TORONTO – North American stock markets snapped a four-day winning streak to end the week as concerns about the new coronavirus overshadowed strong job gains.
The impact of the virus on the Chinese and global economy is starting to appear as more and more information becomes available, says Philip Petursson, chief investment strategist at Manulife Investment Management.
“We’re starting to hear about disruptions in terms of retail expectations,” he said, pointing to Canada Goose, which slashed its revenue growth forecast for the year on Friday due to “material negative impact” from the outbreak.
The U.S. Federal Reserve warned on Friday that the coronavirus represents an international risk.
The U.S. economy added 225,000 jobs in January, which should be positive for stock markets. But it signals that the central bank doesn’t really need to provide any more support to the U.S. economy through interest rate cuts, Petursson said in an interview.
Canada added more than twice the number of jobs expected in January, reinforcing that the Bank of Canada also doesn’t need to step in, he added.
The S&P/TSX composite index closed down 102.00 points at 17,655.49. Despite Friday’s drop, the Toronto market gained 1.9 per cent for the week. U.S. markets were up three to four per cent.
In New York, the Dow Jones industrial average was down 277.26 points at 29,102.51 on Friday. The S&P 500 index was down 18.07 points at 3,327.71, while the Nasdaq composite was down 51.64 points at 9,520.51.
The Canadian dollar traded for 75.16 cents US, down from an average of 75.24 cents US on Thursday even as Statistics Canada reported that the economy added 34,500 jobs in January to come in at about double expectations.
Eight of the 11 major sectors on the TSX were lower, led by health care, materials and energy.
Health care dropped 4.8 per cent on weakness from cannabis producers. Shares of Aurora Cannabis Inc. lost 15.2 per cent a day after it revealed 500 jobs would be slashed, nearly $800 million in goodwill writedowns and the departure of CEO Terry Booth.
Energy dropped 1.7 per cent on weaker crude oil prices sending Fronterra Energy Corp. and Husky Energy Inc. down 2.9 and 2.5 per cent respectively.
The March crude contract was down 63 cents at US$50.32 per barrel and the March natural gas contract down 0.4 of a cent at US$1.86 per mmBTU.
“The real demand destruction that we’re getting because of the quarantine in China, it’s creating an oversupply situation of oil and that’s what’s taking down oil prices,” said Petursson.
Materials was down on lower prices for base metals such as copper that depressed shares of First Quantum Minerals Ltd., which lost 4.9 per cent.
The April gold contract was up US$3.40 at US$1,573.40 an ounce and the March copper contract was down four cents at US$2.55 a pound.
“Copper’s down. That’s a reflection of Chinese demand and Chinese industrial production which is going to be very weak in the first quarter.”
Petursson said it’s a foregone conclusion that the Chinese economy is going to be weaker.
“If anything I could almost argue that the way the market has been responding is they are underestimating how weak the Chinese economy is going to be in Q1 and potentially Q2 if this virus isn’t contained in very short order.”
He described this week’s gains as a “head fake” with markets moving more on euphoria than fundamentals.
“The fundamentals would not support the markets in my view continuing to move up as they did this week,” he said. “There’s more risk to the downside that things can get worse that there is that things can get better.”
Petursson expects markets will bounce around and lean more to the downside as the economic risks outside of China are starting to be realized.
“This week and today, both the ups and downs, is a reflection of what we’re going to see through the remainder of this quarter.”
This report by The Canadian Press was first published Feb. 7, 2020.
Companies in this story: (TSX:FM, TSX:FEC, TSX:HSE, TSX:ACB, TSX:GSPTSE, TSX:CADUSD=X)
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