TSX, Dow stumble on China worries
North American markets were lower Wednesday amid persistent uncertainty over the health of the Chinese economy. The S&P/TSX composite index closed down 157.24 points at 14,036.63, its sixth decline in the last seven sessions.
Events in China continued to roil global markets amid fears the value of the yuan will continue to erode. Those fears prompted a wild ride on China’s Shanghai Composite Index, which plunged as much as 5 per cent before eventually closing up 1.2 per cent.
The ripple effect was felt across several key commodities as oil prices plumbed multi-year lows, following an unexpected increase in U.S. crude inventories.
October crude, which is now the heaviest traded contract, was down $1.85 at $41.27 (U.S.) a barrel, while the September crude contract was down $1.82 at $40.80 a barrel.
Energy stocks were by far the biggest drag on the TSX, falling 4.3 per cent. In other commodities, natural gas edged up half a cent to $2.71 per thousand cubic feet while copper lost a penny to $2.28 a pound.
Gold marched ahead $11 to $1,128.10 an ounce, marking its biggest singlesession rally in a week as the TSX gold sector rose 3.7 per cent.
The Canadian dollar, which is sensitive to movements in key commodities, was down 0.31 of a cent at 76.28 cents.
In New York, markets were also off earlier lows as traders took in minutes from the latest policy meeting of the Federal Reserve Board for clues as to when the U.S. central bank may start to hike interest rates from current historically low levels.
Minutes from the July meeting of the Fed showed a move closer to raising interest rates for the first time in nearly a decade, but there were concerns that a significant economic slowdown in China could pose risks to the U.S. economy.
Policy-makers also expressed concerns that inflation remains too low to justify an interest rate increase.
The Dow Jones industrial average was down 162.61 points at 17,348.73, while the Nasdaq dropped 40.30 points to 5,019.05 and the S&P 500 lost 17.31 points to 2,079.61.
After the Fed minutes were released, the probability of a rate hike in September dropped to 36 per cent from earlier estimates of roughly 50 per cent, according to data compiled by Bloomberg.
“Conditions were not quite ready at this stage for Fed liftoff,” said Todd Mattina, chief economist and strategist at Mackenzie Investments.
He said rate hikes would indirectly boost the U.S. dollar as interest rate differentials widened, along with the possibility other countries may try to follow China’s lead by devaluing their currencies.
“All of these tightening financial conditions in the U.S. would be negative for U.S. inflation and potentially U.S. growth,” Mattina added.