TORONTO – The Toronto stock market plunged 2.5 per cent Monday as oil prices moved below the psychologically-important US$50 benchmark, for the first time since 2009, and sparked a fresh selloff of energy stocks.
But the damage was widespread as traders considered the wider effects of the collapse in oil prices.
The S&P/TSX composite index tumbled 360.95 points to 14,392.7, paced by a 6.5 per cent drop in the energy sector.
Oil in New York traded as low as US$49.95 a barrel, continuing the steady decline from summertime highs of US$107, before closing down $2.65 to US$50.04.
“Nobody wants to blink first in terms of cutting production,” said Craig Fehr, Canadian markets strategist at Edward Jones in St. Louis.
“Investors (are) trying to figure out what the new equilibrium is for oil and commodities in general. So I think we will feel our way through that for quite some time.”
Almost all TSX sectors lost ground at the start of the first full week of 2015 trading — financials were down 2.1 per cent while industrials shed 2.9 per cent.
“I think it‘s the knock-on effects to some degree,” added Fehr who said there are worries about slowing economies in China and Europe.
“My broader takeaway from all this is: there’s really no one clear cut story to the effects that we will see on global markets as it relates to commodity prices. The consumer benefits, energy sensitive companies will feel the negative impacts of this _ I think it will take awhile for all this to really shake out.”
The Canadian dollar closed up 0.09 of a cent to 85.11 cents US.
The energy sector selloff also hit New York markets at the start of a busy week for economic data, to be capped on Friday by the release of the U.S. government’s employment report for December.
The Dow Jones industrials dropped 331.34 points to 17,501.65, the Nasdaq shed 74.24 points to 4,652.57 while the S&P 500 index was 37.62 points lower to 2,020.58.
Many energy producers have cut back on spending plans for this year and some have cut or eliminated dividends.
Downgrades have also surfaced and, on Monday, analysts at Citi cut their rating on Chevron Corp .to neutral from buy, saying shares now offer “little upside” after outperforming big-oil peers in the past three months. The analysts also downgraded shares of Italy’s Eni and Spain’s Repsol, saying the companies’ business models and valuations will “look more challenged in a lower oil environment.”
Commodity prices were also depressed as the U.S. currency strengthened and the euro fell to the lowest level since March 2006, amid fresh questions about whether Greece will exit the eurozone following elections later this month. A rising U.S. currency makes dollar-denominated crude more expensive to holders of other currencies.
The U.S. dollar strengthened as traders weigh the outcome of upcoming elections in Greece that might be won by the anti-austerity Syriza party that may decide whether the country will stick to the terms of its international bailout and stay in the euro bloc.
Greek jitters helped push the euro down as low as US$1.1864 earlier Monday.
Elsewhere on the TSX, the base metals sector was down 4.35 per cent while March copper fell five cents to US$2.77 a pound.
The gold sector limited losses on the TSX, rising was 2.5 per cent as February bullion added $17.80 to US$1,204 an ounce.