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After a good start to the week, the TSX has come down more than 1 percent.
The S&P/TSX Composite index (INDEXTSI:OSPTX) opened slightly higher from Wednesday’s close on Thursday after the European Central Bank announced an interest rate cut and an extension of its stimulus program. The morning’s gain of 0.25 percent was short lived, however, as the index then slipped a further 6.53 points to 13,457.29 points.
On Wednesday, Canadian markets were in bad shape, erasing most gains made over the two previous sessions. At the start of the week, the TSX saw a 2-percent rally, the best two-day advance seen in two months. However, urged on by weakness in the resource sector, the TSX was down 172.24 points, or 1.26 percent, to end mid-week trade at 13,463.82 points.
Leading the charge on Wednesday’s drop was a sharp decline in oil prices, which triggered a sell off in other commodities. The Globe and Mail reported that oil prices fell to a six-year low. Indeed, benchmark crude oil ended the day $1.94 lower than it started, trading at US$39.94 a barrel. Alongside languishing oil prices, energy producers didn’t fare well, falling a cumulative 3.6 percent and leading equities lower.
According to Gareth Watson, director of investment management group GMP, “the importance of commodity-related stocks to the Canadian market has come down over the last year as prices have slid.” Unfortunately, that has not translated well to outside investors, who, as The Canadian Press states, remain apprehensive “of Canadian-listed companies because of the perception that the country’s economy performance is tied to commodities and are sensitive to the relative gains in the recovering American economy.”
That said, investors should note that while the energy sector posted the biggest loss for the day, it was not the only flailing sector on Wednesday. February gold contracts shed $9.70 to reach US$1,053.80 an ounce. That said, the yellow metal did regain $1.40 during early Thursday trading, and was sitting at 1,054.60 near 12:00 p.m. EST.
Meanwhile, despite having ended the mid-week up 0.08 of a cent, the Canadian dollar slipped on Thursday morning by 0.12 of a cent, to 74.79 cents against the US dollar. So far this year, the Canadian dollar has struggled against the greenback, shedding more than 13 percent in 2015. The little support for the dollar on Wednesday came from the Bank of Canada, which said that it will be keeping its overnight lending rate unchanged at 0.5 percent.
“The Canadian economy is undergoing a “complex and lengthy adjustment” as non-energy exports and the weaker currency help to contain the damage from lower oil prices,” Governor Stephen Poloz said in a statement.
The Canadian markets aren’t the only ones showing weakness this week. On Wednesday, Wall Street also ended sharply lower after US Federal Reserve Chair Janet Yellen alluded to a hike in US interest rates. In mid-morning trade, the Dow Jones Industrial Average (INDEXDJX:.DJI) was down 54.42 points, at 17,675.16 points.
Market watchers will be on the lookout for US employment figures, slated to be released on Friday. Should the numbers be “extraordinarily weak,” the expectation is that the Fed will look to raise interest rates for the first time since the financial crisis. The Fed meeting is scheduled for December 15 through 16.
TSX Venture Exchange also slides
Alongside the bigger exchange, S&P/TSX Venture Composite index (INDEXTSI:JX) shed 5.9 points to cap off Wednesday trading at 514.53 points. By mid-day Thursday, the exchange was down 0.33 points to 514.2 points.
The Wall Street Journal reported earlier this week that in the 10 months ended in October, the TSXV saw a decline of 15.4 percent in trading volumes compared to the same period in 2014. Meanwhile, new listings on the exchange have fallen by 23 percent.
The weakened state of the exchange has prompted parent company TMX Group (TSX:X) to make some changes. In a press release put out Tuesday, TMX Group announced plans to introduce significant changes aimed at supporting, revitalizing and growing the TSXV, a critical part of the TMX Group family and the Canadian economy.
Specifically, TMX Group will endeavor to: “[r]educe the administrative burden to TSXV issuers without compromising investor confidence; [e]xpand the base of investors financing TSXV-listed companies and generally enhance liquidity; [d]iversify and grow the stock list to increase the attractiveness of the marketplace to early-stage companies in Canada, in North America and around the world.”
Indeed, as Nick Thadney, president and CEO of Global Equity Capital Markets at TMX Group, stated, the “TSXV is the world’s leading public venture market for small and medium-sized enterprises and we intend to build on this strength.” He added that TMX Group is “squarely focused on revitalizing the market to remain the preeminent financing option not only for early-stage resource companies, but also for growing businesses in the burgeoning technology and innovation sectors in Canada.”
Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.