(Toronto and New York) The Toronto Stock Exchange plunged more than 600 points on Thursday, while the major American indices also tumbled the day after the largest interest rate hike by the Federal Reserve of the United States since 1994.
Posted at 4:13 p.m.
Updated at 4:51 p.m.
Despite a rebound on Wednesday, after the US central bank announced a three-quarters percentage point hike in its key rate, stocks tumbled across the market amid hopes of a landing in sweetness waned.
The Dow Jones, which gave up nearly 1,000 points in the session, ended down 2.42%, dipping below 30,000 points for the first time since January 2021, while the NASDAQ index fell 4 .08% and the broader S&P 500 index, 3.25%.
“Wall Street didn’t take long to lose its enthusiasm from yesterday after (the Fed’s announcements), as other major central banks are also becoming more aggressive in their own fights against inflation,” explained , in a note, Edward Moya, of Oanda.
After the Federal Reserve on Wednesday, the Bank of England also raised its key rate on Thursday, but by only 0.25 points, as did the Swiss National Bank, the latter having completely taken investors by surprise.
“When people think about the impact that the simultaneous movement of all the central banks could have” towards a generalized tightening, “they say to themselves: I still have profits to take, let’s go”, and start selling, explained Maris Ogg, portfolio manager for Tower Bridge Advisors.
“With the Fed’s balance sheet reduction (begun in June) and markets expecting another 0.75 percentage point hike at the next Fed meeting,” traders are wondering “if the Fed is not going astray”, and to go too fast and too strong in its monetary tightening, commented Quincy Krosby, of LPL Financial.
The Toronto floor’s S&P/TSX Composite Index shed 607.50 points, or more than 3%, to end the session with 19,004.06 points. It now has a decline of 24% compared to the start of the year.
“To me, it’s all about the Federal Reserve,” said Allan Small, analyst at IA Private Wealth Management.
Fears about the rising cost of loans and its knock-on effect – starting with the housing market – are weighing on a range of indices. Meanwhile, concerns about whether the U.S. central bank’s rate hikes will tackle problems caused, in large part, by factors largely beyond its control, continue to mount, he said. underline.
“At the end of the day, I don’t think the fact that the Fed is rising so aggressively does anything for inflation – at least not yet,” Small said. Hence the even greater gloom about economic stability.
An ambient gloom that was fueled by a series of bad indicators, first of all the manufacturing activity index in the Philadelphia region, which showed a contraction in June (-3.3 points), while economists waited an increase (+4.8 points).
The first signs of a slowdown are starting to appear, “so the question is whether this will affect the pace of inflation”, according to Maris Ogg. “Because the Fed is focused on that” more than on economic growth. “And if not, it looks like they won’t stop (raising rates) despite signs of declining consumer confidence” in the economy.
For Maris Ogg, the ongoing global monetary tightening, as well as the exit from the market of certain investors who want to limit their exposure to risk, threaten market liquidity, which could further increase volatility, or even create more brutal shocks.
Illustration, the yield on 10-year US government bonds oscillated by 0.26 percentage points on Thursday, a very unusual amplitude in a market with usually very measured movements. It stood at 3.23%, against 3.39% the day before.
In the currency market, the Canadian dollar traded at an average rate of 77.35 US cents, up from 77.23 US cents the previous day.
On the New York Commodities Exchange, crude oil rose US$2.15 to US$115.24 a barrel, while natural gas rose US44 cents to US$7.46. million BTUs.
The price of gold jumped US$30.30 to US$1849.90 an ounce and that of copper fell about 5 US cents to US$4.11 a pound.