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Roundup: Canadian stock market hits two-year low after central bank's remarks

Xinhua, December 9, 2015 Adjust font size:

Canada's main stock market in Toronto Tuesday closed a new low in more than two years, after the central bank said unconventional monetary measures is now something in its toolkit, exacerbating investor's concerns about the prospects of the country's economy already affected by falling oil prices.

Bank of Canada governor Stephen Poloz said on Tuesday that the bank may take unconventional monetary policy measures to lower its interest rates into negative territory to stimulate the economy.

The remarks came at a time when the sharp decline in oil prices weighed on sentiment in the resource-dependent market.

The Toronto Stock Exchange's benchmark Standard & Poor's/ TSX Composite Index dropped 120.36 points, or 0.92 percent, to settle at 12,922.47 points, the lowest closing level since October in 2013.

Market sentiment was dampened after Poloz said the effective lower bound for its policy interest rate is around minus 0.5 percent. This is a departure from 2009 when the bank said its theoretical lowest-possible rate was 0.25 percent. But he stressed that the bank does not see an immediate need for such action.

"We don't need unconventional policies now, and we don't expect to use them. However, it's prudent to be prepared for every eventuality," he said.

Market responded negatively to Poloz's remarks, as the prospects of the Canadian economy has been overshadowed by the continuously falling oil prices.

Brian DePratto, an economist from TD Bank, said: "The outlook has deteriorated, and further or more prolonged weakness in commodity prices or foreign demand may blow growth off course and necessitate further easing."

Meanwhile, a possible hike in the U.S. interest rate in December, which shattered the commodities market, also weighed on the resources sectors in the Canadian equities market on Tuesday. Metals and mining shed 1.8 percent after diving 7.59 percent in the previous day.

Financials, the most influential sector in TSX, plummeted 1.49 percent when Royal Bank of Canada, the biggest bank in this country by market capitalization, shed 1.47 percent to 74.3 Canadian dollars (about 54.68 U.S. dollars) while the insurance giant Manulife Financial Corporation vapored 3.53 percent to 21.07 Canadian dollars per share.

Besides, the global credit ratings giant Moody's Investors Service Tuesday also gave a "negative" outlook for Canadian banks in 2016, as the Canadian economy is suffering from the sluggish commodity prices.

The Canadian banks' profits are being eroded since the loans related to the energy investment portfolio were negatively affected and aroused risks exposed to the falling oil prices, Fan Yang, Fellowship of Canadian Securities Institute (FCSI), told Xinhua on Tuesday. The FCSI is the most senior credential in Canadian financial services.

By contrast, Health Care and Energy bucked the trend by rising 1.26 percent and 0.83 percent respectively.

On the currency front, weighed by the likely appreciation of the U.S. dollar, the Canadian dollar Tuesday dropped sharply for a second consecutive day to 0.7360 U.S. dollar at 4 pm local time, compared with 0.7400 U.S. dollar on Monday. Enditem