TSX joins global equity decline as growth fears resurface



Global equities tumbled the most in a month on Tuesday and oil dropped, while Treasuries surged with the dollar as evidence of limp economic growth around the world sparked a retreat from riskier assets.

The S&P 500 Index dropped to a three-week low as energy shares plunged as crude fell below $44 a barrel,  while the TSX finished down over 1 per cent. Financials slipped after UBS AG profit missed estimates, dropping Europe’s main stock index for a third day. The yield on the 10-year Treasury note sank to a two-week low. The dollar bounced from a one-year nadir, and the Australian dollar tumbled after the central bank unexpectedly cut interest rates.

While monetary easing in the Asia-Pacific region and Europe helped global equities and commodities recover from multi-year lows since February, economic data remain subdued, as highlighted Tuesday by Chinese and U.K. releases. Citigroup Inc.’s Economic Surprise Index for the U.S., which measures the strength of data relative to analysts’ forecasts, fell to its lowest level since February. Corporate earnings are adding to the gloom, with analysts predicting an 8-per-cent decline in profits for companies in the S&P 500 Index.

“The continued narrative is that the global economy is not very strong, even if the U.S. is the best of the bunch,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc. “We’ve had such a strong run-up over the last few months that we’re in a bit of a consolidation phase here.”

Canadian stocks fell a second consecutive day. The benchmark S&P/TSX Composite Index sank 1.14 per cent, or 157.95 points, to 13,707.68 in Toronto. The S&P/TSX posted a third consecutive weekly advance last week and remains one of the best-performing developed markets in the world this year. The gauge now trades at 21.2 times earnings, about 11 per cent higher than the 19.1 times earnings valuation of the Standard & Poor’s 500 Index, data compiled by Bloomberg show.

Canadian Western Bank, the Edmonton-based lender, plunged 6.85 per cent for the biggest slide in seven years after saying it would take about $33-million in provisions for soured oil-and-gas loans in the second quarter, prompting one analyst to downgrade the stock. Financial shares were among the biggest decliners out of 10 S&P/TSX groups.

Encana Corp. sank 10.43 per cent after reporting a first-quarter loss that was wider than expected, as energy producers posted the biggest drop. All but two industries in the S&P/TSX declined on the day.

Encana said its first-quarter operating loss was 15 cents a share compared with estimates for 12 cents, as cash flow sank 73 per cent from the previous quarter. The company blamed the decline in energy prices, lower realized hedging gains, reduced liquids volumes and a one-time restructuring charge.

The resource-dominant S&P/TSX has sputtered to start the month of May, with commodities producers giving back some gains amid the uncertain outlook for global growth and speculation higher interest rates at the Fed will boost the dollar’s value. Raw-materials and energy producers are still the two top-performing industries in Canada so far this year.

 U.S. stocks fell, with the S&P 500 sinking to a three-week low, amid rekindled angst over the sluggish pace of global growth and an uninspiring flow of corporate earnings.

The Dow Jones Industrial Average cut its losses by more than half, helped by Apple Inc.’s first increase in nine sessions and as Pfizer Inc. rallied 2.8 per cent on earnings that beat estimates and a boosted outlook. Weaker-than-forecast factory data Tuesday in the U.K. and China reminded investors of the malaise worldwide that had a hand in sending equities to their worst-ever start to a year. At the same time, U.S. earnings remained mixed.

The S&P 500 declined 0.85 per cent to 2,063.82 in New York, after losing as much as 1.3 per cent. The index jumped 0.8 per cent Monday, rebounding from the worst weekly drop since February. The Dow Jones Industrial Average lost 137.1 points, or 0.77 per cent, to 17,754.09 after sliding 220 points. The Nasdaq Composite Index fell 1.17 per cent to 4,761.41.

“The continued narrative is that the global economy is not very strong, even if the U.S. is the best of the bunch,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc. “We ran into congestion near the 2,100 area. We’ve had such a strong run-up over the last few months that we’re in a bit of a consolidation phase here.”

A surge sparked by rising oil prices that helped the S&P 500 rebound as much as 15 per cent from its February low faltered last week amid lackluster corporate results, scant signs of a pickup in economic growth and waning consumer confidence. The benchmark reached a four-month high on April 20, closing within 1.3 per cent of the record set last May, and taking its valuation near a peak.

With the season past its halfway mark, corporate results have so far failed to suggest a speedy recovery from what’s on track to be a fourth straight quarterly decline. Apple Inc., Microsoft Corp. and Alphabet Inc. all forecast sales in coming periods below analyst estimates, sinking large-cap technology shares even as Facebook Inc. and Amazon surpassed forecasts. Banks, however, used cost cuts to top predictions, helping financial shares post the second-strongest performance behind energy producers since the reporting period began.

Emerging-market stocks dropped the most in three months, lead by losses in Chinese shares traded in Hong Kong, as trading resumed after a holiday and manufacturing in the second-biggest economy showed signs of weakening, weighing on growth prospects in developing nations.

The Hang Seng China Enterprises Index of mainland equities retreated the most in more than two months after a private factory-output gauge slipped in April, missing economists’ estimates.

The contraction in the purchasing managers’ index from Caixin Media and Markit Economics for Chinese manufacturing follows the Sunday release of the government’s broader measure, which showed conditions stabilized last month. The mixed readings highlight the challenge for policy makers balancing the need for stimulus to support the economy, while also seeking to avoid propping up zombie companies in industries with excess capacity.

“A disappointing Chinese number should always raise doubts about a possible emerging-market growth recovery,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague, who favors shares in India and the Philippines. “The bigger picture remains one of sluggish EM growth and a high sensitivity to Fed policy.”

The MSCI Emerging Markets Index declined 1.9 per cent to 819.41 in New York, in a third day of losses. The measure trades at 11.5 times the estimated 12-month earnings of its members, a 28-per-cent discount to the valuation for the MSCI World Index of advanced-nation shares.

Oil tumbled to below $44 a barrel ahead of U.S. government data forecast to show nationwide crude supplies rose last week.

Futures fell 2.5 per cent in New York, declining for a third day after reaching a five-month high. Inventories are forecast to have increased by 750,000 barrels last week, according to the median estimate in a Bloomberg survey before an Energy Information Administration report Wednesday. Cushing crude supplies probably rose by 1.3 million barrels, according to a Bloomberg proprietary model, even as some analysts expect a drop.

“The price of crude got ahead of itself,” Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami, said. “The supply issue is definitely there. That’s not something that is going to change. Now people are starting to get worried about demand.”

West Texas Intermediate for June delivery dropped $1.13 to settle at $43.65 a barrel on the New York Mercantile Exchange after falling to as low as $43.32 a barrel. Total volume traded Tuesday was about 3 percent above the 100-day average.

Brent for July settlement declined 86 cents to end the session at $44.97 a barrel on the London-based ICE Futures Europe exchange. The global benchmark was at a premium of 56 cents to WTI for July.

There is “concern that the bull market has run its course for the time being,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. “People are waiting for the market to get back into equilibrium and we are quite a ways from that, so I’m not surprised we’re seeing a little bit of a pullback.”

Prices remain about 60 percent below their peak in mid-2014 as the global oversupply persists. The Organization of Petroleum Exporting Countries raised production last month, with Iraq and Iran leading the gains, according to data compiled by Bloomberg. Iran’s representative to OPEC, Mehdi Asali, said commodity prices including oil won’t go up anytime soon and the surplus of crude and gas could last at least five years, according to the country’s Shana news service.

 

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Courtesy: The Globe And Mail

10 thoughts on “TSX joins global equity decline as growth fears resurface

  1. John McMortimer-Markets go up, and markets go down.

    If a fluctuating market causes you to lose sleep at night, sell some investments until you can sleep at night.

  2. Ho Hum, markets go up, markets go down. The trick, if you stop reading the clowns who write for the G&M financial section, is that long term they go up 66% per cent of the time and go down 33%. All you have to do is buy good stuff, hold it and collect (better still reinvest) the dividends, and you get rich. Perhaps slowly, but you do get rich….

  3. RE:”retreat from riskier assets”…there­’s your smoking gun, right there. ‘riskier assets’ are everywhere, in all four corners of the globe. What a house of cards.

    Maybe this is a good thing? Finally, we’ll be able to reset the counters once the great correction takes place? Or not?

  4. If it becomes true that oil and gas “surpluses” will remain “for at least five years” thousands of Alberta home owners better pray mortgage rates they enjoyed when they bought their houses also stay right where they are…

  5. And as they round the clubhouse turn and head into the stretch it’s “Like, What’s Happening Man” in the lead, followed closely by “Which Way is Up?” and “I Coulda Been a Contenda”.

    Don’t forget punters, there’s 3 card Monte available on the main concourse.

  6. the This is what happens when we allow capitalism and greed to go on with impunity. Companies are slashing jobs and reducing their operations so that the 1% can have their annual bonuses and trips to Maui. It’s happening all over the world, and it’s up to the people to demand accountability from their governments and the corporate elites.

    Whatever happened to the days when companies hired people in order to create wealth and prosperity? Long gone! The corporate mentality today makes me sick.

  7. Mr. Market has been doing this whipsaw stuff going on nine months now. Usually growth fears in China arise every other month to spark the panic.

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