Volatility continues to ripple in markets

TORONTO — North American markets started the week higher but again dropped at the end of the day, this time pushed deeper on renewed trade threats against China from U.S. President Donald Trump.

Early trading was a reflex reaction as investors bought into last week’s weakness, said Craig Fehr, Canadian markets strategist for Edward Jones.

The S&P/TSX composite index gained 131 points early, but closed down 166.51 points, more than one per cent, to 14,721.75. That’s the lowest level since July 8, 2016.

“I think it’s a reflection of the lack of conviction that we have in the market right now,” Fehr said in an interview.

“I think investors by and large have been a little shell-shocked by the volatility of recent weeks.”

Fehr said the fundamental backdrop for the market, including improved corporate earnings, the economy and interest rates, remain positive. But market swings have sapped the conviction of the bull market.

“So I think we’re probably due for more swings like this, kind of intraday swings and daily swings that are reflective of low conviction at the moment.”

All sectors on the TSX lost ground on Monday, led by cannabis-heavy health care which was down more than 10 per cent. Aphria Inc. closed down 17.35 per cent, Canopy Growth Corp. 14.12 per cent and Aurora Cannabis 16.10 per cent.

Since Canada legalized recreational marijuana use Oct. 17, pot stocks have lost up to about 45 per cent of their value.

The energy sector closed off more than three cent as the price of crude oil continued to fall as investors remained concerned about slowing global demand led by weakness in China.

The December crude contract was down 55 cents at US$67.04 per barrel and the December natural gas contract was down 2.7 cents at US$3.20 per mmBTU.

In New York, the Dow Jones industrial average was down 245.39 to 24,442.92. The S&P 500 index was off 17.44 points to 2,641.25, while the Nasdaq composite lost 116.92 points to 7,050.29.

U.S. markets sustained sharp losses late in the day on reports that Trump is planning new tariffs on all remaining imports from China if the two sides don’t make progress in trade talks next month.

But Fehr said the day’s losses can’t be totally blamed on Trump.

“Certainly concerns about protectionism, global trade and the impact that is going to have on global growth have been a source of concern and risk for this market. And today’s no different.”

He said there’s no guarantee against further market losses, but long-term investors will see this period as a buying opportunity.

The Canadian dollar traded at an average of 76.23 cents US, its lowest level in nearly seven weeks, and compared with an average of 76.29 cents US on Friday.

The December gold contract was down US$8.20 at US$1,233.10 an ounce and the December copper contract was essentially flat at US$2.74 a pound.

Meanwhile, China’s yuan sank to a 10-year low against the dollar on Monday, coming close to breaking the politically sensitive level of seven to the U.S. currency. The yuan declined to 6.9644 per U.S. dollar at midday, passing its most recent low in 2016 before recovering slightly. It was the lowest level since May 2008.

The currency’s weakness is one of a series of elements fueling Washington’s trade complaints against Beijing. The U.S. Treasury Department declined this month to label China a currency manipulator but said it was closely watching Beijing.

Chinese authorities have promised to avoid “competitive devaluation” to boost exports amid a tariff war.