The TSX slumps as oil falls below $80 and economic gloom sets in RS News

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Canada’s stock index fell sharply on Friday as the prospect of a global recession prompted investors to sell first and ask questions later.

The S&P/TSX Composite Index fell more than 520 points or 2.75 percent to close at 18,480, dragged down by falling oil prices. That’s the lowest level for the Canadian stock index since July.

The benchmark price of North American crude oil lost nearly five dollars to close at $79.13 a barrel, its lowest price since January. Exacerbating the decline in oil appears to be the central banks showing this week that they are so committed to reining in inflation that they are willing to create a recession in order to achieve that.

The US Federal Reserve raised interest rates on Wednesday, and nine other countries around the world followed suit the next day. That will help reduce inflation, but it will likely come at a huge cost to the economy.

It’s clear what they’re saying is that they’re so determined to reduce inflation that they’re going to slow the economy in the process,” said John Zecher, founder of Toronto-based money manager J Zechner & Associates. “That’s how the market learns … They won’t stop until the economy goes down.”

Oil prices fell to their lowest level since January

A slowdown in the economy can lead to less demand for energy, which is why oil has been sold. About a fifth of the companies on the TSX are in the energy sector, and they were among the biggest losers on Friday. Shares of Suncor, Cenovus, MEG Energy and Crescent Point all lost more than eight percent on the day.

Emerging economic indicators are beginning to suggest that Canada’s economy is already in recession or about to decline. Last week’s employment numbers showed the economy has lost jobs for three months in a row, while Friday’s retail sales data showed Canadians are once again packing their wallets.

Stock markets are reacting to that gloom, and some analysts think there’s more pain to come.

“The declines we’ve seen recently in the summer months will be challenged in a few days to a few weeks,” Larry Berman, chief investment officer and money manager at Toronto-based QWealth, said in an interview. “The market [isn’t] the price of what the big banks will do.”

The Canadian dollar fell to 73.61 cents US, its lowest level in more than two years.

Stocks in New York also sold off, with the Dow Jones Industrial Average closing nearly 500 points to 29,590 – its lowest level of the year.

“In the next few weeks, long-term investors may be hesitant to buy on weakness,” said Edward Moya, an analyst at the foreign exchange trading company Oanda. “How far we go under the mild summer conditions is anyone’s guess.”

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