Canada’s main stock index posted a triple-digit decline, weighed down by losses in the energy, materials and technology sectors, while U.S. markets fell amid worries about trade tensions between the U.S. and China.
The S&P/TSX composite index closed down by 266.18 points at 16,183.96 to slip by 1.62%.
“This is clearly a reaction to worries that the trade tension between the U.S. and China are not only escalating, but potentially risk spilling over into more of a global trade story,” said Craig Fehr, a Canadian markets strategist with Edward Jones in St. Louis.
Reports from The Wall Street Journal and Bloomberg News said U.S. President Donald Trump is planning to limit exports of some high-tech products to China and will limit investment in technology firms by companies with substantial Chinese ownership. Treasury Secretary Steven Mnuchin said the administration is preparing a statement on investment restrictions related not just to China, but to other countries that allegedly steal U.S. technology.
Meanwhile, U.S. tariffs on tens of billions of dollars of imports from China — along with retaliatory Chinese tariffs on U.S. goods — are set to take effect in less than two weeks.
The potential for protectionist restrictions to go beyond tactics has investors worried, said Fehr: “That’s just got the markets increasingly worried that this went from tough talk on tariffs as a negotiating tactic, to potentially a much broader issue.”
All major indices on the Toronto Stock Exchange saw declines on Monday, but the S&P/TSX global base metals index fared the worst with a 3.7% decline. Base metals such as copper and zinc are often seen as proxies for growth in China, so any potential disruption to the economy can have a knock-on effect on the metals, said Fehr.
“The fact that we’re seeing a sell-off in metals, as well as areas like technology, suggests that the market at least today is interpreting this as potentially disrupting global growth on a wider scale,” he said.
In New York, the technology-heavy Nasdaq composite index closed down by 160.81 points or 2.09% at 7,532.01. The Dow Jones industrial average closed down by 328.09 points at 24,252.80 and the S&P 500 composite index ended down by 37.81 points at 2,717.07.
Part of the problem with the trade dispute for markets is there is no clear end in sight, said Fehr: “Today’s probably a good reflection of the fact that investors are becoming increasingly worried that this is not only going to potentially escalate, but continue to drag on for some time.”
Despite the concerns, Fehr said he doesn’t believe the disputes will actually result in a full-blown trade war that would result in a global recession.
“A lot of this is just a tit-for-tat rhetoric to some extent, to try and extract some more concessions from the other party,” he noted. “While we might see some pain endured, I don’t think we’re going to see the worst case from this.”
The Canadian dollar averaged US75.17¢, up 0.03 of a US cent. The loonie is trading around its lowest level in a year as it feels the combined pressures of lower crude prices and rising interest rates in the U.S.
The August crude contract closed down by US50¢ at US$68.08 a barrel and the August natural gas contract was down by US2¢ at US$2.92 per mmBTU.
The S&P/TSX capped energy index ended down 2.02% in the face of lower crude prices and risk appetite. Some producers were also feeling pressure after Syncrude Canada Ltd. said its operations were offline following a power outage. Suncor Energy Inc., majority owner of Syncrude, was down $1.91, or 3.58%, to $51.44.
The August gold contract was down by US$1.80 at US$1,268.90 an ounce and the July copper contract was down four cents at US$2.99 a pound.