Recession fears depress markets
TORONTO – Deepening worries about an economic slowdown and the credit crisis sent the Toronto stock market more than 200 points lower Tuesday afternoon even as the Bank of Canada cut its key rate half a point to 3.5 per cent.
However, the rate relief came with a warning that the U.S. economy is likely to experience a deeper and more prolonged slowdown than previously projected.
And Canada's central bank said this "can be expected to have significant spillover effects on the global economy."
The half-point cut left some analysts wondering about the effectiveness of central banks' actions given the huge writedowns that commercial banks have had to take on securities linked to the U.S. housing sector.
Chyanne Fyckes, chief investment manager at Stone Asset Management, said the Federal Reserve has already lowered U.S. rates to a relatively low level but credit is tougher to get "so it doesn't matter what the Fed is doing or the Bank of Canada, I don't think, at this point."
"I think the market has taken the reins away from them (central banks) and I do know that in the U.S. the lower rates haven't had an impact because banks aren't lending because they can't."
New York markets also sustained sharp losses amid a call from U.S. Federal Reserve chairman Ben Bernanke for more action to save distressed American homeowners from foreclosures. He warned that foreclosures and late mortgage payments are likely to rise "for a while longer."
Toronto's S&P/TSX composite index fell 226.85 points to 13,317.53 at mid-afternoon with all sectors negative.
The TSX Venture Exchange slipped 62.82 points to 2,731.75.
The Canadian dollar skidded 0.81 cent to 100.38 cents US as losses on stock markets piled up and oil and gold prices tumbled.
New York markets also racked up losses on credit-crisis worries and a profit warning from tech heavyweight Intel.
The Dow Jones industrials lost 198.8 points to 12,060.1.
The Nasdaq composite index was down 31.59 points to 2,227.01 and the S&P 500 declined 20.02 points to 1,311.32.
The TSX financial sector moved down just over two per cent as Bank of Montreal (TSX: BMO) tumbled $2.35 to $46.01 after its first-quarter profit slid 27 per cent to $255 million guaranteed payday loan. BMO's bottom line was hit by $362 million in after-tax charges on trading losses, debt-market writedowns and swelling credit-loss provisions.
Bank of Nova Scotia (TSX: BNS) said its first-quarter net income fell 18 per cent from to $835 million amid valuation writedowns at Scotia Capital. Scotiabank shares were down $1.84 to $44.66.
Also causing ripples in the financial sector was U.S. banking giant Citigroup, after the head of a Dubai-owned investment fund said more writedowns are expected and the bank will need more money. Citi shares fell six per cent to US$21.72.
Also, Merrill Lynch reduced its full-year earnings prediction for Citigroup because it believes the bank could write down another US$18 billion of debt tied to souring mortgages
Intel Corp. lowered its forecast on first-quarter gross profit margin to 54 per cent, down from a previous outlook of 56 per cent, blaming a steeper-than-expected drop in prices for memory chips. Intel shares fell 2.7 per cent to US$19.47.
On the TSX, the energy sector edged one per cent lower as the April crude contract on the New York Mercantile Exchange moved $3.32 lower to US$99.13 after hitting a record intraday high of US$103.95 Monday. Suncor Energy (TSX: SU) lost $1.76 to $102.11 and Oilexco (TSX: OIL) shed 56 cents to $14.22.
Gold prices backed off after five winning sessions that took bullion within a few dollars of the US$1,000 an ounce level. The April bullion contract on the Nymex fell $17.90 to US$966.30 after a record high of US$992 on Monday. The TSX gold sector gave up early gains to move almost four per cent lower with Goldcorp (TSX: G) down $1.21 to $41.98 and Barrick Gold (TSX: ABX) faded $2.19 to $50.73.
The base metals sector gave back two per cent with Teck Cominco Ltd. (TSX: TCK.B) down 47 cents to $40.50 and Equinox Minerals (TSX: EQN) lost 25 cents to $5.75.
The industrials sector backed off 2.5 per cent with Canadian National Railway (TSX: CNR) down $1.29 to $51.14.