Canada’s main stock index tumbled almost 600 points Wednesday, its sharpest single-day drop in weeks, as a surge in U.S. bond yields to their highest level since 2007 spooked investors on both sides of the border.
The S&P/TSX composite index closed down 584.18 points, or 1.61 per cent, at 35,751.43, The Canadian Press reported. The index had already been down more than 400 points in late-morning trading, with losses concentrated in the base metal sector, before the selloff deepened through the afternoon.
U.S. markets fell in step. The Dow Jones industrial average dropped 352.10 points to 51,511.59, the S&P 500 lost 58.61 points to 7,706.03, and the Nasdaq composite fell 308.24 points to 26,936.04, according to The Canadian Press.
The trigger was a sharp move in bond markets. The Associated Press’s Stan Choe reported that the yield on the 10-year U.S. Treasury note jumped to 5.12 per cent from 4.96 per cent a day earlier, a level not seen since 2007, before the global financial crisis. Rising yields make borrowing more expensive and tend to make stocks look less attractive by comparison.
Choe reported the yield spike was driven partly by a preliminary reading on U.S. business activity that showed growth at its fastest pace in more than five years, a sign of economic strength that also raised worries about inflation. Chris Williamson, chief business economist at S&P Global Market Intelligence, said in the report that costs for businesses are leaping at the fastest rate in four years, pointing in part to climbing oil prices.
Oil added to the inflation pressure. November crude gained $1.64 US to close at $92.16 US a barrel, The Canadian Press reported. Gold moved the other way, with the December contract down $58 US to $4,318.40 US an ounce.
The Canadian dollar slipped to 70.94 cents US, down from 71.10 cents US on Tuesday, The Canadian Press reported.
The selloff came a day before U.S. President Donald Trump is scheduled to meet Chinese President Xi Jinping in Washington, Xi’s first visit to the American capital in 11 years, with trade, Iran and artificial intelligence among the topics expected to come up. Investors have been watching the meeting closely for any signals on tariffs, though analysts have cautioned they do not expect a major breakthrough.
Wednesday’s decline follows a stretch in which Canadian borrowing costs have already been climbing even without help from bond markets south of the border. The Bank of Canada held its key interest rate at 2.25 per cent for a seventh consecutive time earlier this week, even as fixed mortgage rates continued to rise, underscoring how bond yields, rather than the central bank’s own rate, have increasingly set the pace for what Canadians pay to borrow.
