TORONTO – North American stock markets fell as a dovish member of the Federal Reserve hinted the central bank would be aggressive in tackling searing inflation.
Governor Lael Brainard, who was named vice-chairman of the Fed, said in a speech on Tuesday that the highest containment of inflation in 40 years is “critically important” and that the central bank is ready. to continue to raise short-term interest rates. after its rise in March, the first since 2018.
She said rates would rise methodically, but the bank’s massive bond-buying program designed to support the economy after the arrival of the COVID-19 pandemic would be scaled back from its next meeting in May. .
Anish Chopra, chief executive of Portfolio Management Corp., said the rate hikes were expected, but comments about its rapidly shrinking balance sheet may have sparked greater market concern.
Investors fear “that overall you’ll get a much more aggressive Fed, which gives you a higher risk of a recession, because if the Fed is aggressive instead of going slow, there’s a chance it will overdo it and the economy tips into a slowdown or a recession,” he said in an interview.
Deutsche Bank on Tuesday became one of the first major banks to predict a recession in the United States.
The S&P/TSX Composite Index closed down 154.77 points at 21,930.83 after setting an intraday high of 22,213.07.
In New York, the Dow Jones industrial average fell 280.70 points to 34,641.18. The S&P 500 index fell 57.52 points to 4,525.12, while the Nasdaq composite fell 328.38 points or 2.3% to 14,204.17.
Brainard’s comments came ahead of Wednesday’s release of the Fed’s March meeting minutes, which could also shed light on its tightening trajectory ahead. The European Central Bank will publish the minutes of its last meeting on Thursday.
Chopra said it was clear that interest rate increases were happening around the world.
US 10-year bond yields which had reversed with two-year bond yields resumed their climb to the highest level of the year.
“I think that reinforces the slowdown… (and) if you look at it, observers are worried, the market is worried that we could go into a recession based on aggressive central bank action.”
Commodities and technology fell on Tuesday on fears that a slowing economy or recession could reduce demand for oil, metals and technology products.
“So lower demand for tech products, lower demand for commodities and you can just see that in stock prices it’s just potential for lower earnings going forward in recession,” Chopra said.
Materials fell 2.5% on lower gold prices, while shares of Lithium Americas Corp. fell 10.6%.
The June gold contract was down US$6.50 at US$1,927.50 an ounce and the May copper contract was up 1.4 cents at nearly US$4.80 an ounce. delivered.
A drop in crude oil prices sent the energy sector down 1.6%, Crescent Point Energy Corp. losing 5.9%.
The May crude contract was down US$1.32 at US$101.96 per barrel and the May natural gas contract was up 32 cents at US$6.03 per mmBTU.
The Canadian dollar traded for a nearly five-month high at 80.31 cents US, down from 80.06 cents US on Monday.
Chopra said the loonie lagged and broke away from the price of oil.
“But today is one of those catch-up days where, despite the oil price going down, the Canadian dollar is going up. But over the last few months, the Canadian dollar really hasn’t done much despite rise in the price of oil. a little.”
The technology sector was weaker with Hut 8 Mining Corp. down 5.4% and Shopify Inc. down 3.2%.
Health care, industrials and financials were among the eight losing sectors that day.
Consumer staples dominated the TSX, climbing on support from grocers Loblaw Companies Ltd. having gained 3.1%.
This report from The Canadian Press was first published on April 5, 2022.
Companies in this story: (TSX:L, TSX:HUT, TSX:SHOP, TSX:CPG, TSX:LAC, TSX:GSPTSE, TSX:CADUSD=X)
Note to readers: This is a corrected story. A previous version had the wrong day of the week.