TSX Near Four Month Low on Economic Recovery Concerns, Oil Price Decline

Day two of October and already Canada’s largest stock index, the S&P/TSX composite (INDEXTSI:OSPTX) is still extending its losses. On Wednesday, the index fell 155 points, but it didn’t stop there. By midday on Thursday the composite was down a further 163.73 points to 14,641.71, having recouped some of the deeper losses seen earlier in the day. Thursday marks the eighth drop for the benchmark index in the last nine sessions.

Accounting for Thursday’s drop to a near four-month low on the index are lagging oil prices. Oil prices fell below US$90 per barrel for the first time since April 2013 as the market continues to battle lower demand and mounting supplies. The Globe and Mail reported that the November crude contract in New York was down $1.15 to $89.58. Meanwhile, Saudi Arabia’s national petroleum company, Saudi Aramco, slashed its selling price for crude oil to the US, Europe and Asia.

Also weighing down the index was the energy sector, which was down 12 percent over the last month. The Globe notes that the sector’s poor performance was a major contributor to the index dropping more than four percent in September.

On the political front, global tensions and concerns surrounding the US Federal Reserve raising interest rates are also playing with the markets. Weaker than expected factory data out of the US on Wednesday didn’t help much, raising concerns over the strength of global economic recovery.

“This overhang that the rates are going to rise at some point has had a bit of a dampening effect,” Brad Radin, chief investment officer of Radin Capital Partners told BNN. “Equity markets go up over time, but they also have breathers, and we’re right in the middle of one of those.”

Colin Ciezynski, chief market strategist at CMC Markets Canada, was pessimistic, noting that early October is generally a weaker period for the market and that investors should be warned they could see some continued selling pressures. “We’re going to be volatile in Canada, just because of what we’ve seen in commodity prices over the last month,” he told Reuters.

Of late, US data has been relatively positive, which has raised the question of if the Fed will deem the economy strong enough to raise interest rates. Markets will have to wait for further cues, like Friday’s US payrolls report for indications of which direction the Fed will take.