Toronto’s main stock index joined U.S. markets in a downward swing Monday as Chinese tariff action rattled investors after the holiday weekend.
China’s imposition of tariffs on a US$3 billion list of U.S. goods including pork and apples was expected, but still helped send markets down in what has become a jittery environment over trade war fears, said Craig Fehr, a Canadian markets strategist at Edward Jones in St. Louis.
“The general sentiment in equity markets has certainly shifted to one of caution, so I think today is one of those days where the news certainly wasn’t new by any stretch, but the potential that this protectionist rhetoric will eventually spill into something a little more widespread in terms of a trade war continues to worry equity markets.”
The Chinese tariffs were in retaliation to U.S. President Donald Trump’s imposition of steel and aluminum tariffs on a number of countries but focused on Chinese production. Trump has also proposed tariffs on a wider range of about US$60 billion worth of Chinese goods that China has yet to respond to beyond promising it will defend itself.
“The markets are getting a bit spooked by the prospects that this could just escalate downward, in more of a spiralling fashion, and each incremental announcement is followed by perhaps an even heavier hand in protectionist policy,” said Fehr.
The Toronto Stock Exchange’s S&P/TSX composite closed down 153.84 points at 15,213.45, led by declines in energy and health care.
In New York, the Dow Jones industrial average closed down 458.92 points at 23,644.19. The S&P 500 index was down 58.99 points at 2,581.88 and the Nasdaq composite index was down 193.33 points at 6,870.12.
The declines hit technology stocks particularly hard, due to a combination of increased regulatory scrutiny and the heights to which they had climbed in the bull market, said Fehr.
“It’s the highest flyers that are being hit. So as we’ve seen in the downturn in equities in recent weeks, it’s been technology, which has been by far the best performer leading up to this correction,” he said.
The declines in recent weeks is part of a pullback from the optimism that has defined markets in recent years, said Fehr, though market fundamentals remain strong.
“It continues to reflect that equity markets had done so well, and were so calm, heading into 2018 that this is kind of unwinding that complacency that we saw set in over the past couple of years.”
The Canadian dollar averaged US77.47¢, down 0.09 of a U.S. cent. The loonie saw downward pressure from falling crude prices, but saw some support from a wavering U.S. dollar because of the market instability, said Fehr.
“Any time you’ve got a two-plus per cent sell off in crude prices that’s going to be quite negative for the loonie. That’s obviously putting some pressure there. I’d say it’s getting some support, however, from concerns about trade wars largely weighing on the U.S. dollar to some extent.”
The May crude contract closed down US$1.93 at US$63.01 per barrel and the May natural gas contract ended down US5¢ at US$2.68 per mmBTU.
The June gold contract closed up US$19.60 at US$1,346.90 an ounce and the May copper contract was up US2¢ at US$3.05 a pound.
Prometic Life Sciences led declines in the health care subindex, closing down about 16% on top of a 29%t one-day drop on Thursday.
The decline followed a Prometic press release announcing that the U.S. Food and Drug Administration wanted additional manufacturing data submitted before proceeding with a licence application for a new product.
Cannabis stocks also saw declines on the TSX as Aurora Cannabis Inc. ended down 2.47%, Aphria Inc. down 2.09%, and Canopy Growth Corp. down 4.90%.