Stock markets tumble after gloomy Fed assessment
Posted September 22, 2011 11:57 am.
This article is more than 5 years old.
TORONTO (NEWS1130) – The Toronto stock market nosedived today plunging about four per cent after the US central bank delivered a blunt warning about worsening economic prospects.
The S&P/TSX composite index tumbled 484.25 points or 4.05 per cent to 11,470.76, while the junior TSX Venture Exchange lost 106.28 points or 6.24 per cent to 1,597.5.
The steep decline follow an assessment yesterday from the US Federal Reserve that there are “significant downside risks to the economic outlook.”
The Canadian dollar tumbled alongside many other currencies as the American central bank’s warning pushed investors to the perceived safe haven status of U.S. Treasury bonds.
The loonie fell 2.15 cents to 96.96 cents (US) after going as low as 96.51 cents, its lowest level in about a year. The currency closed below parity with the U.S. dollar on Wednesday for the first time since the end of January.
US markets also sold off, the Dow Jones industrials falling 460.72 points or 4.1 per cent to 10,664.12, the Nasdaq composite index losing 103.55 points to 2,434.64 and the S&P 500 index dropping 46.31 points to 1,120.45.
The Fed statement was part of an announcement that saw the central bank reveal a new effort to drive down long-term interest rates. The plan is to sell $400 billion (US) in Treasurys coming due in the next few years and use the cash to buy Treasurys due between six to 30 years from now.
However, investors were far from certain that this latest round of stimulus can stop the American economy from slipping back into recession. Stocks had also tanked yesterday after the Fed added that while it expects some pickup in the pace of the recovery in coming quarters, growth remains slow amid continuing weakness in labour markets.
Also overhanging markets was investor impatience with European officials to come up with a comprehensive plan for dealing with the government debt crisis.
Greece is the biggest immediate problem. It is currently in talks with its creditors about whether it has done enough to get the next slice of its bailout. If Athens doesn’t get the 8 billion euros by mid-October, it will run out of money.
A Greek default would be disastrous for an already suffering eurozone.
The TSX is down just over 19 per cent from its highs of early March. A 20 per cent drop signals that the market has entered bear market territory.
The flight from any sort of risk, demand concerns and the rising greenback sent prices for oil and base and precious metals skidding.
The November crude contract on the New York Mercantile Exchange lost $5.66 to $80.26 (US), sending the energy component down 5.4 per cent.
The base metals sector fell almost seven per cent as December copper fell 28 cents to $3.49 (US) after earlier hitting a 52-week low of $3.45.
Despite the flight to safety, bullion prices also tumbled with the December contract on the Nymex closing down $66.40 to $1,741.70 (US) an ounce and the gold sector lost almost five per cent.
A stronger greenback usually helps depress commodity prices — a major influence on the Toronto stock market’s main index — which are denominated in dollars, as it makes oil and metals more expensive for holders of other currencies.
