Canadian stocks retreated a second day on Tuesday as crude prices extended losses before weekly U.S. government stockpile data and the first of the nation's energy producers reported a slump in quarterly earnings, hinting at more carnage for the beleaguered industry.
Imperial Oil Ltd. tumbled 1.8 per cent after saying fourth-quarter profit sank 85 per cent. WestJet Airlines Ltd. plunged 11.1 per cent to a three-year low after quarterly earnings missed estimates.
The Standard & Poor's/TSX Composite Index fell 1.83 per cent, or 231.1 points, to 12,442.26 to join a global sell-off as crude's renewed plunge in February erased memories of its brief rally at the end of last month. A measure of developed and emerging markets around the world also declined.
Even with an almost 4.6-per-cent drop so far in 2016, Canada's equity benchmark remains the second-best performing developed market in the world after rallying from a 2 1/2-year low to close a see-saw January. The S&P/TSX also entered a bear market earlier in the month.
The resource-rich S&P/TSX is closely linked to commodity prices with raw-materials and energy producers making up about 28 per cent of the overall gauge. Crude futures in New York slumped over 5 per cent, after halting its longest rally of the year Monday. U.S. government stockpile data is forecast to show an increase in supplies, exacerbating a global glut.
Calgary-based Imperial Oil is the first of 55 Canadian energy companies in the S&P/TSX to report quarterly earnings. About half of the 240 companies in the benchmark Canadian equity gauge are scheduled to report over the next two weeks.
Imperial Oil, the Canadian affiliate of Exxon Mobil Corp., reported net income in the quarter fell to 12 cents a share from 79 cents a year earlier. Output for the company in the quarter averaged 400,000 barrels per day, compared with 315,000 barrels a year earlier, the company said. Irving, Texas-based Exxon Mobil meanwhile posted its steepest annual profit decline in more than a decade.
Energy stocks sank 3.6 per cent and industrial stocks were down 3.3 per cent as 9 of the 10 industries in the S&P/TSX fell.
Royal Bank of Canada and Manulife Financial Corp. retreated at least 1.7 per cent to lead the nation's largest financial services companies lower.
Sliding share prices among the nation's largest lenders amid investor concerns about earnings growth and rising loan losses has resulted in bank dividend payouts four times greater than Canada's benchmark government bond yield, the most in more than a decade, according to data compiled by Bloomberg.
U.S. stocks also retreated, with the Dow Jones Industrial Average losing more than 290 points, as investors shunned risk assets across the world while oil extended a sell-off amid deepening concern that global growth is weakening.
The Standard & Poor's 500 Index fell 1.9 per cent to 1,903.08 in New York, the steepest decline in more than two weeks.
The Dow Jones industrial average fell 295.16 points, or 1.79 per cent, to 16,154.02, while the Nasdaq Composite dropped 103.42 points, or 2.24 per cent, to 4,516.95.
"We're going back to what we saw in the beginning of the year with energy, materials, financials continuing to be under pressure," said Omar Aguilar, chief investment officer of equities at Charles Schwab Investment Management in San Francisco. "The level of risk aversion in January went through the roof. Friday was an end-of-month relief rally -- nothing serious has suggested sentiment has changed direction."
The oil rout and worries about a China slowdown have continued to roil global markets, erasing as much as $2.4-trillion from the value of U.S. equities this year. While the S&P 500 recouped some losses in the past two weeks, trimming its worst start to a year since 2009, bearish sentiment has returned. The benchmark is down almost 11 percent from its all- time high set in May.
Investors are also assessing the campaign for the next U.S. president, after Senator Ted Cruz won Monday's Republican caucuses in Iowa in an upset over Donald Trump. Democrat Hillary Clinton held on to a narrow victory over Senator Bernie Sanders.
Among the rationales given for the sell-off in U.S. equities this year, one that is rarely mentioned is the election cycle. Research from Ned Davis Research Group shows that the final year of a two-term presidency ranks last by returns, with the S&P 500 posting a median decline of 6.6 per cent since 1953.
"A lot of people are watching the price of oil and as big as the U.S. economy is, there is now a perception that global economies are more important than regional ones," said Ron Anari, the Jersey City, New Jersey-based senior vice president of trading at ICAP Plc. "The equity market is all about the profitability of corporations, and it's not that bad but it definitely could be better. At this state of the game, there is just a lot of market ambiguity."
More than 100 S&P 500 companies post results this week, and analysts estimate profits at index members fell 5.6 per cent in the fourth quarter, better than Jan. 15 predictions for a 7-per-cent slump. Of those that have released financial results, 80 per cent beat profit projections, while 49 per cent topped sales estimates.
Investors will be looking this week at economic releases for indications of the strength of the U.S. economy, with the government's January jobs report coming into focus on Friday. Federal Reserve Bank of Kansas City President Esther George said Tuesday recent financial turmoil was anticipated and is no reason to delay further interest-rate increases.
George, who has consistently been among the most hawkish Fed officials, said last December's interest-rate hike, the first such move since 2006, was belated and cautioned it would be a mistake to wait too long to raise rates further.
"A lot of last week's rally was a technical, one-time thing," said Michael O'Rourke, chief market strategist at Jonestrading Institutional Services LLC. "The Bank of Japan can't do negative rates every day, and you had a month-end reshuffling that put a strong bid into equities so we're seeing an unwind. Rallies right now are short, sharp and don't last very long."
The Stoxx Europe 600 Index sank 2.1 per cent, with energy shares, miners and banks leading declines. BP slid 8.8 per cent and UBS lost 6 per cent. Alfa Laval AB tumbled 11 per cent after its fourth-quarter pretax profit missed analysts' projections and Infineon Technologies AG dropped 2.7 per cent after its quarterly operating income declined.
The MSCI Emerging Markets Index fell for the first time in five days, decreasing 2 per cent, as more than two shares declined for every one that advanced. Benchmarks in South Africa, South Korea, Malaysia and the Philippines lost at least 0.9 per cent and Hong Kong's Hang Seng China Enterprises Index fell 1.1 per cent.
The Shanghai Composite Index jumped 2.3 per cent with trading volumes 24 per cent less than the 30-day average. The People's Bank of China pumped 100 billion yuan ($15 billion) into the banking system using reverse repurchase agreements on Tuesday, adding to last month's injection of about 2 trillion yuan, as demand for cash rose in the run up to the lunar new year holidays next week.
Oil slumped for the second straight day, with U.S. crude ending 5.5 per cent lower on Tuesday, as hopes of a deal to curb one of the worst supply gluts in history continued to fade amid concerns that mild winter weather in the U.S. will dampen demand.
The oil markets erased most of last week's four-day rally, when it soared almost 20 per cent from the lows touched in mid-January, after Russia's Energy Minister said OPEC kingpin Saudi Arabia suggested a production cut.
Hopes dimmed this week as no deal has emerged and talks between Russia's energy minister and Venezuela's oil minister on Monday failed to result in any clear plan to reduce output.
"As they (producers) continue to disappoint, we're going to trade lower, until the market forces them to do something and I think that's at a much lower price than here," said analyst John Kilduff, partner at Again Capital LLC in New York.
Brent crude closed down $1.52, or 4.4 per cent, at $32.72 a barrel. It fell as much as 5.9 per cent to $32.23 in the session.
U.S. West Texas Intermediate crude (WTI) settled 5.5 per cent, or $1.74 lower at $29.88 per barrel, after falling as low as $29.81.
With forecasters projecting the weather in the United States will moderate during the last eight weeks of the November-March winter heating season, U.S. heating oil futures were down 2 percent and gasoline 7 per cent lower.
U.S. investment bank Goldman Sachs said it was "highly unlikely" the Organization of the Petroleum Exporting Countries would cooperate with Russia to cut output, saying the move would also be self-defeating as stronger prices would bring previously shelved production back to the market.
Crude prices are in danger of returning to the $20s unless there was concrete reaction on the supply side, said Thomas Saal, analyst at INTL FC Stone in Miami, Florida.
Economic data due later in the week, including U.S. non-farm payroll, unemployment figures and producer prices from the euro zone, could pressure oil prices further, Again Capital's Kilduff said.
"I think it's in the cards to re-test the lows from mid-January," he said, referring to Brent's low of $27.10 and WTI's $26.19.
Still, Citi called a bottom on prices on Tuesday, saying that even while a deal may not materialize, the current lows will be short lived.
Oil stockpiles, however, were still on the rise, with Russian output hitting a post-Soviet high in January and U.S inventories forecast to have added 4.8 million barrels to record supplies last week.
The American Petroleum Institute will release its data at 4:30 p.m. ET, ahead of the government's report on Wednesday.
With files from Reuters