The Toronto stock market tumbled almost 2 per cent as a sell-off across all sectors was triggered by further evidence that the U.S. economy is faltering.
The S&P/TSX composite index fell 275 points to 13,527.88 amid big disappointments on the U.S. employment and manufacturing fronts and the TSX Venture Exchange dropped 27.05 points to 2,067.42.
Bad news from Canada’s largest trading partner and lower oil prices pushed the Canadian dollar down 0.75 of a cent to 102.49 cents US.
New York markets also retreated with the Dow Jones industrial average plunging 279.65 points to 12,290.14.
The Nasdaq composite index was 66.11 points lower to 2,769.19 while the S&P 500 index lost 30.65 points to 1,314.55.
“It looks like this recovery has hit its second ‘soft patch’, which for a recovery that is less than two years old is troubling,” said Paul Ashworth, chief U.S. economist for Capital Economics.
Private payrolls firm ADP said that the U.S. private sector created only 38,000 jobs during May. That was far less than analyst estimates of about 175,000 new jobs in the United States, about the same reading as April.
The ADP data came out two days before the release of the U.S. government’s nonfarm payrolls report for May.
Economists had expected that U.S. government data Friday will show that around 200,000 jobs were added during May, slightly down on April’s 244,000 increase. But some analysts were revising that figure sharply lower in light of the ADP report.
“This is a very weak result, and puts substantial downside risk to Friday’s nonfarm figure,” said BMO Capital Markets senior economist Jennifer Lee.
The latest reading on the health of the U.S. manufacturing sector also surprised traders. The Institute for Supply Management’s manufacturing index dropped to 53.5 in May from the previous month’s 60.4 reading, much lower than the 57 reading that economists had expected.
But Allan Small, senior investment adviser with Dundee Wealth, said that he thinks the environment isn’t as bad as the recent data suggest.
“Obviously the Japanese tsunami and the shutdown of Japan during March and April has weighed in on the ADP numbers that came out and also the ISM numbers.”
The massive earthquake and tsunami that struck Japan on March 11 caused huge cuts in industrial production and disrupted the global supply chain, partly because of severe power shortages.
The energy sector was down 2.88 per cent as oil prices further weakened following the release of the U.S. data. The July contract on the New York Mercantile Exchange dropped $2.41 to US$100.29 a barrel. Canadian Natural Resources (TSX:CNQ) dropped $1.69 to C$40.48 while Cenovus Energy (TSX:CVE) dropped $1.59 to $34.21.
The metals and mining sector was down 2.48 per cent after data showed China’s manufacturing sector easing in April. The state-affiliated China Federation of Logistics and Purchasing reported that its purchasing managers index, or PMI, fell to 52.9 in April, down from 53.4 in March.
Signs of a weaker Chinese economy helped push the July copper contract down seven cents to US$4.11 a pound. China is the world’s biggest consumer of copper. Teck Resources (TSX:TCK.B) dropped $1.88 to C$48.94 and Lundin Mining (TSX:LUN) lost 15 cents to $7.05.
The financial sector was also a major weight, down 2.48 per cent after two of the big Canadian banks were downgraded.
RBC Capital Markets analyst Andre-Phillipe Hardy has cut his ratings for both CIBC (TSX:CM) and National Bank (TSX:NA) to sector perform from outperform. He cited long-range expectations that revenue growth will decelerate in Canada, improve in the United States, and be stronger overall in emerging markets than in North America.
CIBC gave back $2.77 to $77.54 while National Bank fell $1.92 to $79.03.
Intact Financial Corp. (TSX:IFC) shares gained $4.85 to $54.62 after it announced Tuesday that it is buying insurer AXA Canada for $2.6 billion in cash.
The gold sector also gave up ground even as the August gold contract in New York moved ahead $6.40 to US$1,543.20 an ounce. Barrick Gold Corp. (TSX:ABX) faded 34 cents to C$46.05.
Further evidence that the U.S. recovery is slowing down and Europe’s debt crisis, particularly whether Greece will get more emergency loans, have dominated market attention over recent weeks and left the TSX down about 140 points during May trading.
Worries about a Greek default were on traders’ minds Wednesday afternoon after Moody’s Investors Service cut Greece’s sovereign rating to Caa1 from B1 and assigned a negative outlook to the ratings.
The agency cited increased risk that Greece will fail to stabilize its debt position, without a debt restructuring.
One bright spot on the TSX was Bombardier Inc. (TSX:BBD.B). The transportation giant reported its first-quarter profits rose to US$220 million while revenues rose to $4.7 billion. Shares in the train and aircraft maker ran ahead 20 cents to $6.95 as the company also announced a firm order for 10 of its CSeries aircraft, with a list price of US$665 million, from a Swedish leasing company.
In other corporate news, clothing retailer Reitmans (Canada) Ltd. (TSX:RET.A) earned $624,000 or a penny per share in the quarter ended April 30. That compared with a profit of $15.8 million or 23 cents per share a year ago. Sales in the quarter slipped to $219.3 million from $235.7 million, while same store sales fell 8.7 per cent due to increased discounts and promotions. Reitmans shares fell $1.28 to $16.47.
Chorus Aviation Inc. (TSX:CHR.B), the Halifax airline formerly known as Jazz Air, said Tuesday its net profits fell to $14.7 million or 12 cents a share for the three months ended March 31. That compared with earnings of $16.4 million a year earlier. Operating revenues rose nearly 25 per cent to $443 million from $355.4 million and its shares climbed 33 cents to $5.16.
The Peruvian government has decided to suspend an environmental assessment at Bear Creek Mining’s (TSXV:BCM) Santa Ana property for 12 months to allow the political situation in the region to stabilize, the junior miner announced Wednesday. Its shares gained 34 cents to $6.40.
The Canadian Press
