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TSX slumps as oil falls below $80 and economic gloom settles in – CBC News
Canada’s benchmark stock index dropped heavily on Friday as prospects of a global recession cause investors to sell first and ask questions later.
The S&P/TSX Composite Index was off by more than 520 points or 2.75 per cent to close at 18,480, dragged down by a plunge in the price of oil. That’s the lowest level for the benchmark Canadian stock index since July.
The benchmark price of crude oil in North America lost almost $5 to close at $79.13 a barrel, its lowest price since January. The catalyst for oil’s decline seems to have been central banks signaling this week that they are so committed to reining in inflation that they are willing to create a recession to achieve it.
The U.S. Federal Reserve hiked its benchmark interest rate on Wednesday, and nine other countries around the world followed suit the next day. That will help bring down inflation, but it will likely come at great cost to the economy.
“Clearly what they are saying is they are so determined to bring inflation down that they are going to bring down the economy in the process,” said John Zecher, the founder of Toronto-based money manager J Zechner & Associates. “That’s the way the market is reading it … They aren’t going to stop until the economy turns down.”
Oil price down to lowest since January
A recession would lead to much less demand for energy, which is why oil sold off. About a fifth of the companies on the TSX are in the energy sector, and they were among the biggest losers Friday. Shares in Suncor, Cenovus, MEG Energy and Crescent Point all lost more than eight per cent on the day.
More and more economic indicators are starting to suggest Canada’s economy either already has derailed or is about to. Employment numbers last week showed the economy has lost jobs for three months in a row, and retail sales data on Friday showed that Canadians are putting away their wallets once more.
Stock markets are responding to that gloom, and some analysts think there is a lot more pain to come.
“The lows that we saw recently in the summer months are going to be challenged in the next couple of days to weeks,” said Larry Berman, chief investment officer with Toronto-based money manager QWealth, in an interview. “The market [isn’t] priced for what the central banks are going to do.”
The Canadian dollar dipped as low as 73.61 cents US, its lowest level in more than two years.
Shares in New York also sold off, with the Dow Jones Industrial Average closing down almost 500 points to 29,590 — its lowest level of the year.
“Over the next couple of weeks, long-term investors may hesitate buying into weakness,” said Edward Moya, an analyst with foreign exchange firm Oanda. “How far we go below the summer lows is anyone’s guess.”
Powell Says Economy May Be Entering ‘New Normal’ After Pandemic – Yahoo Canada Finance
(Bloomberg) — Federal Reserve Chair Jerome Powell said the US economy may be entering a “new normal” following disruptions from the Covid-19 pandemic.
“We continue to deal with an exceptionally unusual set of disruptions,” Powell told business and community leaders Friday at a Fed Listens event in Washington. “As policy makers we’re committed to using our tools to help see the economy through what has been a uniquely challenging period.”
In his brief welcoming marks, Powell didn’t discuss the outlook for interest rates or offer more specifics on the economic outlook. All seven of the Board’s governors were present for the panel with Philip Jefferson and Lisa Cook making public comments in their roles as Fed officials for the first time.
Fed officials heard a consistent message that shortages and scarcity were still afflicting businesses along with high labor turnover. Speaking about the small- and medium-sized companies they consult with, Cara Walton, for Harbour Results in Southfield, Michigan, said her clients “can’t find people,” and when they do find them, turnover is high.
US central bankers raised their benchmark lending rate by three quarters of a percentage points this week for a third straight time — the most aggressive pace of tightening seen since the Fed battled inflation back in the 1980s.
Powell and his colleagues are moving rapidly to reduce the highest inflation in nearly 40 years after being slow to spot the threat of broadening price pressures. Critics have slammed them for that error, although inflation has also been worsened by Russia’s invasion of Ukraine, which boosted food and energy prices around the world.
Fed Vice Chair Lael Brainard, speaking later during the event when the panel considered how families are adapting to the post-pandemic economy, noted that price pressures were hitting the most vulnerable particularly hard.
“We have seen high wage growth among the lowest income workers but looking overall, wages haven’t kept up with inflation and inflation is very high,” she said. “If we look at who bares the burden, everybody is affected by high inflation but of course it puts special burdens on lower income families as well as on people with fixed incomes.”
US consumer prices rose 8.3% in the 12 months through August and officials have vowed to cool them even if that means causing harm to the US economy and its workers.
Officials couch this as an effort to slow excess demand and put the labor market back into “balance” — a euphemism that glosses over the fact many people could lose their jobs in the process. The labor market has so far remained strong, with unemployment at 3.7%, but policy makers this week forecast that would rise to around 4.4% next year as they continue to raise interest rates.
Fed Listens events have been held around the US since 2019 as the central bank sought public input on a review of its approach to monetary policy. That overhaul was completed in 2021 but the Fed has kept them going to maintain public engagement at a time when its actions remain front-page news.
In closing, Powell thanked the panelists for sharing their experiences of the post-pandemic economy.
“We get to spend a lot of time with data, here at the Fed. But I personally would say I need to hear narratives, I need to hear stories, about what’s really going on out there for it all to make sense,” he said. “We all learned a lot from you today.”
(Adds comment from closing remark from Powell in final paragraph.)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
Global Economy Headed Into Recession – Forbes
The global economic outlook is deteriorating due to inflation-fighting efforts by central banks, the war between Russia and Ukraine, and China’s prioritization of political control over economic growth. A global recession is likely, with at least slower economic growth virtually certain.
People who have followed my work for years often say that I’m an optimist, and usually I am. Right now, though, the weight of evidence points to a slowing world economy.
Just as the Federal Reserve has hiked interest rates in the U.S., many central banks around the world are tightening monetary policy. The Council on Foreign Relations publishes a Global Monetary Policy Tracker which, as of August 2022, shows tightening among most of the 54 central banks that they track.
Specifically, the European Central Bank has increased its policy rate and signaled more increases are likely in the coming months. So have the Bank of England and the Bank of Canada. Other tightening countries include Australia, India, and many in Latin America. The only major countries easing monetary policy are Russia and China. The global tightening is likely to slow economic growth around the world and lead to recession in some countries.
The tightening is not a mistake, but in most cases it’s coming too late, which means more economic damage than it had begun earliers.
Europe has the additional challenge of tight energy. Their dependence on Russian energy has increased in the past decade from 25% of total gas demand in 2009 to 32% in 2021.
In recent weeks the European Union announced a plan to cap the price paid for Russian natural gas, and President Putin threatened to further restrict supplies of energy to Europe. Rationing schemes are under discussion, electricity prices have soared, and energy-intensive industries are shutting down some of their European operations. The likely result, barring some quick resolution, will be a full-blown European recession this winter.
China’s economy is weakening, as I’ve detailed recently. President Xi Jinping has prioritized political and ideological control over economic growth, plus pursued a zero-Covid policy that has shut down portions of the economy. Serious western analysts are discussing the possibility of a Chinese invasion of Taiwan, a blockade, or at least much more pressure on Taiwan to accept mainland laws and a puppet leader. The odds of actual shooting are probably low, but the consequences are very high, justifying serious contingency planning.
The Russian and Chinese issues are leading companies around the world to shorten and simplify their supply chains, reshoring in their home countries when possible. This will be costly, effectively reducing global productive capacity. Change will come slowly, and it’s necessary given international tensions, but the changes will reduce economic production around the world..
Commodity prices are usually a good gauge of current sentiments about future global economic growth. As this article is written, oil prices have dropped recently despite the problems with Russian energy deliveries and a drop in OPEC production.
Copper prices have also fallen in recent weeks. Copper is another good indicator of expectations about economic growth.
In the positive side of the ledger, Canada and Mexico, both large export markets for the United States, are less sensitive to these global economic headwinds.
How bad will the global slump be? Probably not as calamitous as the 2008-09 financial crisis, but certainly worse than the minor cycles we’ve seen. And if shooting breaks out over Taiwan, then economic disaster will befall the world for a few years.
Business contingency planning for a global slump should recognize the interest sensitive portion of the risk. Monetary tightening tends to cut construction, first residential and later non-residential, as well as business capital spending and big-ticket consumer spending. Companies selling into those industries will be most vulnerable.
Companies trading with Europe should be worried. Primary concerns would be sales of goods and services to energy-intensive businesses in Europe, as they may have to suspend operations so that homes can be heated in the winter. Discretionary consumer spending will also be reduced. Businesses reliant on materials from European manufacturers should consider possible supply chain problems resulting from the energy crunch.
Businesses selling to China can expect lower growth, perhaps even a decline in some sectors such as building materials. Whereas the monetary policy impacts will be sharp but relatively brief, China’s economic slump will be gradual and long-term, at least so long as Xi Jinping’s policies are in effect.
Organizations doing business with China, Taiwan and maybe even their close neighbors must do contingency planning for conflict. No one particular scenario seems to be hugely more likely than the others, so multiple possibilities should be considered.
Finally, every major change brings opportunities for growth for a few businesses that are creative, far-sighted and bold. Being open to growth opportunities in changing times will pay dividends in the eventual upturn.
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