TSX plunges as inflation data spooks investors.

TSX plunges as inflation data spooks investors.

Canada’s Main Stock Market Faces Steep Decline on Inflation Concerns

The Toronto Stock Exchange’s S&P/TSX composite index experienced its largest decline since October on Tuesday. This significant drop came as a result of hotter-than-expected domestic inflation data and concerns regarding more interest rate hikes in the United States.

The market closed down 1.9% at 19,899.79, its lowest point since July 11. Investors began to reconsider their optimistic outlook on inflation, realizing that central banks might not ease monetary policy as quickly as previously anticipated.

Elvis Picardo, a portfolio manager at Luft Financial, iA Private Wealth, explained, “Investors are coming around to the view that perhaps they’ve been a little too optimistic about the whole inflation picture improving rather soon and central banks taking their foot off the pedal in terms of tightening monetary policy.”

While Canada’s annual inflation rate climbed higher than expected at 3.3% in July, the central bank’s core measures remained stubbornly high. This unexpected rise added to the concerns surrounding increasing interest rates.

The apprehension wasn’t contained to Canada alone. Wall Street stocks also plummeted after retail sales data revealed stronger-than-anticipated numbers. This revelation sparked worries that interest rates might remain elevated for a longer period. Additionally, U.S. big banks experienced declines following a report indicating that Fitch might downgrade certain lenders.

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The financial sector, accounting for 29% of the TSX’s weighting, experienced nearly a 2% decrease. All ten major sectors in the market ended lower.

Macro concerns in other prominent economies also played a role in the decline of the Canadian market. As Elvis Picardo noted, “Given that the Canadian market is joined at the hip to the global economy, I think those (concerns) are impacting specific sectors like materials and energy today.”

Consequently, the materials group, which includes precious and base metals miners, as well as fertilizer companies, suffered a 3.4% decline. Energy was also down by 2%. Oil settled at $80.99 per barrel, a 1.8% decrease from its previous level.

In other news, Suncor Energy (SU.TO) is currently in talks with French oil major TotalEnergies (TTEF.PA) regarding the potential purchase of TotalEnergies’ nearly one-third stake in the Fort Hills oil sands mine. This ongoing negotiation has had a slight impact on Suncor’s shares, which were down 1.2%.

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