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Equities

Canada’s main stock index dropped at Monday’s opening bell with energy shares falling as worries about high inflation and aggressive rate moves roiled world markets. On Wall Street, key indexes also saw heavy losses with the S&P 500 on course to confirm a bear market ahead of this week’s policy decision from the Federal Reserve.

At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 407.05 points, or 2.01%, at 19,867.77.

In the U.S., the Dow Jones Industrial Average fell 563.56 points, or 1.80 per cent at 9:37 a.m. ET , to 30,829.23, the S&P 500 lost 87.03 points, or 2.23 per cent, to 3,813.83 and the Nasdaq Composite lost 284.93 points, or 2.51 per cent, to 11,055.10.

“On Wednesday, the [Fed] is expected to raise the interest rates by another 50 basis points, yet the possibility of a 75-basis-point hike is now being priced in,” Swissquote senior analyst Ipek Ozkardeskaya said.

“Before inflation data, activity on Fed funds futures assessed around 5-per-cent chance for a 75 basis-point hike at this week’s meeting. Now, they price a 23 per cent chance of a 75-basis-point hike.”

More importantly, she added, the chance of a 75-basis-point hike in July meeting is now more than 50 per cent, and the market even gives a 14 per cent chance for a 100 basis-point hike.

“This is how hawkish the Fed expectations got following the Friday’s unfortunate CPI read,” she said.

On Friday, new figures showed the annual rate of inflation hit 8.6 per cent, the highest since 1981. Economists had been hoping to see signs that the inflation had peaked.

The numbers came just days before the Federal Reserve’s policy announcement, due Wednesday at 2 p.m. ET. The Bank of England and The Bank of Japan are also among central banks slated to make policy decisions later this week.

In this country, Statistics Canada released household debt figures for the quarter ahead of the market

In the report, the agency says, on a seasonally adjusted basis, household credit market debt as a proportion of household disposable income fell to 182.5 per cent compared with the record 185.0 per cent in the previous quarter. In other words, there was $1.83 in credit market debt for every dollar of household disposable income in the first quarter of this year, Statscan said.

On the corporate side, Wall Street will get results from Oracle Corp. after the close of trading.

Overseas, the pan-European STOXX 600 was down 2.07 per cent by midday. Britain’s FTSE 100 lost 1.36 per cent. Germany’s DAX and France’s CAC 40 were off 2.03 per cent and 2.10 per cent, respectively.

In Asia, Japan’s Nikkei closed down 3.01 per cent. Hong Kong’s Hang Seng fell 3.39 per cent.

Commodities

Crude prices fell in early going alongside weaker market sentiment and news of a flareup in COVID-19 cases in Beijing.

The day range on Brent is US$119.35 to US$121.94. The range on West Texas Intermediate is US$118 to $120.26.

Traders were spooked by reports that Beijing has put school online in one of its major districts after a new COVID-19 outbreak linked to a nightclub, according to The Associated Press. Both Beijing and Shanghai had been moving back toward more normal life after extended lockdowns, aimed at controlling the spread of the virus.

Restrictions in China have weighed on markets with traders concerned about the impact on demand in the country, one of the biggest oil consumers in the world.

“The present price fall is exacerbated by warnings of a ‘ferocious’ spread of the COVID virus in Beijing by officials, casting doubt on immediate demand recovery,” Tamas Varga of oil broker PVM, said.

Meanwhile, broader concerns about the potential for aggressive rate moves by central banks and the threat of recession continue to cast a shadow over markets.

In other commodities, gold prices pulled back after hitting their highest level in a month early in the session.

Spot gold was down 0.6 per cent at US$1,859.90 per ounce by early Monday morning. U.S. gold futures also eased 0.6 per cent to US$1,864.40.

Currencies

The Canadian dollar fell on the back of weak risk sentiment and lower crude prices while the U.S. dollar hit a four-week high against a group of world currencies as investors seek safer holdings.

The day range on the loonie is 77.84 US cents to 78.34 US cents.

“The CAD slide looks excessive from our point of view, given the strength of the domestic economy, the BoC’s own hawkish intent, and yield premiums over the USD for the CAD but that will not help the CAD resist the USD’s general advance for the moment,” Shaun Osborne, chief FX strategist with Scotiabank, said.

On world markets, the U.S. dollar index, which tracks the greenback against six peers, was 0.3-per-cent higher at 104.58, its highest in four weeks, according to figures from Reuters.

The euro was down at US$1.0490, off 0.23 per cent, and sterling was 0.23-per-cent lower at US$1.2287, despite expectations that the Bank of England will again raise rates later this week.

The risk-sensitive Australian dollar lost as much as 0.6 per cent falling to US$0.6998, its lowest level in more than three weeks.

In bonds, the yield on the benchmark U.S. 10-year note was up at 3.233 per cent in the predawn period.

More company news

Cenovus Energy Inc said it would buy the remaining 50-per-cent stake in the Sunrise oil sands project in northern Alberta from British oil major BP Plc. The total value of the deal, which will mark BP’s shift away from Canadian oil sands production, includes $600-million in cash and a variable payment of $600-million expiring after two years, the Canadian energy company said. As part of the deal, BP will also buy Cenvous’s 35-per-cent stake in the undeveloped Bay du Nord project offshore Newfoundland and Labrador.

Canada will announce a multi-million dollar investment on Monday to make the Jansen potash mine run by the mining giant BHP Group, “the cleanest and most sustainable in the world,” a government source told Reuters on Sunday. Industry Minister François-Philippe Champagne and Agriculture Minister Marie-Claude Bibeau are scheduled to make an announcement on “moving toward the net-zero emission economy” in Saskatoon later in the day, according to the report.

Economic news

(8:30 a.m. ET) Canada’s national balance sheet accounts for Q1.

With Reuters and The Canadian Press