The Toronto Stock Exchange was hit by a wave of selling on Thursday as more central banks around the world raised interest rates, a sign of how worrisome the specter of high inflation has become.
Canada’s benchmark stock index lost as much as 600 points or almost 3% at one point, dropping below 19,000 points for the first time since April 2021.
The TSX has fallen 13% since April as more and more data suggests central bank rate hikes are nowhere near enough to tame the inflationary beast, and more aggressive action is needed.
The US Federal Reserve raised its key interest rate by 75 basis points on Wednesday, its biggest upward move in 26 years.
The Swiss National Bank and the Bank of England followed suit on Thursday, raising their lending rates in a bid to calm overheated economies.
“Monetary policymakers typically catch up with inflation with rate hikes, but the extent to which inflation is more deeply entrenched and driven by structural rather than cyclical factors remains unclear,” the Bloomberg analyst said. Intelligence, Gina Martin Adams, in a note to clients.
Great hike expected in Canada
After rising three times this year to take its rate from 0.25% as recently as March to 1.5% now, investors expect the Bank of Canada to announce its own rate hike this month. next, bringing its rate to 2.25. %, a level not seen since before the 2009 financial crisis.
Persistent inflation has cooled equity markets recently as investors realize that persistently rising prices will dampen profits as consumers are forced to find ways to cut spending.
“Can the economy handle it? So far, leading indicators are showing good numbers, but we remain cautious about a consumer strike,” said Giuseppe Sette, president of quantitative research firm Toggle.
All 11 TSX sub-indices were down, from energy to banks, and from healthcare to technology.
Things were even worse on Wall Street, where the Dow Jones Industrial Average fell 700 points or more than 3% to dip below the 30,000 level for the first time since January 2021.
Both the broader S&P 500 and the tech-focused Nasdaq have officially entered bear markets, meaning they are down 20% or more from the peak.