A record losing streak in the loonie, plunging bond yields and about $150-billion wiped out in the stock market has left Canadian investors hanging by a thread. Panic is starting to set in.
"The word fear is finally starting to come up," Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel in Calgary, said. "Clients and people are starting to panic. It's sinking in, but no one knows what to do."
On Friday, the country's benchmark Standard & Poor's/TSX Composite Index fell 2.13 per cent to 12,073.46 in Toronto with all 10 main sectors declining, undoing Thursday's rally and resuming a sell-off that's pulled Canada into a bear market. The market has slid 7.2 per cent this year and plunged about 23 per cent from its September 2014 record. The Canadian dollar slumped to a new 13-year low and yields on five-year government bonds fell to a record low of 0.511 per cent on Wednesday as speculation builds the Bank of Canada will cut interest rates next week.
Canada's economy, heavily weighted toward resources such as oil and mining has been rocked by concerns about the slowdown in China's economy that has pushed the price of West Texas Intermediate crude below $30 (U.S.) for the first time since 2003. Prices for Canada's heavy crude, which trades at a discount to the U.S. benchmark, have sunk to around $15 a barrel.
"We probably haven't yet seen the impact of the lower oil price transmitted to the rest of the economy yet," said Daniel Solomon, chief investment officer at NEI Investments in Toronto which oversees about $6-billion in assets. "We have skipped a recession for now, but maybe one will come."
Investors "can probably expect a rate cut," Mr. Solomon said.
The Canadian dollar fell for an 11th consecutive day Friday, continuing its worst streak ever and falling to an almost 13-year low against the U.S. dollar. That's fuelled speculation the Bank of Canada will cut its benchmark interest rate back to its 2009 financial crisis level. The Canadian dollar was at 68.83 cents (U.S.) in late Friday trading.
The sell-off mirrored a global decline in equities as the Dow Jones Industrial Average dropped 2.4 per cent, European equities slipped into a bear market and Chinese stocks wiped out gains to add to the worst start to a year on record.
Energy companies led stock declines on Friday, falling 3.6 per cent. Financial services weren't far behind, dropping 2.8 per cent. Royal Bank of Canada, the country's second-biggest bank by assets plunged as much as 4.2 per cent, its biggest drop in more than five years.
"Oil is flowing through the pipeline to other sectors and it's causing fear and panic. People are hitting the sell button in the other areas," Mr. Pelletier said. "If you're out east, you're not isolated. This is going to impact you."
U.S. also stocks dropped, with the Standard & Poor's 500 Index falling to its lowest level since Aug. 25, as the rout in oil persisted and data showing falling retail sales rekindled concern about the health of the economy.
The S&P 500 pared earlier losses that sent it 3.3 per cent lower, as technology and energy stocks led losses. Goldman Sachs Group Inc. fell 3.6 per cent after agreeing to settle a U.S. probe into its handling of mortgage-backed securities, a move that will cut its fourth-quarter profit by about $1.5-billion. Citigroup Inc. and Wells Fargo & Co. lost at least 3.6 per cent even after reporting quarterly earnings that topped projections. Wal-Mart Stores Inc. dropped 1.8 per cent after saying it plans to close 269 stores.
The worst start to a year in U.S. equities on record has left them trading at the most attractive level versus bonds in a year based on one valuation measure. Dividend yields in the S&P 500 have climbed 30 basis points above the yield offered by 10- year Treasuries, a reversal from just last week when the payout from bonds was higher. The S&P 500's multiple based on profits is also at a cheaper level. The gauge is trading at 16.8 times reported profits, a 8.6-per-cent discount to its average multiple over the last year.
The S&P 500 dropped 2.2 per cent to 1,880.27 in New York, after earlier falling as much as 3.3 per cent to the lowest level since April 2014. Volume on U.S. exchanges was 43 percent higher than the three-month average. The Dow Jones Industrial Average slid 391 points, or 2.4 per cent, to 15,988.08, while the Nasdaq Composite index dropped to its lowest since October 2014, dropping126.59 points, or 2.74 per cent, to 4,488.42
"The laser focus with the markets is on oil and weaker oil bleeds beyond the energy sector," said Joe Quinlan, New York- based chief market strategist at U.S. Trust, Bank of America Private Wealth Management. Quinlan, who recommends buying beaten down stocks that have growth potential like in defense spending, water infrastructure and global health care, also said, "This is one of these market moments when fear trumps all rationality. We will have to work through this panic period to move forward."
The Stoxx Europe 600 Index retreated 2.8 per cent, capping a weekly drop of 3.4 per cent. Europe's benchmark closed more than 20 per cent from its record in April -- meeting the common definition of a bear market.
Oil dropped to a new 12-year low below $30 a barrel in New York, while the discount on global benchmark Brent reached a five-year high as Iran moved closer to restoring exports.
West Texas Intermediate crude fell 5.7 per cent, capping an 11-per-cent decline for the week. The grade slipped below $30 a barrel on Tuesday for the first time since 2003. Sanctions on Iran may be lifted soon, allowing for a boost in oil shipments from OPEC's fifth-biggest member. Prices are down on Iran and concern about China's economy, according to Daniel Yergin, vice chairman of industry consultants IHS Inc.
"The plans by Iran to up exports by a fifth later this month once the sanctions are lifted is the last thing this market needed," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "There's got to be a bottom someplace but we haven't hit it yet."
Crude capped a second annual loss in 2015 as OPEC effectively abandoned output limits amid a global surplus. The price decline is affecting producers with BHP Billiton Ltd. expecting to book a $4.9-billion write-down on its U.S. shale assets, BP Plc announcing a further 4,000 job cuts and Petroleo Brasileiro SA slashing its spending plan.
WTI for February delivery fell $1.78 to close at $29.42 a barrel on the New York Mercantile Exchange. It was the lowest settlement since November 2003. Total volume traded was 16 percent higher than the 100-day. Prices have lost 20 per cent this year.
Brent for March settlement dropped $1.94, or 6.3 per cent, to $28.94 a barrel on the London-based ICE Futures Europe exchange. It was the biggest decline in 11 months and left the contract at the lowest close since February 2004. Brent dropped below $30 Wednesday for the first time since April 2004. The European benchmark closed at a $1.45 discount to March WTI, the biggest gap since 2010.
Gold gained the most in six weeks as Chinese stocks retreated into a bear market and U.S. retail sales capped the weakest year since 2009, increasing demand for a haven. Platinum fell to a seven-year low. The metal has been whipsawed this week, after rallying to a two-month high last Friday.
The metal has been whipsawed this week, after rallying to a two-month high last Friday, as investors sought a store of value following the rout in Chinese shares that spread across the globe. Federal Reserve Bank of Boston President Eric Rosengren said this week that estimates for U.S. economic growth are falling, putting the projected path for interest-rate increases at risk. Tighter monetary policy makes gold less competitive against other assets that pay interest or offer dividends.
"A recovery in bullion is prompted by the equity weakness overnight in China, and it's been reinforced by the declines today," James Steel, the chief commodities analyst at HSBC Securities (USA) Inc. in New York, said in a telephone interview. "We might be getting to the point where it's triggering some safe-haven buying."
Gold futures for February delivery gained 1.6 per cent to settle at $1,090.70 an ounce on the Comex in New York, the biggest advance since Dec. 4. Prices slid 0.7 per cent this week.
The Bloomberg Commodity Index, which measures returns on 22 raw materials, dropped 1.5 per cent to the lowest level in data going back to 1991.
The MSCI Emerging Markets Index fell 2.2 per cent on Friday and 4.5 per cent this week. Shares in Shanghai entered a bear market for the second time in seven months, dropping more than 20 per cent from its December high and sinking below its low during the depths of a $5 trillion rout in August.