Global markets’ dive deepens as TSX sees worst day in months

Global markets continued their dizzying plunge as investors worried about the rising global infection rate of the coronavirus and the widespread economic damage it could cause.

The S&P 500 has plunged 11 per cent in the five days and the Dow Jones Industrial Average careened to the lowest since June, wiping out almost US$3 trillion in value from American equities. The Toronto Stock Exchange, which closed early on Thursday due to technical issues, started Friday with a 500-point plunge, or just more than three per cent, and ended the day down 2.72 per cent.

U.S. Treasuries surged, pushing yields on the 10- and 30-year notes to record lows during the period. U.S. crude plunged toward US$45 a barrel in its biggest weekly rout since 2008.

Canada’s largest stock index flirted with correction territory Friday after plunging for a sixthstraight day, capping off its worst week since the global financial crisis of 2008. It partially recovered to move slightly below the 10-per-cent correction threshold but was still the worst day in 15 months, losing 454.39 points or 2.7 per cent to close at 16,263.05.

The jolt to the TSX, together with the latest poor showing by the Canadian economy added to investor anxiety, leading the Royal Bank of Canada to say it expects the Bank of Canada to cut interest rates next week.

“The plunge in global equity markets and sharp drop in commodity prices, in particular oil, are bumping up the risks that the confidence hit in financial markets will be mirrored in household and business sentiment,” wrote Dawn Desjardins, RBC’S deputy chief economist, in a note on Friday. “We are revising our call for next week’s Bank of Canada meeting and now look for policy-makers to announce a 25 basis-points cut to the policy rate.”

Statistics Canada’s latest economic data on Friday showed the country’s gross domestic product had slowed to an annualized rate of 0.3 per cent in the fourth quarter — its worst performance in almost four years, due to a combination of factors such as strikes, bad weather and shutdowns.

“The data doesn’t show this yet but with markets extrapolating what looked like a modest hit to global growth from the coronavirus into a full-fledged economic downturn, the Bank of Canada is likely to want to lean against any deterioration in confidence,” wrote Desjardins.

Scotiabank called on the central bank to cut rates immediately, saying that Canada’s current monetary policy has been “behind the curve.”

“The Bank of Canada needs to cut. Now. Enough dithering,” wrote Derek Holt, Scotiabank’s head of capital markets economics in a Friday note. “The greater risk to financial stability is not giving the economy a shot in the arm … Risking tightened financial conditions at the juncture would ignore not only the serious risk that the virus poses to the global and domestic economy, but also wouldn’t even acknowledge domestic developments to date,” he added.

Coronavirus has now spread to 56 countries, and the number of infections outside China — where the virus originated — continued to rise. More than 83,000 people have the virus, with roughly 2,800 dead. On Friday, Nigeria reported its first case of the virus, raising alarm bells among health officials who have long considered Africa to be a region of concern for infections such as the coronavirus.

The Bank of Canada will announce a rate policy decision on March 4, while the U.S. Fed meet two weeks later.