North American markets drop sharply as commodities fall on central bank news

TORONTO – North American stock markets reeled on Thursday as discussions of persistent low inflation from central banks in Europe and the United States sent commodity prices lower.

The Toronto stock market’s seven-day slide continued with a triple-digit drop. The S&P/TSX composite index ended the day down 214.75 points at 13,127.18.

The Dow Jones average of 30 stocks fell 254.15 points to 17,448.07, while the broader S&P 500 index dropped 29.03 points to 2,045.97. The Nasdaq declined 61.94 points to 5,005.08.

The Dow is a price-weighted index, meaning that it gives more importance to higher-priced stocks.

The most expensive stock in the index, Goldman Sachs, was the biggest loser in the 30 component companies, falling $4.62 to close at US$192.77.

Benjamin Jang, portfolio manager at Nicola Wealth Management, said stock markets around the world have declined as concerns about the health of the world economy have touched a broad range of industries.

Commodities, which form a cornerstone of Canada’s stock market, have been sliding for months as global growth has appeared to slow and inflation has faltered.

Earlier today, European Central Bank head Mario Draghi said he would be willing to inject more money into the eurozone in order to push inflation higher and support the flagging economies of some member states.

A speech from Federal Reserve chair Janet Yellen appeared to do little to dissuade market watchers who believe the Fed will raise its benchmark interest rate before the end of the year, despite the American economy being below its own inflation target.

Low inflation in Europe and the U.S. means commodities like oil and gold, which are mostly traded in American dollars, don’t gain much value over time, Jang said. A higher interest rate means investors could shift from commodities to securities related to the Fed’s benchmark rate.

That sends commodity prices lower, even as China’s sputtering growth and signs of strain in the global economy have pushed down demand.

“That’s caused a big weakness in the Canadian marketplace,” Jang said.

On the commodity markets, the December gold contract dropped $3.90 to US$1,081.00 an ounce, while the December contract for natural gas lost 0.3 of a cent to US$2.26.

The December crude oil contract fell $1.18 to US$41.75 a barrel. Oil prices have slid from a high above US$110 in July 2014.

The commodities slide has also hit related industries.

Vancouver-based Finning International, the world’s largest Caterpillar heavy equipment dealer, said it will lay off 1,100 people as demand from the mining and energy sectors has fallen.

The loonie dropped 0.1 of a cent to close at 75.29 cents US.