The S&P/TSX composite fell more than 500 points, or more than 3%, to just below 18,500 in the afternoon, dragged down by the plunge in oil prices. Benchmark North American crude lost $5 to trade below $80 for the first time since January. The catalyst for oil’s decline appears to have been central banks signaling this week that they are so committed to curbing inflation that they are willing to create a recession to achieve it. The US Federal Reserve raised its key interest rate on Wednesday and nine other countries around the world followed suit the next day. This will help reduce inflation, but will likely come at a great cost to the economy. “Clearly what they’re saying is that they’re so determined to get inflation down that they’re going to blow the economy in the process,” said John Zecher, founder of Toronto-based J Zechner & Associates. “That’s the way the market is reading it … They’re not going to stop until the economy goes down.” A recession would lead to much less demand for energy, which is why oil sold off. About a fifth of companies on the TSX are in the energy sector and were among the biggest losers on Friday. Shares of Suncor, Cenovus, MEG Energy and Crescent Point lost more than eight percent on the day. More and more economic indicators are beginning to suggest that Canada’s economy has either already derailed or is about to. Employment numbers last week showed the economy has lost jobs for three straight months, and retail sales data on Friday showed Canadians are leaving their wallets once again. Stock markets are responding to this gloom, and some analysts believe there is much more pain to come. “The lows we’ve seen recently in the summer months will be challenged in the next couple of days to weeks,” Larry Berman, chief investment officer at Toronto-based QWealth, said in an interview. “The market [isn’t] priced for what central banks are going to do.” The Canadian dollar fell as low as 73.65 US cents, its lowest level in more than two years. More to come
