Investors dump Canadian stocks, bet on more rate cuts as oil slumps

By Fergal Smith

TORONTO (Reuters) – Canada’s main stock index fell on Monday by the most since the 2008 global financial crisis and the loonie hit a near-three-year low as a plunge in oil prices rattled investors, with pressure rising on the Bank of Canada to cut interest rates further.

The Toronto Stock Exchange Composite Index <.GSPTSE>, which has a 15% weighting in energy stocks, was last down about 9%, its biggest drop since December 2008, as Saudi Arabia and Russia signaled they would compete on price rather cut output further.

The price of oil , one of Canada’s major exports, fell as much as 34% to its lowest level since February 2016, at $27.34 a barrel.

“Canadian assets are getting hit pretty hard because we are seeing a major crash in the oil price,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “We are into this phase of the market where it looks like people are selling everything. Pull-the-rip-cord-and-get-me-out-of-here kind of trading.”

The TSX sell-off came as stocks globally <.WORLD> were pummeled by fears the coronavirus outbreak would trigger a recession.

The energy sector on the Toronto Stock Exchange <.SPTTEN> tumbled by about 26%, with Cenovus Energy Inc down more than 50%, while the Canadian dollar slumped to its weakest intraday level since May 2017 at 1.3760 to the U.S. dollar.

“Crazy moves in USD-CAD over the last 24 hours,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. “The plunge in the price of oil adds tremendous pressure on the BoC and on the Fed to cut further.”

Last week, both the Bank of Canada and the Federal Reserve slashed their key interest rates by 50 basis points. Should the sell-off in oil continue, they could decide to ease again without waiting for a policy meeting.

“Probably central banks would like to wait a few days, see where that (oil) settles, and it will depend entirely on market dynamics whether they have the luxury of waiting a few days to see where it settles,” Anderson said.

Money markets expect a further 50 basis points of easing from the Bank of Canada by June, which would leave its benchmark rate at just 0.75%.

Bond investors are counting on further easing, with the 10-year yield hitting a record low of 0.233%. It was last down about 20 basis points at 0.522%.

(Reporting by Fergal Smith; Editing by Dan Grebler)