Turmoil returned to financial markets as oil plunged past $27 (U.S.) a barrel, the TSX sank as much as 466 points before paring back losses in the afternoon and global equities approached a bear market that is fuelling a rush into haven assets.
The Standard & Poor's/TSX Index slumped 1.33 per cent, or 159.1 points, to 11,843.11 in Toronto. The gauge posted its 13th decline in the past 16 days, and entered a bear market two weeks ago. It's down more than 10 per cent year to date.
"Today is no different than the last several weeks -- Canadian equities are especially hard hit by energy and commodity prices," Audrey Kaplan, senior portfolio manager and head of international equities at Federated Global Investment Management Corp, said. "Until we start to see some rebound there, it seems that the Canadian markets will be in a shaky, volatile ground."
The S&P/TSX trades at 13.7 times the forecast earnings for its members, below the index's 15.3 average of the past five years. It's less expensive than the S&P 500's 15.1 multiple, and in line with developed markets in Europe, where the Stoxx 600 Index trades for 13.8 times estimated earnings.
Bank of Canada policy makers kept their benchmark interest rate unchanged Wednesday and said stronger U.S. demand, a weaker currency and two rate cuts last year are leading the economy out of an oil slump.
The benchmark rate on overnight loans between commercial banks remained at 0.5 per cent, in a decision released Wednesday from Ottawa. Global growth will pick up in 2016, Canada's job market remains resilient and stalling fourth-quarter growth was due to temporary factors, policy makers said.
Two of the Canadian benchmark's 10 main industries rose, led by a 0.7-per-cent rise by materials. With crude trading at a 12-year low, Canadian energy companies pared back an early loss of 6 per cent, a level last seen in September 2004, to finish down 1.4 per cent.
"It's not just stock prices, but the currency as well," Ms. Kaplan said. "The Canadian dollar is cheap, but we're still looking for a better valuation. It's hard to tell if the level is fully pricing in the oil price trend at this point. For those who don't have Canadian exposure, we're not sure it's time yet to buy."
The Canadian dollar rallied, snapping a record losing streak, as the nation's central bank kept interest rates unchanged in the face of sinking oil prices.
"It provides a bit of a window here for a relief rally in the Canadian dollar," Shaun Osborne, chief foreign-exchange strategist for Bank of Nova Scotia, said. "It suggests the bank thinks there's enough accommodation in the system, or coming through the system, to get the economy back to where it thinks it should be."
The loonie gained 0.44 per cent to 68.89 cents U.S. in the late afternoon. The loonie reached the cheapest since April 2003 on Wednesday before the rate announcement.
U.S. stocks pared the worst of the day's losses, as the Nasdaq Composite Index staged a rally that erased a loss of 3.7 per cent amid gains in biotechnology and semiconductor shares.
The Dow Jones Industrial Average cut a loss of 550 points by more than half in afternoon trading as investors speculated the rout that's wiped more than $15-trillion from global equities has gone too far too fast.
"Everybody has been perched on the edge of their chair waiting to see a capitulation day, in which you get a really steep flush in equities," said Mark Luschini, chief investment strategist in Philadelphia at Janney, which oversees about $68-billion. "That's usually indicative of a point where a market may stage a reversal, and we had that today."
MSCI Inc.'s gauge of global equities fell to 19 per cent below its May record, clawing back from the precipice of a bear market. Emerging shares remained 3 per cent lower, while Russia's ruble and Mexico's peso fell to records.
"There are a lot of things behind" the sell-off, said Stephen Schwarzman, the chief executive officer of Blackstone Group LP. "You have economic things such as the slowing of the U.S. economy which has been pretty gradual. You've got energy going down so quickly that you can almost get windburn. You've got China as an issue which is is probably overdone. So when you put those factors together you have an unattractive brew along with the concern the Federal Reserve will raise rates and slow the economy further."
Equities markets buffeted by everything from China to oil and rising interest rates are off to the worst start to a year on record at the same time the Federal Reserve and other central banks have signaled a higher threshold before they'll provide relief. The rout in the oil patch is rippling through markets amid growing signs that credit quality is worsening. U.S. bonds now predict the slowest inflation since May 2009 as investors pile into haven assets.
The MSCI All-Country World Index fell 1.6 per cent at 3:31 p.m. in New York, bringing its drop from a May record to 19 per cent, near the threshold for a bear market.
The Standard & Poor's 500 Index fell 1.2 per cent to 1,859.43 in New York, closing at its lowest level since April 2014.
The Dow Jones industrial average fell 248.87 points, or 1.55 per cent, to 15,767.15, while the Nasdaq Composite dropped 5.26 points, or 0.12 per cent, to 4,471.69.
"We were oversold and we didn't keep falling off the table," said Walter (Buck) Hellwig, who helps manage $17-billion as a senior vice president at BB&T Wealth Management in Birmingham, Ala. "The last-hour strength is positive and I think it's due to the fact that investors are saying, 'This thing is oversold, I'm going to put some money to work,' and it's worked out better than buying it on the up days and then watching it disappear."
The S&P 500's plunge triggered a technical signal that indicates it's oversold. The gauge's relative strength index, which measures whether gains or losses have been too fast to sustain, dipped to 30, a threshold that indicates a rebound may materialize. The RSI last fell below 30 on Jan. 13. The prior time it was that low was on Aug. 25, when the S&P 500 hit a bottom and rallied 6.5 per cent over the next three days.
The main U.S. equity benchmark was nearly 13 per cent below its all-time high set in May, after rallying to within 1 per cent of the record as recently as Nov. 3. The S&P 500 trades at 14.9 times the forecast earnings of its members, in line with the index's average of the past five years. It's more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 13.6 times estimated earnings.
Investors are keeping close watch on progress in the economy as the markets tumble. Data Wednesday showed the cost of living in the U.S. dropped in December, led by a slump in commodities. A separate report showed new-home construction unexpectedly fell last month, indicating the industry lost some momentum entering 2016.
The cost of living in the U.S. dropped in December, led by a slump in commodities, and New-home construction in the U.S. unexpectedly fell, government reports showed to day.
"What the market is focused on is Chinese hard-landing fear, oil prices and the strength in the dollar," said Phil Orlando, who helps oversee $360-billion as chief equity-market strategist at Federated Investors Inc. in New York. "We haven't hit bottom yet. That's when we start talking about the need to retest the summer lows and holding at that level to take us to long-term support."
The MSCI Emerging Markets Index dropped the most in two weeks, sinking 3.1 per cent to the lowest since May 2009. The gauge is down 13 per cent this year, the worst start since records began in 1988. Hong Kong's Hang Seng China Enterprises Index tumbled 4.3 percent as oil producers plummeted and a drop in the city's dollar spurred concern over capital outflows.
Crude sank the most in more than four months as oil executives turned gloomier on the prospect of a recovery this year.
Futures fell 6.7 per cent to the lowest since May 2003. Royal Dutch Shell Plc said Wednesday it expects fourth-quarter profit to drop at least 42 per cent. Markets could "drown in oversupply," sending prices even lower as oil demand growth slows and Iran boosts exports, the International Energy Agency said Tuesday. A "lower-for-even-longer" scenario is forcing companies' budget planners to trim spending even further.
"At this point things are ugly and there's no reason to buy into this market," said Stephen Schork, president of the Schork Group Inc. in Villanova, Pa.
West Texas Intermediate for February delivery, which expired Wednesday, fell $1.91 to settle at $26.55 a barrel on the New York Mercantile Exchange. It was the lowest close since May 7, 2003. The more-active March future slid $1.22 to $28.35. Total volume traded was 50 per cent higher than the 100-day average.
Brent for March settlement slipped 88 cents, or 3.1 per cent, to $27.88 a barrel on the London-based ICE Futures Europe exchange. The contract closed at a 47-cent discount to WTI for the same month.
As crude prices fell another 28 per cent this year, oil and gas producers have begun revisiting their budgets to adjust to worsening market conditions. Canada's Husky Energy Inc. and Whitecap Resources Inc. this week joined Vermilion Energy Inc. in making deeper cuts to their 2016 spending plans, together trimming their budgets by about $945-million. More producers are expected to follow, Benny Wong, an analyst at Morgan Stanley in New York, said Wednesday in a phone interview.
Mining stocks plumbed a 12-year low and metals resumed their slump on prospects for slower economic growth in China and sustained low oil prices. Copper fell as much as 1.1 per cent. The Bloomberg World Mining Index dropped as much as 2.4 per cent to its lowest since September 2003, with the world's biggest miner, BHP Billiton Ltd., losing 6.9 per cent in London.
Gold rose as renewed losses in equities spurred demand for less risky assets, with Citigroup Inc. saying bullion's rationale as a haven was now back in vogue and prices may be supported over the first quarter.