago, we wouldn't consider financials to be necessarily economically sensitive names," added Aitken.
"But now you have to look at economic sensitivity with sensitivity to capital markets, financial stability. The Canadian financials, particularly the insurance companies, have taken on a lot of market sensitivity in the last few years."
Worries about lower demand and the higher U.S. dollar pushed oil prices down more than $2 (U.S.) a barrel.
A stronger greenback usually helps depress oil prices, which are denominated in dollars, as it makes oil more expensive for holders of other currencies.
The January contract for crude on the New York Mercantile Exchange lost $2.18 to $95.83 (U.S.) a barrel, sending the energy sector down 2.6 per cent. Suncor Energy (TSX:SU) fell $1.11 to $29.31 (CAN) and Cenovus Energy (TSX:CVE) lost 63 cents to $30.91 (CAN).
Production from an upgrader at the Syncrude oilsands mine was disrupted Tuesday, and Canadian Oil Sands Ltd. (TSX:COS), the biggest partner in the sprawling project, said work was underway to get the processing plant running again. The company said the shutdown was the result of an "instrumentation failure" at a coking unit. Canadian Oil Sands shares were off 60 cents at $19.22.
The base metals component fell 2.62 per cent as Metals also sold off with the December copper contract on the Nymex down eight cents at $3.26 (U.S.) a pound. Teck Resources (TSX:TCK.B) lost $1.33 to $33.07 (CAN) and Quadra FNX Mining declined 36 cents to $9.59 (CAN).
Bullion prices also retreated as the December gold contract in New York lost $21.50 to $1,680.90 (U.S.) an ounce. Barrick Gold Corp. (TSX:ABX) faded 96 cents to $50.02 (CAN).
European markets were lower as London's FTSE 100 index lost 0.88 per cent, Frankfurt's DAX was off 0.37 per cent and the Paris CAC 40 declined 1.01 per cent.
In other corporate news, Nexen Inc. (TSX:NXY) says Yemen's government won't extend a production sharing agreement for the Masila land block beyond its scheduled expiry Dec. 17 and the company is evaluating its future in the Middle East country. Nexen will partly offset the lost Yemeni production with the Usan offshore project off Africa's west coast, with production expected to begin in the first half of 2012. Its shares declined 26 cents to $15.04.
China's Minmetals Resources Ltd. has extended the deadline for its $1.3-billion takeover offer to shareholders of Anvil Mining Ltd. (TSX:AVM). The Minmetals offer of $8 (CAN) per Anvil share in cash will now be open until 8 p.m. ET on Dec. 9, about two weeks after the previous deadline of Nov. 24. Anvil mining dipped two cents to $7.31.